gep value trends: procurement technology

New Procurement Research

© Copyright GEP 2012. All rights reserved.

GEP Value Trends: Procurement Technology

Second in a Research Series on Procurement from Information Services Group (ISG) and GEP

September 2012

ISG Research conducted in conjunction with:

2 © Copyright GEP 2012. All rights reserved.

Introduction

ISG undertook research in June 2012 with support from GEP to provide insights to CPOs and other Procurement executives in an effort to assist them in understanding some of the key issues facing other procurement organizations. Additional goals were to provide insights to steps that they might take to address some of these issues and to move their organizations to the next level in delivering value to their companies.

Respondents to the survey were primarily based in North America with 28 percent of respondents representing other geographies. Respondents included leaders from the financial services, healthcare and pharmaceuticals, business services, manufacturing, energy, government and public sector, media and telecom, retail and travel and transportation sectors. Fifty-nine percent of respondents were from businesses of more than $5B in annual revenue and respondents were generally CFOs, CPOs or their direct reports.

The research focused on three key aspects affecting the procurement function:

• Procurement Strategy: Key Challenges and Transformation Drivers

• Procurement Technology and Implementation

• Procurement Outsourcing

In this three part series, we bring to you insights from the research covering these three aspects, one at a time. These insights reflect the voice of numerous procurement leaders across several industries and can be an effective tool in benchmarking your own procurement organization.

In the first report, we focused on key challenges faced by procurement executives today, areas they perceive as opportunities for improvement and top priorities for procurement executives at this time.

This report, the second in the three-part series, provides insights into Procurement Technology and Implementation trends including type of procurement software most actively used today, trends in procurement software adoption, trends in software deployment model and the importance of brand in software provider selection.


Survey Approach and Respondents Respondents to the survey were primarily based in North America with 28 percent of respondents representing other geographies. Respondents included leaders from the financial services, healthcare and pharmaceuticals, business services, manufacturing, energy, government and public sector, media and telecom, retail and travel and transportation sectors. Fifty-nine percent of respondents were from businesses of more than $5B in annual revenue and respondents were generally CFOs, CPOs or their direct reports. It should further be noted that respondents tended to be from organizations that participate in forward-thinking professional societies and are therefore likely to have a higher degree of awareness of more advanced trends in procurement. Organizations that do not actively participate in such societies may therefore be underrepresented in the survey.


Procurement Technology and Implementation Procurement tools have been implemented by many organizations, but their adoption within the enterprise has varied significantly. Much of this is driven by the manner in which they are used, as many users across the corporation will have need of access to a transactional tool set, but, typically, only a small team within most organizations is focused on managing spend analytics. Vendor management tools also tend to be concentrated among a relatively small user base, while contract management tools tend to be more distributed. This suggests a number of interesting behaviors:

• Contract management tools tend to be most widely used in a rudimentary form as a basic repository, with multiple users entering contracts into the database with the objective of populating a single corporate location for virtual storage of scanned copies. Multiple users are performing data entry, which tends to result in inconsistent data entry, making it difficult to report on trends or overall performance across the contract database.

• Vendor management tools are less widely distributed, reflecting relatively new rollout to limited populations with vendor management responsibility.

Moving forward, it will be important for both of these tools to be coordinated with better standard controls on data entry and use to provide an enterprise view of vendor and contract risk and performance. Because data entry for both tools takes a significant level of effort to be performed consistently, customers will need to plan for appropriate staffing to manage this work effort. Those that do not will only achieve partial benefit due to a lack of consistency of overall reporting.


Procurement software adoption is highest in transactional tools, with 44 percent of companies reporting that they have fully implemented the software adoption and 28 percent indicating that they are in the process of doing so. Only 10 percent of companies that have not implemented procurement software indicated no plans to do so. This suggests that the market for transactional solutions is largely saturated, and that a significant percentage of future activity will be generation two upgrades or replacements to existing tools, typically where such replacement provides improved functionality, or better ease of use to existing platforms.

At the other end of the spectrum, only 14 percent of companies surveyed have implemented a vendor management platform and another 27 percent are in the process of doing so. Nearly 40 percent of respondents are considering implementing a vendor management platform for the first time, suggesting that this will be an active market for expansion of existing suites or adoption of point solutions as part of a portfolio software solution. ISG believes that with increased focus on corporate governance, risk, and regulatory compliance, demand for vendor management solutions will continue to expand over the next few years.


For companies planning to implement additional procurement functionality, transactional procurement initiatives have the nearest horizon, followed by vendor management. In view of the much lower installed base for vendor management solutions, and the fact that 38 percent of surveyed companies are planning to implement a vendor management solution, we expect that vendor management will be the hottest segment of the market in the next year, followed by contract management. Most companies considering implementation of a sourcing tool appear to have a longer time horizon for their decision, indicating that it appears to be a less pressing immediate concern and that they believe that they can continue to get by with manual sourcing approaches in the near term.

Procurement Software Adoption Horizon

Software Implementation Horizon

Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012# If you answered ‘considering implementing’, what is the timeline that you are looking at to pursue these software opportunities?

20%

33%

38%

38%

40%

47%

42%

31%

43%

40%

33%

25%

31%

19%

20%

Sourcing (n = 15)

Spend Analysis (n = 12)

Contract Management (n = 16)

Vendor Management (n = 21)

Transactional Procurement (n = 10)

Within 6 or 12 months Within 18 months Can't say


The majority of companies that implemented procurement software, or are in the process of doing so, are using traditional installed versions on company infrastructure. However, this reflects historical investments, and increasingly we are seeing companies adopt a hosted or cloud-based delivery model. The reasons for this shift include greater ease of rollout and adoption, typically resulting in a faster deployment across the company.

36Copyright © 2012 Information Services Group, Inc. All Rights Reserved

Procurement Software Adoption Trends

Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012# If you answered ‘fully implemented’ or ‘currently implementing’, which software approach are you adopting?# If you answered ‘fully implemented’, how would you rate the impact of adopting software and tools on your organization meeting its business case?

Software Deployment model Business Impact of Software adoption

3%

3%

3%

5%

2%

11%

14%

6%

5%

8%

37%

29%

31%

20%

18%

49%

54%

60%

70%

72%

Sourcing (n = 35)





Software license on company infrastructure

Software license hosted

Saas (Private Cloud)

Cloud

26%

24%

11%

0%

17%

58%

52%

39%

37%

58%

16%

10%

17%

38%

8%

0%

14%

33%

12%

13%

0%

0%

0%

13%

4%

Sourcing ( n = 19)





Exceeded expectations Met expectations

Approaching expectations Below expectations

Can't say


We observed considerable variation in adoption of various procurement software modules by industry, notably a significantly lower use of spend analytics in manufacturing than in other segments, reflecting a less focus on indirect spend in that sector, and a much higher use of contract management in regulated industries such as financial services and healthcare.

Procurement executives had varying degrees of familiarity with procurement tools in the marketplace, but were almost universally familiar with Ariba, followed by SAP (which recently announced that it would be acquiring Ariba), Emptoris and Oracle. The next bands with relatively higher degrees of familiarity include Zycus, GEP and Coupa.

Procurement Software Adoption Trends by Industry

Financial Services (n = 18) Manufacturing (n = 6)

Business Services (n = 10) Healthcare & Pharmaceuticals (n = 10)

Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012# How would you define your adoption rate of various procurement tools and software in the following areas of procurement?

33%

39%

11%

44%

50%

33%

17%

39%

33%

22%

17%

28%

22%

17%

11%

17%

16%

28%

6%

17%

Transactional Procurement

Sourcing

Vendor Management

Contract Management

Spend Analysis

Fully implemented Currently implementing Considering implementing Not considering implementing

50%

34%

0%

17%

17%

50%

33%

33%

50%

50%

0%

33%

67%

33%

33%


Sourcing

Vendor Management

Contract Management

Spend Analysis

50%

20%

30%

30%

30%

10%

30%

20%

30%

30%

20%

40%

50%

40%

40%

20%

10%

0%

0%

0%


Sourcing

Vendor Management

Contract Management

Spend Analysis

30%

30%

30%

40%

40%

60%

50%

20%

40%

40%

10%

10%

20%

10%

0%

0%

10%

30%

10%

20%


Sourcing

Vendor Management

Contract Management

Spend Analysis


Brand appears to be a more of a contributing factor to software/service provider selection than a major one, with 40 percent of respondents indicating that brand was of minimal importance and only 7 percent listing it as the most important criteria, with the results being similar across large (revenues > $10B) and middle-sized (revenues of $1-$10B) enterprises. The higher the organizational level of the respondent, the less that the respondent considered brand to be a major factor For example, 57 percent of CPOs said brand is of minimal importance for service provider selection and none said it was the most important criterion, while at the manager level 15 percent of respondents perceived brand to be the most important criterion and only 29 percent said it is of minimal importance. Among verticals, brand importance was ranked lowest by the manufacturing sector and was somewhat higher in financial services and healthcare/pharmaceuticals.


Importance of Brand by Organizational Role

Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012# Please describe the importance of Brand in the selection of a procurement software/service provider

n = 57

13%

58%

29%

4%

52%

44%

0%

43%

57%

Brand is the most important factor in the selectionof a software/service provider

Brand is important,but other factors also matter

Brand is of minimal importance in the selection ofa software/service provider

CPO VP/Director Manager/Staff


Importance of Brand by Organizational Size

10%

57%

33%

4%

55%

41%

Brand is the most important factor in theselection of a software/service provider

Brand is important, but other factors alsomatter

Brand is of minimal importance in theselection of a software/service provider

$1 B - $10 B

> $10 B

n = 50Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012# Please describe the importance of Brand in the selection of a procurement software/service provider


Importance of Brand by Industry

0%

10%

20%

0%

78%

70%

30%

50%

22%

20%

50%

50%

Financial Services (n = 18)

Healthcare & Pharmaceuticals (n = 10)

Business Services (n = 10)

Manufacturing (n = 6)

Brand is of minimal importance in the selection of a software/service provider

Brand is important,but other factors also matter

Brand is the most important factor in the selection of a software/service provider

Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012# Please describe the importance of Brand in the selection of a procurement software/service provider


Conclusion We will continue to provide research into the increasingly dynamic procurement space.

• The procurement technology adoption rate is high for Transactional Procurement and Spend Analysis software and tools, while Vendor Management has a low adoption rate.

• Although SaaS and cloud models are gaining traction, they currently occupy a lower share among procurement software deployment models. This could primarily be on account of perceived threats related to security, data confidentiality and loss of control. Providers of these solutions will need to demonstrate to potential buyers that these perceived threats will be appropriately managed with their solutions.

• The market for procurement software has become increasingly complex, and most buyers have a limited familiarity with the range of solutions available. Buyers should seek additional insights and subject matter expertise to ensure that they have a full understanding of their options in both delivery models and service providers prior to finalizing their solution strategy.


For more information about GEP, please visit www.gep.com, or contact us at [email protected]. Alternatively, call us at any of our locations listed below: Clark, NJ, USA London, UK Mexico City, Mexico São Paulo, Brazil +1 732-382-6565 +44 (0)20 3008 7471 (52) 55 4777-2251 55 11 2787 6393 Prague, Czech Republic Mumbai, India Hyderabad, India Shanghai, China (420) 233 025 400 91 (22) 6137 2100 91 (40) 4004 4212 86 (21) 6122 1238 About GEP GEP is a diverse, creative team of people passionate about procurement. We invest ourselves entirely in our client’s success, creating strong collaborative relationships that deliver extraordinary value year after year. We deliver practical, effective procurement services and technology that enable procurement leaders to maximize their impact on business operations, strategy and financial performance. Named a category leader in procurement outsourcing by the Black Book of Outsourcing, a Star Performer in Everest Group’s Peak Matrix of service providers, and to the Supply & Demand Chain Executive 100 for seven years, GEP is also ranked as one of the Fastest Growing Technology Companies in Deloitte's Technology Fast 500. Clark, NJ-based GEP has eight offices and operations in North and South America, Europe and Asia. To learn more, please visit www.gep.com. Unauthorized copying, distribution or re-printing in part or whole, without the written permission of GEP is strictly prohibited.

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gep value trends: procurement technology

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