The process of purchasing software has come a long way since the days when CDs containing software were shipped to customers. These days, thousands of specialized software-as-a-service (SaaS) applications offer answers for virtually every problem that can be promptly installed via the cloud. In point of fact, cloud companies just saw a record-breaking market worth of over $2 trillion, which is an example of how rapidly SaaS technology is progressing. Digital procurement is not only the present, is the future! Read and learn more about this mechanism.
Nevertheless, the digital procurement process isn’t developing at the same rate as other aspects of the process. A significant number of procurement leaders are reluctant to let go of the more conventional procure-to-pay processes. Although the software is developed using digital methods, it is, in many respects, still managed using the CD approach.
The delay can be attributed to a few different factors. The majority of procurement leaders lack confidence in their ability to manage change, while others are simply unprepared to select and deploy the appropriate technology for their companies.
This cannot serve as an excuse any longer. It is time for businesses to make the switch away from traditional purchasing procedures and toward digital procurement. After that, and only then, will they be able to leverage cutting-edge technology for automated, proactive, and predictive purchasing.
This article will provide a more in-depth look at how buyers may keep up with the industry and become leaders in digital procurement.
What does the conventional purchasing process look like?
The traditional method of purchasing was formed by an information technology environment in which there were few product selections and a small number of vendors controlled the market. Enterprises often began by onboarding a vendor and then determining what products to purchase, typically relying on product suites offered by a select group of well-known vendors such as Oracle, Microsoft, and SAP.
Since then, procurement has fallen farther behind other departments, and the move to a fully digitalized operating system is taking the procurement department the longest. When it comes to digitally modernizing their procurement procedures and operational models, only 15 percent of organizations say they are either “best in class” or “industry leader.”
The following is an example of a classic procurement procedure in its typical form:
- A business user recognizes a problem that needs to be solved and then makes a request to the information technology department.
- The IT team does research on the available possibilities by using Google or by visiting software-review websites such as G2 in order to gain an understanding of the competitive environment and then makes a selection based on a list of features.
- The information technology team settles on a few distinct options.
- IT submits expenditure receipts.
- The company gets charged again after the vendor renews the subscription, which was previously paid for.
- Beginning with step 4, the procedure is repeated.
Each of these processes is carried out independently rather than in concert with the others. For instance, the responsibility for choosing vendors falls on the IT department’s shoulders. The process is then handed off to the procurement team by IT once it has its suggestions, and the procurement team takes judgments based on cost and the requirements of the business. In this process, there is very little alignment between the requirements of the business and the technical side.
Once an IT team has decided on a tool, typical procurement teams only concentrate on being paid rather than maximizing the value of the tools they have. They also do not monitor the return on investment or the use of the product (ROI). Even worse, the IT staff is no longer participating in any way, and they may not even be aware of the transaction for a number of months.
What exactly has changed? The breezes of the SaaS
The world of SaaS saw substantial upheaval, while traditional procurement procedures trailed behind. Particularly affected was the way in which departments such as sales and marketing, engineering, and all the others managed their day-to-day work after making the transition to the cloud. Cloud computing is estimated to capture more than $1.3 trillion in spending on information technology by businesses in 2022, and this figure is projected to rise to $1.8 trillion by 2025.
As a result of this change, businesses are purchasing digital tools in new ways, and recently, they have been purchasing quite a few of these products. In the year 2021, businesses all over the world used an average of 110 different SaaS apps. The obstacles that are faced in purchasing today are entirely different from those that were faced in purchasing five or 10 years ago.
The following are three ways that using SaaS can assist alleviate difficulties with procurement.
1. SaaS is currently decentralized, which means that anyone can begin utilizing an application
Purchasing software is no longer a decision that is made centrally by IT. Every other team in the firm has easy access to conducting online product research and testing, as well as online product purchasing. Teams are now able to choose the tools that best match their individual requirements, rather than having to wait for months or even years for IT to settle on a vendor, find integration partners, and deploy solutions into their technology stack.
The spread of shadow IT, in which employees make purchases that IT is not aware of, which are off-the-shelf products, and are never used, is one of the unintended outcomes that might result from decentralization.
2. There will be no more vendor bundles; the focus will be on products that are the finest of their kind
Instead of selecting extra tools depending on the constraints imposed by your vendor, consumers may now choose from hundreds, if not thousands, of items that are the best in their class to meet their requirements. An surge in the number of people buying and using software as a service (SaaS) has been caused by the rising popularity of plug-and-play software and the simplicity of its installation.
Because of the intense rivalry, service providers no longer conceal their price plans from being viewed on their websites. They have a responsibility to be very forthright about the operation, features, and safety precautions of their products.
3. Everything is a subscription now, including freemiums, premiums, and other tiers
Traditional procurement uses an altogether different contract and payment methodology than the digital procurement software used by digital businesses. The model in question is known as the subscription model. The procurement department may choose to buy and own solutions instead of implementing them on-site, generally in conjunction with a maintenance agreement.
There is flexibility available with subscriptions. Instead of concentrating on the amount of money that has already been spent, the procurement department might consider the amount of value that each vendor provides while deciding whether or not to switch suppliers. This makes it possible for businesses to maintain their agility, which is especially useful for month-to-month subscription arrangements. In lieu of transitioning away from an established legacy system, businesses are able to make a swift transition to alternative platforms.
Subscriptions can also be highly problematic. Anyone can sign up for a free trial that lasts for seven days, but it does not necessarily mean that people use the account. It is simple for an employee to make a purchase on the company’s behalf, then to exit the tool and forget about the contract they were working under.
This is something that frequently occurs with freemium business strategies. Be aware of “free” trials that demand buyers to provide credit card information before activation. Procurement should exercise caution when dealing with such situations. A subscription contract may be signed by a company for a period of one month or even twelve months.