Empowering Efficiency: Do You Actually Need an Integrated Procurement System?

Efficiency and effectiveness are crucial for the success and growth of organizations. In today’s dynamic business environment, procurement management is pivotal for overall operational efficiency and financial performance.

Procurement is always evolving, with one of the more recent significant advancements being the emergence of integrated procurement systems (IPS). These systems offer a comprehensive approach to managing all aspects of procurement processes.

Overall, Procurement departments are setting very ambitious digitalisation objectives for 2025, with an average target of 72% of digitalisation.¹ However, 52% of procurement professionals feel they do not have adequate tools to capture data that demonstrates value.² Most procurement professionals believe that digital inclusion will be crucial in the future. Additionally, nearly half of CEOs have intentions to boost their annual digital investment by a minimum of 10%.³ Such investment is important because it helps with immediate risks and changes in procurement procedures.

Whether your company needs an IPS to enhance efficiency and optimize strategies is subject to specific circumstances. This article will discuss IPS, their benefits, and their importance in improving business efficiency. By the end, you’ll know if integrating procurement processes is necessary for your company or a strategic option to consider. 

Unpacking Integrated Procurement Systems

Definition and Scope

IPS consolidates multiple tools, processes, and activities within a single system wrapper. An IPS is a digital toolkit that simplifies and combines all stages of procurement into one platform.

The IPS integrates critical procurement functions such as planning, sourcing, purchasing, contract management, supplier relationship management, and data analytics. It provides centralized, real-time control over procurement processes, enabling effective monitoring, analysing, and strategic decision-making. The system’s integrated tools assist in analysing data. This makes it easier to make informed decisions and adjust strategies.

Components of Integrated Procurement Systems

An IPS consists of multiple components, each contributing to the efficiency and effectiveness of procurement process management. These components work together to create a single centralized environment for procurement activities. I will describe the main components below.

1. Procurement Management: is a fundamental component that plays a central role- in the procurement process. It aims to optimize the process of identifying, evaluating, and selecting suppliers for various goods and services. This component includes functions to identify and evaluate suppliers, create, and manage Request for Proposals (RFPs), and evaluate proposals in negotiations with suppliers.
2. Procurement Automation: aims to improve the efficiency, accuracy, and compliance of the entire procurement process. It utilizes technology solutions to automate routine procurement tasks, including purchase requisitions and approvals, purchase order generation and management, and invoice processing and reconciliation.
3. Contract Management: involves centralized oversight and control of contracts throughout their lifecycle. Its purpose is to ensure compliance, mitigate risk, and optimize contract terms for the benefit of the company. This includes features for creating and standardizing contracts. It also allows users to negotiate, approve, and sign contracts. Additionally, it enables users to monitor contract compliance and assess performance.
4. Supplier Relationship Management (SRM): aims to establish and develop positive relationships with suppliers to ensure cooperation and create mutual value. It includes functions to assess supplier performance and feedback, collaborate to jointly reduce costs and innovate, and evaluate and mitigate supplier risk.
5. Data Analytics and Reporting: uses tools to turn data into insights, helping with decision-making in procurement. This part has features for showing data, analysing costs, improving performance, and tracking KPIs.

It is the combination of the various parts which makes an IPS most effective, improving a company’s procurement activities and strategies for better efficiency, collaboration, and decision-making. However, a combined IPS does have downslides too. Challenges can include implementation time, software costs, user adaptation, and not providing the best solutions for key components. Weighing up the compromises and understanding the relative benefits of stand-alone and integrated approaches is essential.  

In examining these components, an essential question arises: does your business need to implement all the components of an IPS, or can you selectively implement components based on the specifics of your requirement?

Deciding if you need a complete IPS suite depends on your company’s maturity, control needs, size, finances, and strategy. The following considerations will help you make a meaningful choice.

Assessing the Relevance for Your Organization

Scale of operations

The scale of operations plays a crucial role in examining the need to implement an IPS. This factor directly influences the volume, complexity, and diversity of procurement activities. Seeing if the size of operations matches the benefits of using an IPS is important. 

SMEs with relatively simple procurement needs can start with a step-by-step or modular approach. They can concentrate on basic tasks like automating sourcing and procurement without needing to integrate everything at once.

For large corporations managing an extensive supplier network and high-volume contracts, full integration brings benefits. A centralized, automated system allows for optimized and efficient management of processes. To achieve this can be complex because of the time required to implement such a solution. 

For global corporations you need to look at the Procurement and organisational set up. A centrally managed organisation with a corresponding procurement structure may suit an IPS.

An IPS supports the standardization of processes and centralized control and the associated efficiencies. An IPS is an excellent choice for global organizations that centrally control or manage it. Implementing an IPS can be challenging for global organizations without centralized management. Without a leader and consistent methods, it can be hard to fully benefit from an IPS.

Complexity of Procurement Needs

The complexity of procurement needs is a key determinant of the necessity of an integrated procurement system. Different companies have varying procurement demands depending on their industry, types of products or services, and compliance requirements. Understanding this complexity is vital for effective integration. Let’s look at a few cases to understand how it affects the need for a procurement system.

Some businesses have straightforward procurement needs and do not require full integration. For them, basic tools, or modular solutions to automate essential procurement functions are likely to be sufficient.

Organizations that buy a diverse range of goods and services can struggle to handle the inherent diversity. They require specific integration for different procurement tasks, like finding and following contracts. An IPS can be a helpful solution for such organizations.

Companies with a global footprint face complexities in managing supply chains in different countries – from linked but separate legal entities to multiple currencies and standard measurements. They want integrations that consider these complexities and often an integration that addresses them. An IPS can assist them in resolving this issue.

However, implementing an IPS can be costly and time-consuming, particularly for smaller countries. Two options are available. The first option is to have a customizable IPS with modules for countries to choose from. The second option involves having a collection of top-quality SAS solutions that you can combine using API’s.

Existing Technological Infrastructure

When examining the relevance of IPS you should carefully consider the technology infrastructure already in place. The current state of technology significantly impacts the integration process and the potential benefits of implementing an integrated procurement system.

If an organization relies on legacy systems or manual processes in procurement, integration may pose challenges. You can implement the change gradually or update important parts of the old system selectively. These updates can include analysing spending and managing contracts.

Businesses with robust ERP systems have a solid foundation for integration. Integrating procurement functions into an existing ERP system optimizes the use of existing technology investments and enhances procurement capabilities.

Companies that have successfully adopted cloud technology have advantages when integrating procurement solutions. Cloud platforms offer flexibility, scalability, and integration capabilities, making them attractive for seamless integration of procurement functions.

The readiness of existing systems to integrate with new procurement solutions is a key factor. Analysing the interoperability and integration capabilities of current technologies helps plan a smooth integration process.

The ability to exchange data in real time is critical to an integrated procurement system. If existing systems cannot do this, it is important to invest in the infrastructure needed for immediate data sharing.

Budget Considerations

The financial aspect plays a critical role in the decision to implement an integrated procurement system in an organization. Budgetary constraints have a determining influence on the scope and parameters of the integration. Let’s examine how budgetary factors affect the relevance of the process.

Budget: businesses with limited budgets must carefully evaluate the costs of full integration. Carefully evaluate the total cost of the integrated system, including software, licensing, implementation, and support. The full cost of a IPS can cost significant sums of money.

Before you spend any money or make decisions, create a cost spreadsheet. This spreadsheet will help you compare the total cost of an IPS with other options. These options include standalone solutions or doing nothing. Ensuring that the chosen solution aligns with the budget allocated for the project is of utmost importance.

Approaches that take budget constraints into account, such as phased integration, may be most appropriate.

A comprehensive Return on Investment (ROI) assessment is key to justifying if an integration investment is the right solution. ROI should consider potential savings, efficiency improvements, procurement optimization compared to implementation costs, disruption costs, and a contingency for cost overruns. From Procurato’s experience working with clients we constantly see that many people underestimate the cost of an IPS and overestimate its benefits on multiple occasions.

Consider the total cost of ownership, which includes upfront costs, ongoing maintenance, training, and support expenses. This allows you to assess the long-term financial commitment.

Scalability and future cost:  understanding how the integration will scale as the business grows or separates is essential. Estimating future costs for system expansion helps with budget preparation for growth. It also assists in determining the ease with which an IPS can sell parts of the business.

Financials greatly affect the importance and range of an IPS compared to other choices. Coordinating integration approaches with budgetary constraints ensures the financial sustainability and viability of the integration process. Finding an optimal balance between the desired level of integration and budgetary constraints is crucial to maximize cost-effectiveness.

Alternative approach

In many scenarios, optimal procurement management involves a judicious mix of specialised tools rather than a comprehensive integrated procurement system. Each tool, designed to meet specific challenges, has its own unique advantages. An effective combination of these tools can create a flexible, customised, and efficient procurement ecosystem.

For example, a dedicated supplier relationship management (SRM) tool improves collaboration and negotiation with suppliers, resulting in better terms and stronger supplier relationships. A contract management tool effectively manages all contracts, protecting against legal and financial risks.

Advanced analytics tools help analyse costs, supplier performance, and market trends, supporting informed decision-making. The integration of these tools creates a comprehensive solution that enables you to address procurement challenges accurately and quickly.

Using different tools helps companies stay flexible, which is hard with a single procurement system. This enables organisations to effectively adapt and evolve their procurement processes using best practice in each specific area. Also, this method is usually cheaper because it lets you choose tools that fit your needs and budget.

Interestingly, 10% of companies are not currently using either S2C or P2P solutions to manage their procurement processes. However, 65% of those plan to catch up by investing in S2P solutions by 2025.⁴

Dematerialisation of invoices, data analysis and visualisation, digitalisation of the source-to-contract process and automation of administrative tasks are key areas for investment. These usage scenarios, embedded in the core activities of companies, are becoming fundamental goals of digital transformation. Not surprisingly, they are on many companies’ roadmaps already this year.

To illustrate

As an illustrative example, consider the scenario of the fictional company WE-commerceTech”, which specialises in e-commerce. As the business grows, it deals with different challenges in getting materials for making products and delivering goods.

To effectively manage the increasing complexity, E-commerceTech is exploring the integration of a comprehensive procurement management system. However, management is also considering the use of separate tools that aim to address key challenges. Some important tools include a supplier management tool, a contract management tool, and tools for analysing spend.

An integrated procurement system offers a single centralized approach, bringing together various functions on a single platform. It ensures harmonized coordination, data flow and standardized processes. However, E-commerceTech’s management recognizes that individual tools can offer more targeted and efficient solutions.

For example, to improve supplier interactions, negotiate optimal terms and strengthen supplier relationships, the company decides to use a specialized supplier management tool. The contract management tool, in turn, helps optimize the contract lifecycle, compliance and legal risk mitigation. Advanced analytics tools can analyse procurement data to improve spending and decision-making.

In this scenario, E-commerceTech embraces the benefits of individual tools tailored to specific needs. It weighs the benefits of centralized integration versus the depth and accuracy provided by specialized tools. The company uses a mix of tools that work well with its processes and help achieve its strategic goals.

Synergy of Capabilities 

For procurement management, it’s often best to use a mix of specialized tools instead of one system that fits all. Each tool, crafted to address a specific aspect of the procurement process, holds its unique strengths and advantages. Combining these tools strategically can lead to a more flexible, tailored, and efficient procurement ecosystem.

A tool for managing supplier relationships can improve collaboration and negotiation with suppliers, resulting in better terms and improved supplier relations. Concurrently, a dedicated contract management tool ensures robust management and compliance across all contracts, safeguarding the organization against legal risks and financial discrepancies.

Moreover, leveraging an advanced analytics tool can provide profound insights into spending patterns, supplier performance, and market trends, empowering data-driven decision-making. When appropriately integrated, these tools create a comprehensive solution that addresses procurement challenges with precision and agility.

Using various tools helps organizations stay flexible, which can be difficult with a single procurement system. It enables the organization to adapt and evolve its procurement processes efficiently, leveraging the latest advancements in each specific area. This method is cheaper because organizations can select and invest in tools that suit their needs and budget.

10% of companies use neither a S2C nor a P2P solution to manage their procurement processes, but 65% of them plan to catch-up by investing in S2P solutions by 2025.⁵

Procure-to-Pay digitalisation & dematerialization of invoices, data analysis & visualization, source-to-Contract digitalisation, and automation of administrative tasks represent key areas for investment. Such use cases, integrated into core business activities, have become crucial goals for digital transformation. Many companies have even included these aspects in their roadmaps this year.

Source: PwC Digital Procurement Transformation Report 2022.

In procurement management, the trend is to move from traditional approaches to a more adaptable and personalized strategy. Using specific procurement tools together is a strong solution that helps organizations be more efficient and achieve strategic success, providing they have satisfied themselves that the investment and effort is commensurate with the needs of the business.

Conclusion

There is no one-size-fits-all solution regarding choices over IPS. You should base this decision on thoroughly analysing the needs and characteristics of the organization. Each procurement tool, whether part of an integrated system or specialized, will promptly address specific challenges. Businesses can combine different tools that suit their needs and goals to create a hybrid approach.

Outlined below are reasons why you might or might not consider a IPS

Reasons why you might consider an IPS:

Reasons why you might consider an alternative to an IPS: