The different needs that companies place on purchasing software

If a company wants to learn more from other companies, it primarily checks which software products are used by different competitors. According to the motto: if the provider understands my industry and has done a good job here, then it will fit. Optimally, companies are then also shortlisted that, in addition to similarities in the industry, are also as regionally identical as possible.

The strategic importance of purchasing is of course very different depending on the industry (and thus mostly identical within an industry). Especially in production companies, purchasing usually has a very high strategic importance, since here every dollar/euro saved is worth as much as 2 or 3 dollars/euro in sales, whereby this of course mainly applies to the purchase of production materials and thus to strategic purchasing.

The importance of indirect purchasing is often the same for a production company as for a bank or an insurance company.

Unfortunately, the rest of the assumptions are often partly wrong. The fundamental differences in the companies are the purchasing processes and the ability to easily adapt these processes to software (even though the goal is usually for the software to adapt to the company). Companies in the same industry usually purchase the same commodity groups, but in manufacturing companies the vertical range of manufacture and the size of the purchasing department are often very different. Where a lower vertical range of manufacture often means a higher complexity in the purchasing processes, the size of the purchasing department is usually even more decisive.

A "processes & tools" department is key for rapid transformation

Where large corporations often operate a central organization within the purchasing organization called "Processes and Tools" and here standardize and optimize processes and introduce corresponding tools in a highly professional manner with up to 50 employees, smaller companies with up to 10 employees have no person at all who deals exclusively with methods and tools. This means that the CPO (or one of his employees) must deal with the standardization of processes and the introduction of a tool in addition to his "normal" purchasing activities. This makes every tool introduction at a small company a challenge if the software provider has not aligned its portfolio precisely to this target group.

However, there are other distinctions that are mainly due to the size of the company. For example, small and medium-sized companies prefer to implement a tool that maps as much of their processes as possible because, in addition to resources in purchasing, IT resources are usually very scarce.

This means that every additional tool with interface and maintenance requirements means additional effort, which should of course be avoided. The number of so-called key users alone cannot be scaled so easily for several software providers.

We therefore differentiate the companies by company size from XS to XL according to the following graph:

XSmall companies (up to 100m turnover):

Here, the purchasing manager himself drives digitization in purchasing. The introduction of purchasing software is intended to take the first simple steps toward digitization. When selecting a solution, the focus is on "easy-to-implement" (introduction without major project and customizing effort) and easy-to-use (intuitive use of the software without training). IT integrations are usually avoided or kept as simple as possible, which is often not a problem due to a low number of transactions.

A typical provider in this customer segment is tacto.ai

Small companies (100 - 500m revenue):

Here, the CEO often directly drives digitization measures in order to remain competitive. The purchasing manager controls and prioritizes the projects, and a key user introduces the software. In most cases, the key user of the ERP system is used here for the introduction of the purchasing tool, since he or she knows the processes and data structure in the background best.

When selecting tools, the focus is usually on the use of best practice. This means that the aim is not to invent something new, but to learn from the experience of other companies. This is important because companies of this size often cannot afford or do not want large implementation projects with complex customizing. Easy-to-implement and easy-to-use also play an important role here.

A typical provider in this customer segment is tacto.ai, but also Proactis or Medius.

Medium companies (500m - 2b revenue):

These companies have usually already developed a digitization strategy before Corona, but sometimes this strategy is not in place for all locations or sub-organizations. In these companies, there are also small teams that specifically take care of tool introductions and processes. In the past, the scope of activities was often reduced to pure purchasing controlling and reporting; in the meantime, the strategy and employees have often evolved.

The focus of tool implementation is on mapping as many processes as possible with as few IT resources as possible. Extensive out-of-the-box integration scenarios to ERP and PLM systems are expected, whereby these are usually not particularly complex, since there is usually not a large number of different systems. Furthermore, predifined workflows for the respective industry and category are expected.

Typical providers in this customer segment are Onventis as an all-in-one solution as well as Medius, Corecentric and Proactis for specific industries.

Large companies (2 - 10b revenue):

Companies of this size usually pursue an intensive M&A strategy, which means that there are no standardized processes in depth, many different ERP systems are in place, and the maturity of the various purchasing organizations within the group often varies greatly.

The purchasing department as well as the IT department have dedicated employees for processes and tools, who usually also work very closely together. Data storage strategies, data analytics strategies and IT compliance rules are defined across companies and departments.

When selecting the tool, the focus is on a mixture of high functionality and simple operation, which is often a great challenge in practice. The implementation of the software is often supported by an external service provider such as Accenture.

Typical tool providers in this customer segment are Ivalua, Coupa and Jaggaer, but also GEP or Zycus.

XL Companies (> 10b revenue):

In almost all large corporations, digitization is the key driver of the business model. Accordingly, absolute (industry) experts are designing new strategies and solutions. These companies usually work intensively with startups to be able to evaluate the advantages of new solutions, processes and methods in their own group. Software vendors serve as innovation drivers here, with established solutions being selected for core processes and startups' specialized solutions for specific processes being evaluated as a potential part of a competitive advantage.

Due to the size of these companies and the associated purchasing organizations, each subdivision usually has a very sophisticated strategy for each commodity.

Due to the large variety of needs, these companies mostly use many tools from different vendors. The size and experience of the IT department in bringing together multiple SaaS solutions via standardized interfaces is a clear advantage here.

Typical providers in this customer segment are Ariba, Coupa or Ivalua but also specialized providers such as Icertis, Sievo, Basware or Globality.

Summary:

The size of a company and thus the size of the purchasing and IT departments determine to a very high degree the selection of a procurement solution. The larger the company, the more important the roadmap and the degree of innovation of the software manufacturer, whereas smaller companies require systems that can deliver as much intelligence and best practice as possible with little project effort.