We have spoken previously about how to make the case for procurement technology change. Having decided to modernize, there is a choice between existing, integrated systems and best-of-breed vendors. Why choose a best-of-breed sourcing vendor instead of an established, larger player?
But, having decided to change, we come to the next logical question. What solution should we choose?
The most basic element of this, as it turns out, asks whether it is better to go with a standalone best-of-breed technology solution or to go with the module of a comprehensive single vendor solution like an enterprise resource planning (ERP) system.
We built a best-of-breed solution for strategic sourcing because we think that standalone focused platforms are the right tool for this moment.
Let’s talk about the arguments for and against this choice in greater detail.
The World Is Converging on a Vision of the Future of Supply Chain
There are many factors driving the transformation of procurement in the enterprise.
When decision makers select the new technology stack, they need to do so in the context of a vision for the future.
Lora Cecere, founder of Supply Chain Insights, outlined a view with which we agree:
“There is a shift from ERP-centric architectures to use of ERP as only a system of record for financial transactions and the building of analytics architectures that allow data to stream, pool, and flow drive insights.”
If this premise turns out to be correct, then the ERP will be nothing more than a data warehouse, holding data from multiple, diverse sources.
The evolution of application programming interfaces and potentially tools such as dataware for sharing data among different systems makes this vision feasible.
A Key Element of This Future Vision Is the “Bimodal Supply Chain”
Gartner has a vision that they call the “bimodal supply chain” in which a traditional approach to efficient supply chain execution is married with agile, strategic innovation to manage risk. The way for the enterprise to adapt to the new world in which we find ourselves is to combine cutting-edge digital tools with the backbone of proven analog processes
“The divide between what the supply chain provides and what the enterprise needs is widening. Closing that gap requires a new, agile approach to investment in technology, leadership and talent.”
This gap exists because we live in a risky world in which customer expectations increase monotonically and in which the pressure to extract competitive advantage from the supply chain builds.
Companies need to be efficient and responsive.
The Economics of Technology Are Changing
When evaluating different systems, we should consider the Total Cost of Ownership in a framework of six dimensions.
What will it cost to implement? How much training will it require? What are the ongoing costs of the software? How much will it cost to integrate with other systems? What complexity does it impose on the in-house IT department? How much will it cost to upgrade the system, including with security patches?
This must be weighed against the Total Benefits of Ownership.
How much of a reduction in transactions costs will we see? How much can we quicken the purchasing cycle? How much more data utilization can we expect? How much can we save on market intelligence? How much easier is it for other parts of the enterprise to access a process that traditionally exists in a silo? Does it permit collaboration across the enterprise?
Broadly, there have been three phases of enterprise software: the proliferation of standalone systems; the use of ERP approaches to facilitate integration; and the replacement of ERP systems with cloud-based applications.
Done right, cloud-based standalone systems can lower implementation costs, eliminate virtually the need for training, and convert ongoing costs to a pay-as-you-go utility model, leveraging contemporary integration technologies to render dark data accessible across the enterprise. The best tools will permit collaboration around data across the enterprise (and outside the enterprise) with a platform approach.
What Are the Arguments in Favor of a Single Vendor ERP Approach?
One of the easy, seemingly intuitive arguments people make is that integration is easier with a single vendor approach. There is the perception that modules from ERP systems fit together by design.
One problem with this argument is that data exists in multiple systems regardless of whether the procurement organization chooses an ERP module. Suppliers are unlikely to use the same system. Customers may use different systems. Even people within the enterprise may use different systems. There could be multiple ERPs within one entity. The modules themselves that ERP vendors offer are often nothing more than acquired standalone companies being resold as modules (e.g., Workday’s acquisition of Scout RFP).
Integration is unavoidable.
Modules of ERP systems are not one-size-fits-all; they may require significant customization, giving them little integration advantage, if any.
Integration tools have improved considerably in parallel with the evolution of cloud-based applications.
There is practically little difference between integrating a module and plugging in a standalone.
Single vendors criticize best-of-breed vendors as good at only one thing. Best-of-breed applications companies respond that this is a feature and not a bug. Purchase excellence with the best-of-breed instead of the convenient mediocrity of the single vendor module.
Single vendors argue that a common user interface across modules makes collaboration easier with other functional areas within the enterprise. This may or may not be true, in practice. There is an easy test for this issue. How many people use Excel as a patch for sharing data instead of within the single vendor experience?
One argument in favor of best-of-breed vendors is the flexibility they provide. With single vendors, it is easy to get locked in with all of the implementation expense and required customization work. With best-of-breed, you use it when you need it without having to pay for an expensive suite requiring no implementation and no training.
One Key Question
The defining aspect of the 21st century supply chain will be the need to connect people, data, and processes. Why choose a best-of-breed sourcing vendor? They are more likely to focus on these issues, particularly in terms of the development of a collaborative network.
Ten years ago, one could have argued that there was a tradeoff. Buyers of systems needed to weigh the domain expertise and other advantages of best-of-breed solutions against the cost and difficulty of integration.
Today, integration as a factor confers no significant edge to the single vendors.
We built EdgeworthBox to help make procurement collaborative and effective. It’s an exchange with tools for hosting structured procurement data; standardizing and simplifying onboarding and RFx; and speeding up the sourcing process.
Our approach increases the quantity and the quality of responses buyers receive when they solicit vendors. Sellers like the simplicity and exposure to potential customers with the right product-solution fit.c
