Why procurement technology is moving into the cloud

Why do companies choose Cloud Service arrangements over traditional outsourcing arrangements or hosting?

Reducing capital costs is the main goal, although several other factors are helping businesses in the long term. The reduction in skill requirements, increased levels of adaptability for demand, business changes and platform for standardisation is allowing businesses to move faster. Equally, the ability to evolve technology ever faster is benefiting each company’s ability to compete. The Procurement function has long been slow to adopt new technologies to improve performance. Technology applications, like spend analytics, contract management and supplier relationship management, are now much easier to buy and implement.

Cloud services raise a number of compliance risks where critical functions or sensitive data are involved:
Now that these technology applications are within the reach of the often limited budgets of Procurement departments, the main concern is to overcome compliance and data risks.Every Procurement professional knows their data well enough to assess the level of sensitivity. This is often driven by the industry sector and the types of categories, but is the data safe? Safety requirements can be controlled entirely and can sometimes be subject to negotiation and increases in pricing.

Nevertheless, the majority of businesses still use cloud for Non-Core functions, although its use for Core is growing. The key is first of all to understand the types of data involved and any rules or regulations attached to it. Many have delayed cloud projects due to a lack of clarity on the actual data in scope. However the main topics to address are as follows:
£ Data privacy and security
£ Legal compliance requirements
£ Business continuity
£ Disruptive changes in services
£ Adaptability to client’s changing business
needs and integration

As long as the type of data involved and the implications are understood, along with the implications involved, it is a question of internal review and the preparation that is necessary for companies to expand their use of cloud services

The pursuit of new ways for corporations to extract value is becoming increasingly complex. More sophisticated approaches call for ever more data, insight and automation to yield a strong ROI.

With barriers coming down, how can Cloud technology help Procurement today?
Data is available in abundance in today’s connected world. The challenge for Procurement is to turn it into insight and be able to manage the information flows towards value generation.

This is fuelling new needs in Procurement technology, which is quickly moving beyond the core function of managing sourcing projects and transacting spend. The realisation of the complete Source-to-Pay suite of technology is becoming ever more elusive, as companies discover new areas to automate and new data to analyse.

More Procurement organisations are going to BPO providers for cloud based solutions in niche services. This is because they are seeing the value of a one-stop-shop for their technology needs as the cost for maintaining in-house expertise across an array of specialist areas is prohibitive.
Cloud technology, combined with services, is becoming disruptive in some of the well-established areas of Procurement. Here are some examples:

E-Sourcing
E-Sourcing is a well proven technology that is used by most Procurement organisations to varying degrees. The cloud and SaaS models have facilitated adoption, but the average share of procurement spends transacted through such tools is only 17%. With the average savings on spend of 18%, many companies are missing out. The main reason appears to be the lack of support services to use the technology, which is limiting the number of people making full use of it. Some of the largest corporations have identified this problem and have already invested in additional support services. The cloud services are disruptive for companies that have invested in support and for those that have not. This is why:
£ The obvious reason is that the companies
that have not got the support can now
access this at an affordable price.
£ The less obvious reason is that large
companies are about to discover that
they can now access their expensive
services at a much lower cost and much
more conveniently for the users.

The best analogy is how Amazon has managed to package up competitively priced products with a strong service wrapper (supported with technology) and is now disrupting the retail industry.

Analytics
E-Sourcing activity generates valuable market data. Procurement can now use analytics technology to exploit the market data in real-time by bringing in data sets from multiple sources and converting them into insight. Analytics lends itself well to the cloud structure as a delivery model because it needs to be easy to store, analyse, and share.

Spend analytics is mainly used to identify Procurement opportunities for supply consolidation, price advantages, and process optimisation. However, the “real-time” features provided by the cloud enable insight into your cost structures allowing you to make informed adjustments to the strategy or influence demand quickly. This is particularly relevant in supply risk management where external data sources can alert you to developing situations before they impact your business.

Better management of internal and external data is also opening up the possibility of operating vertical supply marketplaces. This speeds up the sourcing and transaction cycle and allows Procurement to deliver further value.

The important learning from these new developments, regardless of the speed of your move into cloud technology, is Procurement’s role. As a result of the new possibilities from cloud solutions, Procurement’s focus is shifting from individual supplier negotiation to becoming a function for creation of markets and commoditisation, ie. acting as a guardian of the egress to and from the market.