Source Wars: Episode I – The Rise Of Software

Posted: 01/07/2020 - 00:00
The Rise Of Procurement Software

Procurement is old. Just how old you ask? Well, a long time ago in a galaxy far, far away… it’s been around for millennia. As a natural function of trade and commerce, it developed organically during the earliest civilizations. Papyrus records indicate procurement can be traced as far back as the Egyptians (the first Jedi) in 3000 B.C.

While procurement teams and more refined approaches to sourcing gradually developed over the centuries, the current Digital Age has ushered in a whole new era for procurement. With the advent of the personal computer and the Internet, new tools have enabled us to realize efficiencies and reduce costs through increasingly strategic methods. Join me as we recount the epic saga of procurement software.

Phantom Menace(s): Early Procurement Technology

Take a look at the person on your left. Now the one on your right. At least one of those people has no clue what a floppy disk is. But the time of the floppy disk and the early hard drives is where our journey begins — with the spreadsheet. Yes, the old, reliable spreadsheet. He’s the C-3PO of our story.

Adaptable yet elementary, spreadsheet programs like VisiCalc (1979), SuperCalc (1980), Lotus 1-2-3 (1981) and eventually Excel (1985) were the earliest forms of procurement software. With their malleability, spreadsheets were used to field sales requests, gather vendor bids, analyze pricing, manage inventory, build invoices and track contract terms. Inefficient, but not ineffective.

Although true procurement solutions didn’t exist just yet, their foundations were present in other early enterprise technology. The rise of manufacturing resource planning (MRPs) systems and enterprise resource planning (ERP) systems demonstrated the value of automated tools for managing transactional data via electronic input.

The Source Awakens: The Birth of Applications

While spreadsheet applications and ERPs proved to be significant steps forward for procurement in the early 1980s, sourcing technology remained underserved and underdeveloped for the next decade. Then we hit the mid-90s. They brought us Coolio and, perhaps more importantly, procurement-specific software. It was a sourcing gangsta’s paradise.

Many key features of today’s more comprehensive platforms were introduced during this period. Software began to connect procurement users with approved suppliers, fostering both relationship and spend management. Reverse auctions within eRFX programs saw their first adoption. Early contract management tools allowed procurement teams to create and track their agreements. Even elementary spend analytics tools encouraged a more intelligent approach to spending and the entire procurement process.

While the advancement of procurement software was just beginning, it was a blissful period of increased automation and three Star Wars movies.

Rogue Ones: Specialized Procurement

As technology developed into this century, so too did the various procurement applications. Programs designed for an industry’s (or even a company’s) specific sourcing requirements enabled value creation well beyond basic supplier relations and savings targets. It was a seemingly endless world of possibilities, so neither software companies nor George Lucas could stop tinkering.

Let’s throw these systems into a few buckets:

  1. Sourcing: Procurement-specific platforms that include a scope of work and vendor pricing
  2. Spend Analysis: Leverages procurement data to drive down costs
  3. Supplier Management: Organization of supplier information and evaluation of supplier performance
  4. Contract Management: Building and tracking of supplier agreements
  5. Payment: Creation and distribution of supplier invoices

We’re covering a lot of ground at this point, which is great. But also not so great. The development of derivative platforms was certainly another valuable step forward for procurement but ultimately fragmented the software market.

The many options created buyer confusion and contributed to the low adoption rates that continue to plague the industry today. If you wanted a solution for all of the above, would you purchase multiple different platforms and try to integrate? Just prioritize the most critical? Give up altogether? Unfortunately, most chose the latter.

Help us Obi-Wan. You’re our only hope.

The Enterprise Strikes Back: Integrated Suites

Within the past decade, the era of specialized applications has given way to comprehensive procurement suites. Major players in procurement software have begun to snatch up different specialized applications and introduce them as complementary “modules” in their procure-to-pay solutions.

If you’re an enterprise customer with water filling three of the five buckets mentioned above, now you can go to one provider and choose just those applicable modules. Or, if you’re looking for a true end-to-end solution, myriad options await you with varying features and functionality. So, go fill all of your buckets. No longer do you have to explore multiple platforms, worry about multi-tiered integrations or transfer data between applications.

But the arrival of integrated suites and consolidated enterprise software introduced a new problem for procurement organizations of a certain size. What if you’re a mid-market or early-stage company that doesn’t want (or need) a full procurement suite? What if you’re quick and nimble butdon’t have the time or resources to adopt software intended for a larger enterprise? What if you’re destined to save the galaxy but are still a budding moisture farmer on a small desert planet? 

A New Hope: The Future of Procurement Software

Over the past five years or so, the advancement of full procure-to-pay suites has given birth to a new niche in procurement software. Remember when specialized applications were practically Sith lords? Well, we’ve come full circle.

The procurement software market has grown so much since the days of Coolio and TLC ($5.1B and 12.3% YoY in 2018) that targeted platforms have renewed demand and relevance. User-friendly, customizable solutions to just a phase or two of the sourcing cycle have proven to be lower-cost, higher-adoption alternatives to the large enterprise suites.

While this Rebel Alliance will continue to find footing, the growing industry leaves much room for both to flourish in the coming years. As users and procurement professionals, we can expect even further advancements in digital transformation, intelligent applications, machine learning and standardized cloud deployment models. It’s not a matter of “if.” It’s a matter of “when” and “how effectively.”

Until then, find the right tool for you and may The Source be with you.


About The Author

Michael Otis's picture

Michael Otis is the founder and CEO of Procoto, a fun, lightweight sourcing platform that simplifies the source-to-contract process. After beginning his career in Strategy Consulting with KPMG and Corporate Development with eBay, Michael transitioned to the sourcing world. Before Procoto, he built the procurement organizations at technology unicorns Rubicon Global and Stord. Now Michael and the Procoto team are (finally) making sourcing software fun, simple, and elegant.