Proving that there is an ROI on procurement software is often tough. Our colleagues in Sales tend to get given whatever they want to facilitate their roles, but we definitely have it tougher.
Rather than complain about it, I’m going to explain how to embrace it.
It’s all about starting small and building momentum. Make your stakeholders happy on a shoestring budget, and get some small wins that create a snowball effect.
Choose the right software, implement it well, get your internal communication strategy polished, and you’ll have the CFO eating out of your hands. What’s more, you’ll have delighted users telling their colleagues in other production sites or office locations how great the new app they’re using is.
If you’re struggling to get any budget for tech, this one’s for you.
I’m going to share with you a few hacks of how starting small and building on little wins can create the momentum you need. Then, I’ll give a few examples at the end of the article of a some very affordable software solutions to help you get that traction.
First things first:
You need to start small and prove the return on investment. The CFO is likely a numbers person. Armed with evidence of hard savings or tangible process efficiency benefits, you’ll have the momentum to expand the roll-out.
Build upon that success and expand either that piece of software into other areas of your business. Or, maybe to go out and get a budget for other best of breed tools that can help solve other challenges that you’re facing in your procurement team.
Why is getting a budget for procurement tech so difficult?
Let’s first take a step back.
Procurement – as a function – spends other people’s money. So, while a procurement team will have a budget for travel and expenses, or maybe a little bit of consultancy or training, they typically don’t have a budget for tech investments.
So, as a CPO or Head of Procurement that obviously leaves you with a conundrum.
You know that an investment into best-of-breed procurement software will drive benefits. But, you don’t have any budget to go out and spend money on some tech. You assume that you’ve got to go with your arm stretched out and beg the CFO for a budget.
How do you convince them?
They want to see a clear business case with an ROI. And that’s where it can get tricky.
What is usually considered ROI for procurement tech?
Often, in the first instance, the savings that procurement tech delivers are soft savings. The benefits are often freeing up strategic sourcing or category manager roles to enable them to do more added value work.
On the surface, this is an obvious win, right? Instead of doing operational or tactical activities, highly paid knowledge workers will be delivering what they’re actually supposed to be doing. That is, providing value to the business.
However, unless you’re actually going to be reducing headcount or driving guaranteed additional hard savings, it can be hard to quantify this to a CFO in monetary terms.
An investment into a spend analytics tool is probably the easiest. You’re essentially saying “if I have solid spend data, this will enable me to generate X percent more savings or to avoid X percent of costs through risks that I didn’t know about”.
Likewise, with Procure-to-Pay software (P2P), you could easily argue that you could redeploy or reduce one or two positions in operational procurement or accounts payable.
Both of these examples are easier to prove, but some of the other cases for procurement software are trickier to quantify.
How pilot projects can become powerful internal marketing
What if you can’t easily show a tangible benefit through headcount reduction or hard savings?
The best way you’re going to build trust and gain momentum for digital procurement transformation is to start small. Go with a pilot, maybe in one manufacturing site or one country office location. This will also solve your challenge of not having a budget too…more on this in a minute.
So, what procurement software should you introduce as a pilot?
There’s no easy one-size-fits-all answer.
It should be whatever your biggest challenge is for which there’s an affordable procuretech option.
Start with the “why”, not the “what” or the “how”.
That should direct you towards what it is that you would want to use as a pilot.
It might be P2P, it might be SRM, perhaps with a focus on risk management or supplier due diligence. It might be dealing with your “desk drawer” contract management issues. It might be taking e-Sourcing away from email and Excel and into the 2020s.
The point is to think small. Don’t try to overcomplicate things or be too ambitious. I admit that I’m also terrible at this. Like many business owners, I’m the visionary rather than the implementer. Settling for something that’s not a bold, blue sky vision can sometimes feel like failure.
However, without a tech budget, the only way you’re going to do this is to start with a small pilot project.
Buying SaaS as OpEx means you don’t NEED a budget!
As a first step, my suggestion is that you buy some software that’s priced on a per user / license basis per month. This will enable you to keep the cost down to a minimum. Depending on how budgets and accounting works in your business, you’ll probably even be able to categorise it as OpEx rather than having to lobby for investment.
Let’s take a quick and dirty example.
You buy 5 licenses and they each cost $50 a month.
That’s $250 a month or $3,000 a year.
As a CPO or Head of Procurement, you’ll almost certainly be able to find this money by ring-fencing some of your travel, L&D or consultancy budget. This will enable you to get proof of concept.
I’ve spoken in the past about how procurement leaders need to think more like entrepreneurs. This is a great example of this concept.
Turning your Stakeholders into raving fans of procuretech
OK, so now that production site or office who we used for the pilot really starts to see the benefits. Now it’s time to apply a popular guerilla marketing trick…
Leverage those stakeholders to be the biggest fanboys or fangirls of this new software. They’re really happy with the solution. It’s much better than using email or spreadsheets, or not having the right data at their fingertips to make important decisions.
Use that momentum!
Marketers use this trick to get users to create buzz around a product through word of mouth and testimonials. If you can nail your internal comms strategy to do the same, you’ll have curious colleagues in other parts of the business who want in on the action. Slowly, but surely you will get a snowball effect.
It won’t be you trying to convince the CFO to give you a budget. It will be him or her coming to you and saying something like “hey, that contract management software that we implemented in the London office seems really popular. What would it cost to roll it out to the rest of the organisation?”
If you’re able to track efficiency savings or, even better, hard cost savings from the software that you’ve brought in, this is even more convincing.
Not everyone’s time is equal
You could also potentially explain this in terms of what is the effective hourly rate (EHR) of a category manager.
Take their annual salary and divided it by the number of days that they work per year and then divide it by the number of hours that they work in a day, that will give you their hourly rate.
You can then quite logically argue that a category manager on that hourly rate shouldn’t really be spending that amount of time performing administrative tasks.
Being able to automate or eliminate some of these tasks thanks to procurement tech is a real, tangible win. That time can be spent on delivering savings or driving value.
If you’re curious to learn more about EHR, check out this recent LinkedIn post which explains it succinctly. It’s amazing how much time and money is wasted by over-qualified employees spending time on non-value added work.
Category Managers shouldn’t be wasting time making PowerPoint slides look pretty or chasing signatures on contracts.
Which procurement software has flexible, affordable pricing?
Let’s take a quick look at some examples out there of software which falls into this category.
If you decide to take this approach, how can you get up and running quickly without long-term contractual commitments?
In fact, there are more than you probably realised. If you’re looking for some help to pin-point the right solution for your biggest challenge, book an intro call and I’d be happy to talk in more detail.
For now though, I’ll leave you with a flavour of what’s out there in a few different areas of procurement tech.
Procure-to-Pay
For most of you, I suspect this will be the first port of call. P2P is the administrative time-suck that you’d love to automate.
There are over 20 P2P software platforms targeting SMEs and the lower end of the mid-market with affordable software applications.
These have various starting points when it comes to pricing. Some will give you 5 users for anything from $250 to $600 per month. Others price based on a per user, per month model. Whereas some offer unlimited users for a fixed monthly cost.
We’ve done a piece of research on this, with all the features and functionality side-by-side in a spreadsheet. This includes pricing, as long as the software provider doesn’t have a price-on-request policy.
If you’re interested and want to get a copy of what we’ve done, head over to our store where you can purchase this, together with a 30-minute 1-on-1 call with me to answer any specific questions around it.
Done-for-you research, together with a bit of personal expertise on tap, is the fastest, most cost-effective way to make a decision quickly and start delivering value for small procurement teams.
Stop wasting your team’s time on unnecessary administrative tasks. Digitise your P2P function and unchain them from wasteful busywork.
SRM
On the vendor master data management and supplier due diligence side of SRM, look no further than Canopy. Their “Collect” module is only £99 per month for up to 5 users.
That’s a lot of bang for its buck when you consider that you could get all of your vendor data into one single source of truth. That’s all your certificates, master data, and contractual terms in one place, in one comprehensive vendor record.
No more having to fumble through your ERP system or your accounting system, trying to find data in there that’s probably out of date or just the email address for the accounts person.
Staying on SRM, there’s another company, LUPR, based in the US who focus more on the supplier performance side of SRM. They also have a very affordable platform which starts at just $29 per user per month.
Contract Management
Take a look at Concord, which has a contract management tool which does routing and signature of contracts at $49 per user per month, and also has a repository feature.
E-Sourcing
E-Sourcing is probably the one out of all of these that has the most obvious business case. You could go with a solution like MarketDojo that allows you to run sourcing events on a completely pay-as-you-go monthly basis. With starting packages that begin at just £500 per month.
What’s preventing you from getting started?
I hope we’ve managed to convince you that lack of a format budget for procurement tech shouldn’t be an obstacle. Sometimes you just need to take the matter into your own hands and create a budget for yourself.
Many of these solutions will cost less than $5k a year in most instances. Especially if you just want to get started with a limited number of users.
Most organisations would be able to find that money from somewhere. Do what you have to do, be scrappy and get started.
Software that performs better than email and Excel is a low barrier. The chances of best-of-breed, user friendly software being a failure are much lower than a Coupa or Ariba implementation.
If your fingers were burnt in a corporate role with a digital transformation nightmare featuring a legacy S2P suite, this is a different ball park.
If you’re curious about any of these solutions that we’ve mentioned, I also offer power hour consultancy calls. This is where you get to pick my brain for an hour about anything you want.
There are fewer things holding you back than you think.
Taking some decisive action is the first step. Let’s take this bull by the horns and succeed!
