Tuesday, 12 March 2013

The Cloud: Embracing Digital Procurement Strategy

Last week I implied that Procurement has been a laggard, by comparison with Marketing, in embracing 'digital'. I suggested there is a need for digital procurement strategies which support the achievement of procurement strategic objectives, for example, cost reduction, innovation, risk mitigation, CSR. 

Before we can develop appropriate strategies we need to understand 'digital' and its potential. This blog discusses 'The Cloud' and in subsequent blogs I hope to discuss 'mobile', 'social' and big data'.

At a very basic level it may be suffice to understand that it is cloud technology which enables 'Apps' - no cloud, no apps. The impact for procurement is that Apps can now be accessed and developed to reflect our needs. The challenge therefore is to define the appropriate applications portfolio needs and, if an app doesn't exist, incentivise its development. The procurement professional needs to become both a visionary and a discerning selector of the ever increasing range of available apps. However, if you take this one step further you will understand than the cloud means apps can talk to each other, so, customers apps, marketing apps, suppliers apps, supply chain apps all have the potential to be interconnected and talk to each other - just visualise yourself in the London Olympic stadium and that you have the capacity to instantly exchange information and 'know how' with every other person in the stadium, including the athletes and the coaches, and every person watching the Olympics throughout the world - that's what cloud interconnectivity has the potential to delivery. 

One of the big impacts is that cloud completely transforms the eProcurement business justification.
My experience some years ago of supporting organisations on their eProcurement journey was that while most could see clear benefits from eProcurement, they struggled in terms of constructing a robust and compelling business case - the 'up front' capital investment required a payback against an aspirational benefit. Cloud fundamentally changes the business model - what used to be an unaffordable capital investment can now be viewed as a revenue investment. Typically a cloud based solution costs 20-30% less than traditional platform solutions, excluding benefits on spend. 

The business case dynamic has been turned on its head. This is largely due to the access to 'Pay as you go' models or in digital speak 'SaaS' (Software as a Service). It is now possible to take out a subscription to access an eProcurement solution and pay on the basis of consumption. Concerns about how many licenses are required become less critical and supply can be flexed to match demand. This means that accessing what may have been cost prohibitive in the past, is now affordable, for example, spend analytics, Source-to-Contract and Procure-to-Pay solutions. 

Entering into a contract for cloud based eProcurement is generally for a minimum three year period and it has been known to have a cloud based platform in place in two months. Compare that with the traditional platforms.

This means that there is little need for procrastination and deferment in the hope that the refreshed solution will become available - the provider updates their cloud hosted subscription accessed solution.

So what does all this mean for your procurement strategy?
  1. Cloud reduces investment cost and risk in technology;
  2. Cloud accelerates your access to eProcurement solutions;
  3. Cloud changes the business case for eProcurement investment;
  4. Cloud provides the access to so much intelligence it is beyond our comprehension, so we need to adopt a strategic approach to apps and connectivity;
  5. Harnessing the potential of cloud can improve contract management, innovation and creativity, and new supply sources;
  6. Harnessing the potential of cloud is transforming marketing;
  7. Harness the potential of cloud will transform procurement.


  1. The tragedy of this is that it is not new. When we started eProcurement Scotland in 2001/2002 it was on an SaaS model that meets all the criteria for the NSIT definition of cloud. It's just that no-one thought to call it Cloud until 2007 or so. The business case was "turned on its head" -and in the public sector at that- a decade ago :-)

  2. Thanks Ian, I have absolutely no doubt what you say is true but there is still quite a long way to go before 'cloud' is understood and addressed within Procurement Strategy. Just out of interest - did the reduced costs I referred to match your experience? Does your experience agree with my other comments? Gordon

  3. Gordon, the short answer is yes, the longer answer is more nuanced. There is no doubt that investing in a single, multi-tenanted eProcurement service delivered via SaaS/Cloud reduced the costs of multiple bodies each buying their own. This is primarily cost avoidance but no less real for that. In addition the local capital costs of establishing and setting up a system are mostly avoided (there will be some if you interface with your finance/ERP system). Also and importantly it substantially cuts costs and nuisance for suppliers if they only have to transact via one system and get their orders in a consistent predictable format.

    MI is more difficult. The proposition that rich information is there to be exploited is correct so long as there are experts users who can both ask the correct questions and understand the answers they get.

    Harnessing innovation through the Cloud is also correct,I think, but is a developing situation and currently more in principle than in practice. As I've just suggested over on Purchasing Insight the rapid adoption of ubiquitous connectivity and Apps is still ongoing and unquestionably changing the picture. However the RFPs I've seen of late do not indicate that buyers (or IT Depts) are up to speed with the possibilities emerging. Interesting times.

  4. Thanks again Ian, I have more of this series planned and I think that some of your comments will be picked up within the 'social' and 'big data' blogs.