Of course, such results are more likely to materialize when the procurement or spend-management solution that it chooses best fits the organization's needs. A starting point for that is determining the business problems you're trying to solve, says Mickey North Rizza, research director with . Is your goal to streamline the payment process? Reduce spending with unauthorized vendors? The area(s) in which you need to focus should drive the solution. "The biggest mistake is that companies don't understand what business problem they're trying to solve," North Rizza says.
Another decision concerns whether to go with a software-as-a-service (SaaS) solution, in which the vendor hosts the system, or to host the system yourself. When an organization outsources the hosting and management of a technology solution, it gains flexibility, says Elka Popova, North American program director of the unified communications and collaboration practice with Frost & Sullivan. It doesn't have to dedicate its own resources -- both employee and IT -- to the day-to-day management and maintenance of the systems. These solutions also can be effective for organizations with geographically distributed locations, as it's often not cost-effective to install a solution within each site. In addition, it's usually easier to scale up and down as business changes with a SaaS solution than with an installed one.
While the advantages of SaaS solutions are compelling, they aren't always are the answer, Popova notes. Larger businesses often have more complex IT environments, and few systems operate in isolation. "If you deploy a premises-based system, it can be easier to integrate and customize it." In addition, on-site systems typically allow for greater control.
Another decision: whether to go with a boutique solution that focuses on one segment of the procure-to-pay function, or a system that is more all-encompassing, says Constantine Limberakis, senior research analyst in global supply with Aberdeen Group. Some companies offer solutions that span the overall procurement function -- managing supplier relationships, tracking contracts, invoicing, and so one -- while others address one component of the process. Still other vendors have developed systems geared to specific verticals. "It ultimately comes down to the main purpose of the product," Limberakis says. "What's the process you're trying to address?"
Indeed, as the following examples show, different types of solutions can work well for different companies.
MediaFly Inc. aggregates and organizes content for tablets and smart phones, bridging the gap between companies' internal IT systems and their employees' mobile devices, says Carson Conant, chief executive officer and co-founder of the company. For instance, MediaFly helps television and music studios securely circulate pre-production documents, and pharmaceutical companies distribute confidential drafts of sales collateral to employees.
When a customer asked MediaFly to join its supplier network on Ariba, a provider of business commerce solutions, in order to receive payment, the company did. The Ariba network sits between suppliers and buyers, allowing buyers to better manage the invoice process, says Drew Hofler, Ariba's senior solutions marketing manager, working capital and payment. When suppliers electronically submit invoices the network, the data has to be accurate and match the contract in order to proceed. "This puts logic at the front end of the process," Hofler says. As a result, invoices can move quickly through the approval and payment process. Suppliers also can gain visibility to the timing of their payments.
The enhanced visibility has been key to MediaFly, given that the company's invoices often run into six figures. Moreover, with this information, "we can make intentional decisions," says chief financial and operations officer, John Evarts. For instance, Evarts can calculate whether it makes sense to allow a customer to take a discount in exchange for paying more quickly. With one customer, MediaFly decided to get paid in 14 days, rather than the normal 60. This allowed it to bring in additional development resources earlier than it otherwise would have. As a growing company, MediaFly lacks the sort of balance sheet that's attractive to many banks. That makes the "pace of staffing and cash flow management critical," Evarts says.
Another company in the spend management space is Coupa Software. The user-friendliness of Coupa's SaaS application allows companies to roll it out to nearly all employees, says Mark Verbeck, Coupa's chief financial officer. "With high adoption, you get more leverage from the system," he says.
Sutro Biopharma Inc., a developer of cancer therapies, has been able to save time and money with Coupa, says CFO Jay Shukert. Most of Sutro's 50 employees are scientists and need to purchase materials for their experiments on an almost daily basis, Shukert says. Even if Sutro had a procurement department, the scientists usually have to specifically define the materials they're purchasing. With Coupa, they can scan the supplier catalog to find the materials they need. and click to start the purchase; the transaction then is electronically routed for approval.
Shukert estimates that each scientist saves two to four hours each week when compared to the manual process that had been in place. Multiplied by 40 scientists across the firm, and the time saved each year totals the equivalent of two to three scientists. "That's more time they can spend thinking about experiments," Shukert says.
Clearly, installing a procurement application that meets a company's needs can have significant benefits. In fact, the by consulting firm A.T. Kearney found several attributes common to companies that lead in procurement practices. Among them: they align their procurement strategy with the overall goals of the company, and engage the business units to address almost all -- 94% -- of external spending. These companies also are more advanced in their adoption of technology. The payoff from these and similar practices? The leading companies enjoy returns on their procurement assets that are nearly 60% higher than those achieved by other firms.