Understanding the "gotchas" of cloud procurement software

Cloud-based procurement offers manufacturers new opportunities, but also presents a host of new challenges.

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In the past, IT buying decisions were pretty straightforward. At least everyone understood the drill.

With the help of consultants, most companies selected technology under the premise that the system would be hosted internally. The thought was the IT department would eventually figure out how to install and support the new system. With the rise of cloud computing, including Software as a Service (SaaS), this philosophy is quickly becoming outdated. In some cases, cloud-based deployment and maintenance requires more analysis than the on-premises alternatives. That's certainly the case with cloud procurement software.

Not all is new with cloud procurement systems

Whether the procurement system is hosted inside the four walls of the building or in the cloud, many of the buying considerations are the same.

In both case, business strategies, requirements and associated benefits should drive procurement software choices. While acquisition and support costs will always be an issue, selecting IT products or services based on cost alone is a recipe for failure.

On large-scale projects such as ERP, entire businesses are run on the software and infrastructure. In this case, the stakes can't get much higher. Likewise, if the procurement system is unstable, unavailable or does not provide the required functionality, it won't matter that it cheap or deployed by following the latest industry buzz.

In addition, selecting the right procurement software requires involving stakeholders from many parts of the organization. This includes key functional managers, end users and IT personnel. Letting individual managers or departments buy procurement technology or services on their own usually results in the wrong choice for the entire organization.

Finally, there is always the question of implementation support, regardless of whether the choice is cloud procurement software, or the on-premises variety. The procurement software vendor or third-party firm must be able to bring to the table trainers and consultants who are knowledgeable about business processes and the procurement application. Such knowledge transfer is necessary to leveraging the system to achieve the expected benefits.

Heading into the procurement cloud

Any IT product evaluation should include an analysis of vendor viability and support services, as well as total system costs and integration needs. However, when considering cloud procurement or any other type of system outsourcing, these factors can make or break the initiative. The idea is to select a vendor that is going to be around for a while.

The rise of SaaS makes this part of the evaluation more risky than in the past, as it is harder to pick winners and losers over the long haul. Some of the previous winners in the old order could become losers in the transition to the cloud.

The key is to do your homework. Get financial information if possible. Check references and listen to the word on the street, including industry media, ERP think tanks and even competing vendors. Though most vendors paint a grim picture of their competition, they sometimes provide a few nuggets of valid insight.

Cloud procurement costs

Cloud computing is generally touted as a lower-cost alternative to running an on-premises data center and using in-house support. This is the case for many experienced organizations and those new to the game that simply do not want to incur the up-front IT investment.

However, companies that tend to replace their infrastructure equipment and applications infrequently or have lean IT staffs should not assume there will be savings. The situation is similar to the buy vs. lease decision for cars. For people who drive the same car for a long time, leasing is almost never the best choice from a purely financial standpoint.

The cloud or SaaS service contract will spell out charges for user access to the cloud procurement system, as well as data storage and other price details. It is important to understand any additional charges for support that the vendor might have to provide. Business needs often change. Are the software configuration changes necessary to support them included in the price? If not, vendor change orders can really add up.

Procurement vendor support

The support-related phrase of the evaluation takes on an expanded meaning with cloud procurement systems. Traditionally, it included software bug fixes, enhancements and support for the application itself. For comparing cloud providers, it should include more or less everything an IT department would normally do. The following are items to investigate:

Data backup and data security strategies and tools;

  • Disaster recovery plans and services;
  • Nightly batch processing and job schedulers;
  • System availability;
  • System performance or transaction response times.

Procurement system integration

System integration can be a huge concern for many organizations that are considering externally hosted systems. Most medium to large companies run many applications. These usually include a core ERP system, a few bolt-ons, and maybe some homegrown apps. Most of these systems are well integrated.

While there is new middleware for integrating with cloud procurement software, integration is never as seamless or real-time as vendors claim. The issue is often amplified when companies try to integrate legacy systems with those in the cloud. Do not assume that cloud procurement integration really works right out of the box. Instead, take a hard look at integration details and check references.

This was first published in August 2012

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