An increasingly complex business environment is forcing most manufacturers to assemble a small arsenal that blends best-of-breed and ERP procurement tools. But with ERP a required component in procurement transactions
“There was a time when ERP proponents were trying to make the claim that you could run your company on one system and avoid a lot of integration headaches,” said Bill McBeath, chief research officer of ChainLink Research based in Newton, Mass. “Nobody believes that anymore.”
There are several reasons, he said. For one, although ERP vendors continue to expand their procurement portfolios in new and interesting ways -- and may themselves have the advantage in certain niches -- it’s the best-of-breed vendors that continue to push the envelope.
“No single vendor can [completely] keep up with what the best of breeds do in terms of addressing specific issues,” McBeath said.
‘There are certain elements that just aren’t supported by ERP’
Best-of-breed vendors often provide better functionality in certain areas than their ERP rivals, depending on the ERP vendor, according to Cindy Jutras, principal at Mint Jutras, a consulting firm based in Windham, N.H And sometimes they are the only real option.“There are certain elements that just aren’t typically supported by ERP,” Jutras said. That can include more sophisticated supplier relationship management that goes beyond the performance metrics which companies can cobble together from the purchase orders and receipts they maintain in ERP.
ERP tools will track whether [an order] was on time and might be able to compare historical costs from different suppliers, but they might not have detailed quality metrics, Jutras said. “And you might not be able to get the kind of spend management and analysis you need to make strategy decisions around vendor diversity or consolidation,” she said, although that’s slowly changing.
While ERP procurement modules may be useful in analyzing past purchases, ERP is typically less useful in helping to make up-front purchase decisions. Specialty procurement providers may also provide access to supplier networks and integrated technology hubs and offer additional deployment options, including cloud services, without having to move core [ERP] solutions to the cloud, she said.
ERP as best-of-breed procurement vendor
McBeath agreed that spend analysis and supplier information management are areas where best-of-breed vendors are strong. But that doesn’t always mean ERP vendors always lag when it comes to providing cutting-edge features, he said.
“They are the best at some things,” McBeath said. “There are areas where they are the best-of-breed, so to speak.” He cited SAP’s Supplier Infonet, a Web portal companies can use for supplier monitoring and risk management.
“A lot of people think of them as this monolithic, very hard-to-deal-with software, and they’ve done some incredibly innovative things in recent years, some of them that I would expect out of a startup,” McBeath said. “It’s not something everybody needs, but I don’t know anyone that has that kind of capability.” But in those cases where it’s a tossup between similar ERP and best-of-breed functionality, Jutras said companies have to weigh the tradeoffs between specific features that are required and the time and resources involved in integrating a third-party tool.
“This is one area where there should be a real heavy ‘touch’ and a real integration with the ERP, because that’s where the transactions that result from procurement reside,” Jutras said. “You should have all the basic data you need there in terms of the transaction.”
The procurement integration situation
The challenge with integration, however, is less about the technical side of bringing the pieces together than it is about making sure the data is consistent between the ERP system and whatever procurement software the company is using, according to Duncan Jones, a U.K.-based analyst with Cambridge, Mass.-based Forrester Research Inc.
“If you’ve got these business units and you’re trying to implement a single procurement solution laying across on top, if all the business units have different supplier masters and item masters and different codes for everything, then the integration is a challenge,” Jones said. “It doesn’t make a difference whether those back-end systems are SAP or anything else; the main challenge is data.”
In other words, Jones went on to say, it’s not the technical challenge of creating a file out of one system in the right format to feed it into another system. “It’s all about data integrity. A single supplier master, or converting codes between systems.”
In the end, the decision to go with one vendor or another shouldn’t depend on the integration capabilities, he said. “That might tip the balance, but you’ve really got to look at the functionality and the price and say, ‘Yeah, this is going to work for us.’”