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ERP Growing Pains: Strategic Sourcing

Image of Kelly Barner
Kelly Barner

ERP systems are absolutely critical for business process consistency, materials management, and financial coordination. As the data created and stored in ERP systems becomes more valuable, companies are expanding the range of activities they attempt to complete through their ERP, but not without hitting obstacles. This is particularly true for mid-market companies; ERP systemmay represent the breadth of functionality they need, but don’t always offer the depth and usability they want.  

This has earned ERP systems a classic, ‘jack of all trades, master of none’ reputation. For instance, Oracle and SAP have added supply chain functionality to their ERP systems, but many companies find them hard to use, limiting adoption and ROI. While they are often criticized for not being great at a range of things that were never part of their original value proposition, there is no reason for companies to abandon their current systems/investments. A practical alternative is to find complimentary solutions that address their functionality requirements and also partner with their in-place ERPs.  

Supplier discovery and strategic sourcing provide a perfect use case for adding supplemental functionality when supply chain personnel need capabilities beyond their ERP system capabilities. With all their data about spend, suppliers, specifications, and inventory, you would think discovery and sourcing were a natural extension of an ERP system, but it rarely works that way in practiceThe following three areas illustrate where ERP’s lack of capability can be addressed with the addition of made-for-purpose sourcing solutions and supplier networks. 

Delivering a Positive User Experience 

When the term “ERP” (Enterprise Resource Planning) was coined by Gartner back in the early 1990’s, Amazon didn’t exist anywhere (except perhaps in Jeff Bezos’ imagination). eCommerce posed little threat or inspiration for enterprise purchasing organizations to follow. As we begin 2021, things could not be more different. The online shopping experience is simple, sophisticated, and has been embraced by every imaginable shopper demographic – including the people who have purchasing responsibilities as part of their professional role. The same is true of suppliers, with a whole host of B2B marketplaces cropping up to make it easy and efficient to showcase their offerings and efficiently connect with prospective customers. 

The ERP procurement user experience still largely is what it was always designed to be: a technical buying process for a small group of buyers with few (or no) supplier alternatives. Nowhere near the development has taken place that would allow the ERP user experience to shine in a field of polished cloud solutions that prioritize intuitive navigation and natural language search functionality. This holds stakeholders back from playing an active role in the supplier discovery and sourcing processes and prevents suppliers from putting their best bid packages forward in response to RFxs. 

Addressing a Broad Range of Spend Types Equally Well 

Because they have their roots in manufacturing environments, ERP systems are predominantly intended for direct spend - the materials and components that are processed and sold to customers. Over the last 30 years, however, business philosophy has changed substantially, leading to a proliferation of professional services buys and the understanding that indirect spend, whether MRO or otherwise, needs to be managed in a similar fashion to direct spend.  

Many ERP solutions struggle to accommodate the needs of these other categories of spend, leading to frustration and a fragmented technology landscape. If companies have to implement multiple systems to address multiple types of spend in parallel, their ROI is reduced and their data is no longer standardized, a critical concern in an increasingly analytical environment.  

Enabling Agility, Collaboration, and Creative Negotiation 

Back in the day – when ERPs were young – most enterprise purchasing was managed as a straight demand volume and per unit cost math problem. Today, however, the complexity of procurement’s work and the value they offer to the enterprise have expanded into areas such as supplier collaboration and creative ‘win-win’ approaches to negotiation. ERP systems, with their stiff, boxy logic, simply can’t keep up – but their capabilities can be enhanced by integrating the features and functionality required to meet the business’ needs.  

Sourcing is no longer strictly about finding a few suppliers and picking the one with the lowest cost. Building agility into the supply chain requires non-linear thinking and flexible give-and-take with suppliers and stakeholders alikeFar from the traditional three bids and a buy,’ procurement has the option of going beyond incumbent suppliers to find innovative companies that can bring new things to the table. 

If procurement is to deliver against their full value proposition, they will need more wiggle room than ERP systems are designed to permit during the sourcing process.   

ERP systemcan deliver their core value in a stable business world where supply chain risk is low, and demand is static. The reality is that our modern supply chains have changed substantially in the 30 years since ERPs entered the sceneThe best way to help companies keep pace is by leveraging platforms that bolster ERP capabilities without compromising their role as the single source of truth for the enterprise. Many procurement organizations are doing just that. They recognize that while the business’ needs may exceed their ERP’s capabilities, the rational answer is working with – not working around – the platforms they already have in place.  

If your organization is limited by your ERP systems supplier sourcing capability, please contact us for more information. 

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