Specialized purchasing software or do you already have everything in your enterprise software?

Specialized purchasing software or do you already have everything in your enterprise software?

I confess that when I became a purchasing director with the authority and responsibility to develop my department, my primary focus was on developing purchasing skills, collaboration with other departments, centralization, purchasing controlling and implementing at least minimal supplier relationship management. On the contrary, I paid less attention to strengthening purchasing processes, which was limited to optimizing the tools already in plac

While I missed the electronic purchasing tools that I was familiar with from my past work, because I no longer conducted tenders myself, I did not realize how clumsy and administratively demanding our current purchasing process is. It wasn't true that we hadn't improved the system: we had created a central repository for documents, a platform where we shared prices with sister factories, we had created semi-automated reporting.

The greater electronicization of purchasing was not helped by IT, which otherwise worked well in terms of process optimization, because it believed that if we had an SCM (supply chain management) module in our company software, our purchasing process was optimized in terms of software support). More or less by chance, we learned that our ERP vendor had specialized purchasing software, but the price scared us so much that we unfortunately did not investigate further

I didn't get feedback from my team members or management because none of them had ever worked in purchasing for another company, hadn't had the opportunity to encounter specialized purchasing software, and therefore considered our excel and phone-based tender process, where the results were uploaded to the ERP, to be optimized.

Finally, I have never been approached directly by a purchasing software vendor with an offer to try out the benefits of the software through a demo or by "catching on" to a similar type of company that already uses an electronic tool.

I think many purchasing managers and company directors are in the same situation today as I was years ago: they intuitively feel that purchasing needs to be digitally transformed, but don't know exactly how, i.e. by going down the specialist purchasing software route or by optimising existing solutions within the company software?

We already have everything in the enterprise software?

When we introduce software to purchasing managers and company executives at the invitation of the CEO, we get an interesting and seemingly incomprehensible reaction. While the directors see great potential in the software and come up with ideas on how the software could immediately improve their purchasing function, the purchasing managers are very reserved or even hostile to the software and the following words are the strongest argument

"All the features your software offers are already covered by our enterprise software, so your solution doesn't bring anything new to us. We are gradually improving our company software so that everything we need in purchasing is there."

Of course, it is difficult to argue against this argument, because why spend money on something that may have a nicer user interface and offer additional functionality, but does not really bring anything fundamentally new. However, when we politely ask the purchasing manager to describe the whole purchasing process and what all takes place in the company software and what takes place outside, it turns out that the company software (ERP systems) only computerizes a very small part of the purchasing process and that the most important part of the purchasing process takes place completely outside the system. In fact, a conventional ERP usually computerizes the purchase request, its approval, purchase approval and purchase order creation. What is missing, however, is the entire purchasing process from requisition creation to supplier approval, which we have depicted in the diagram as a "black box," meaning that the most important value-added purchasing activities are not computerized (see diagram).

Tender black box?

Which activities does the "black box" contain? First, there is the technical specification phase, when purchasing and the internal customer fine-tune the technical specification based on queries from potential suppliers; next, there is the competitive phase, when purchasing approaches suitable suppliers, obtains bids, analyses them, negotiates them, organises an electronic auction; and finally, there is the contractual phase, when purchasing and the selected supplier specify all commercial and delivery terms (see diagram).

When we look at how these purchasing phases work in practice in a company, we go back in time many years, because communication is done by phone and email, bids are evaluated in excel, deadlines are tracked in a calendar, internal customers have to ask what the status of the order is, and then the results and bids are uploaded to the company software for approval.

The consequence of this semi-manual buying process is then:

(1) A non-optimized purchasing process that does not use a combination of RFPs, negotiations, e-auctions, and other purchasing tools (for example, a company that buys "clean" commodities from a broad panel of suppliers has never used an e-auction!)

(2) Errors, typos, duplication of administrative activities (e.g., a buyer who conducts dozens of tenders per month spends "only about ten minutes on each one before evaluating the bids in excel and then plugging them into the ERP for approval." In total, she spends two to three working days a month on unnecessary administration),

(3) Zero transparency of the purchasing process and the absence of an audit trail (e.g., the purchasing manager does not know who the purchaser called during the negotiation, whether the purchaser really used all possibilities to negotiate better conditions, whether he systematically prefers certain suppliers, whether something non-standard is happening in the tender procedure).

4. Loss of information and know-how, because everything is in the email, in spreadsheets and in the head, so that when the buyer leaves it is difficult to trace something back (for example, in the case of a dispute about the interpretation of a drawing, the buyer has to remember when the tender took place in order to trace the supplier's query and how exactly he answered).

(5) Chaotic and often irrelevant reporting, where buyers spend a lot of time to clearly summarise their recommendations, to show the evolution of price over time, to have information about the supplier and its performance in tenders, to be able to compare the commercial conditions in different tenders.

Why are these functions missing in ERP?

The question arises as to why standard ERP does not offer these functionalities when they offer the "purchasing and logistics" or "supply chain management" module as standard. The answer is very simple.

(a) While the purchasing process is standard, each company customizes it to a large extent depending on the components being purchased, the maturity of the purchasing organization, and the real needs of the company.

(b) At the same time, it turns out that creating a quality purchasing workflow for tenders directly in the ERP system is not at all easy, because the platform needs to be connected with suppliers in several stages and allow them to submit bids, comment on contracts, etc.

(c) Finally, with the increasing complexity of purchasing, the requirements for the functions provided (supplier relationship management, e-catalogues, etc.) are constantly increasing.

For these practical reasons, providers of standard ERP systems do not offer comprehensive computerization of purchasing, and focus only on the "completely standardized" purchasing steps, such as purchase request and purchase order.

For this reason, there are a number of specialized shopping software on the market that cover a wide range of shopping needs. One of the leading suppliers of enterprise software, SAP, then solved this radically by purchasing Ariba and offering its customers a specialized software called SAP Ariba, which must be purchased as an add-on to an existing SAP system.

Why don't we need purchasing software?

However, now we come to the key question, why do the buyers of companies that have not electronified the purchasing process except for ERP functionality and implement key phases of the purchasing process semi-manually, not feel the need to change anything and do not push purchasing management to acquire specialized software? And why do they even approach purchasing software with a priori skepticism when the initiative comes from management? I can explain this for three reasons:

(1) They feel that the current company software already includes all the features and that specialized purchasing software adds nothing. I have tried to refute this view in this article, but rather than 1000 words, a test where the buyer tries out tender management, supplier relationship management, working with e-catalogue, joint tender with several sister factories will convince.

(2) They feel that their company's purchasing is absolutely specific, unique, perfectly tuned to the company's needs, and that purchasing delivers optimal performance, and that any change is impossible and would lead to a worsening of the status quo.

(3) They don't have their own experience with purchasing software and therefore don't know how it would make their jobs easier or how effective it is in achieving better purchasing results. (When one purchasing director moved to a new company where they had no purchasing software, she commented on the experience by saying "it's like when your microwave breaks. You tell yourself you don't really need it and you're not going to spend money on a new one. And then you heat up your dinner in casseroles for the first time and then you're waiting for the spinach to thaw and that you have to let your appetite for popcorn go. And you're so frustrated about it that you have a microwave at home the very next day."

(4) They are afraid of novelty, of having to change proven and established (manual) processes, of having to learn how to work with new software, of adding administration,

(5) The mentality of small accountants, which means that they find the software unreasonably expensive ("we can program that in a few hours internally."), overcomplicated ("we will never use 90% of the functions, we would be fine with that..."), unnecessary investment ("we already do more or less everything, I'm putting it in exel...). Moreover, although purchasing works with millions and often billions, it usually has no budget of its own to invest in its own development. Given how difficult it is for purchasing managers to find money for even simple training, trying to push through a small investment in purchasing software seems like an insurmountable task.

Next steps?

If you want to optimise and develop purchasing in line with good practice, you need to continuously strengthen your purchasing processes, which includes digital purchasing transformation. Please ask yourself these questions and look for the optimal solution, whether within your current corporate software, specialized software or your own development of a tailor-made solution.

(1) Are there blind spots in the current purchasing process that are not digitized, where employees waste time, perform unnecessary activities, duplicate activities, and can make mistakes?

(2) In terms of compliance with processes, rules, ethical behavior, can managers audit each stage, can they identify "suspicious" activities, is there an audit trail of each step?

(3) In terms of preserving information and know-how, is all information easily traceable, stored in one place, in a standardised format?

(4) Is it possible to create easy reporting, is it possible to see at a glance what someone is working on and which tasks to complete by when?

(5) Do you use tools that suit modern purchasing, such as pre-consultation with the market, supplier evaluation, multi-criteria evaluation, e-auctions, e-catalogues ... ?

(6) Are you rejecting alternative solutions for the right reasons, i.e. they don't bring anything or are you looking for shortcuts because it's more convenient for everyone?

I wish you the best of luck in choosing the best digital solution for your company, whether it's deepening your existing ERP system, supplementing your company software with specialized purchasing software, or even developing your own software solution.