The Chief Procurement Officer (CPO) today is compelled to make decisions on procurement technologies that will positively impact the strategic direction of the procurement organisation.

This is demonstrated by the increased investment in procurement-related technologies over the past four to five years,  

And, as a result of the increased cost and perceived lack of meeting specific needs, CPOs may be looking at strategies related to procurement technology investments that don’t fit with wider IT goals directly governed by the CIO. 

Aberdeen research from Effective eProcurement: Assessing Options for the New Economic Normal: published November 2010, found the primary focus for CPOs is on procurement-related concerns, such as  incomplete coverage of spend types by catalogue categories, policy confusion and user on-boarding in procurement systems.

Yet with regard to the CIO, the one pressure that stands out is increased operational cost of IT management for existing procurement solutions. 

This pressure also demonstrates a growing relationship between CIO and CPO considering the increased deployment of eProcurement solutions in IT enterprises. 

In this regard Aberdeen’s research found that organisations had the following currently in place: requisitioning by purchase order (62 per cent) strategic sourcing (57 per cent) and catalogue management (51 per cent).

Figure 1: Top Pressures Driving eProcurement initiatives


Source: Aberdeen Group, Effective eProcurement, November 2010

The challenge for selecting and implementing procurement technology today is similar to other areas that could be impacted or influenced by solutions with larger budgets and influencers overseen by the CIO.

For instance, areas such as finance or supply chain are typically dominated by Enterprise Resource Planning (ERP) players and newer solutions tend to be Software-as-a-Service (SaaS).

While procurement functions have increased in their relative importance, decisions for how to make investments in these areas have also placed increasing pressure on how the enterprise-wide technology strategies are determined, as well as raise questions of who is ultimately responsibility for them.  

The influence of ERP on eProcurement can be demonstrated in Figure 2 (see below). 

With ERP typically under the direct influence of the CIO, the graph demonstrates that 24 per cent of organisations are using an eProcurement solution integrated with the ERP or central solution and 29 per cent see it as a preferred approach to eProcurement.

As illustrated in a recent article from CIO: Nearly Half of Large Companies have Adopted Cloud Services, companies using ERP solutions were much less likely to consider cloud services when already using an ERP solution for Supply Chain or Finance. 

Figure 2: Current and Preferred eProcurement Approaches

Source: Aberdeen Group, Effective eProcurement, November 2010

Yet given the increase in alternative options through SaaS particularly in eProcurement, CPOs and their procurement departments today are more apt to look for alternative and less costly options for meeting their primary directive — keeping costs down.

For instance, information from Aberdeen’s Dynamic Procurement: The CPO as Collaborator, Innovator and Strategist (a report coming in late July 2011), identified that 26 per cent of enterprises are already using SaaS for eProcurement based on the flexibility of the licensing model and no-need for up-front equipment or development of resources. 

As the influence of the CPO role is rising, the decision on the deployment method will increasingly challenge those enterprises that have invested in ERP platforms.

The next wave of procurement technology in areas such as contract labour, expense management and strategic meetings management are in high demand and are almost exclusively SaaS based solutions.

The importance of having an integrated and harmonized approach to IT for procurement is critical for the ultimate goal and directive of procurement, which is decreasing costs while optimising purchasing decisions for the entire organisation. 

So in terms of decisions related to procurement technology, on one hand it is the role of the CPO to manage and control costs within the organisation and deliver an overall strategy for improving performance which may include a final decision making authority. 

Yet, CIOs often have a significant role by having to make decisions on enterprise level technology and services that can ultimately consolidate a recognised platform, simplify software management, and ultimately control IT costs for the organisation. 

To create a solid, harmonised approach to managing procurement technology, the CIO strategy for resolving the business versus IT dilemma, should consider the following:

 - Uniqueness of procurement requirements within the organisation (direct and indirect)
 - Volumes of spend going through the organisation and its impact on the bottom-line
 - Current maintenance costs and fees for using existing solutions
 - Justification for going SaaS or outsourcing if already using on-premise
 - Integrations already exist or may need to be developed between disparate solutions
 - Procurement solutions noted or recognised in a specific industry or spend category 

For more research, check out Aberdeen's CIO Tookit.

Constantine G. Limberakis is senior analyst, global supply management at Aberdeen Group

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