Are you confused by all of the different procuretech solutions out there on the market?
If you’re just starting to explore this landscape, the overwhelming number of solutions can be confusing. Don’t worry—we’ll break it down in a simple way. No consultant-speak or jargon here.
We’ll first explain why digital procurement tools a different beast to your ERP system is and then tackle the “why” that drives your “what” and “how”.
Then, we walk through some common watchouts and things to consider as part of your sourcing process, before finishing off with exploring how much notice you should take of review sites, “best of” lists and analyst reports.
We’ve a lot to cover, so let’s get started…
Let’s kick things off with why ERPs are not a substitute for specialist procurement tools.
Unless you’re still creating manual purchase orders with Word or Excel, your default system for running procurement is probably an ERP system. This might be SAP or Oracle in a larger company, or something more finance-centric like NetSuite or Sage for mid-sized businesses.
While ERPs integrate multiple business functions, they often fall short in user-friendliness. Extensive training is typically required, especially for tasks beyond basic transactions and reporting.
These systems were designed to serve the entire enterprise. ERPs provide limited procurement functionality, mainly focusing on transactional purchasing. They’re not suitable for managing more strategic procurement activity.
ERP systems can work OK for direct materials, where predictable volumes and repeat orders fit into the ERP’s structure. But when it comes to managing indirect spend, ERPs usually struggle.
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Non-repeatable and complex capex sourcing or indirect services contracts require a different approach. Traditional ERPs simply aren’t built to handle this.
Now let’s turn to S2P suites. They’re exclusively cloud-based and take care of everything from sourcing, through to POs, goods receipts and finally invoice payments. Many also include some contract management features too.
S2P software offers strategic sourcing and supplier selection functionality, as well as handling payments and everyday purchasing transactions. This flexibility makes them more adept at navigating the complexities of procurement vs. traditional ERPs.
Pricing for S2P suites varies widely, influenced by features and the target market—whether it’s enterprise, mid-market, or SMEs.
Established suite providers Coupa and SAP Ariba are the enterprise S2P solutions with the largest market share. These tools have been around for over 15 years, with both the pros and cons that this brings.
In the mid-market, you’ll find a plethora of different solutions depending on geography, industry sector, and the type of features you need. If you're looking for a more affordable solution that can handle a broad range of digital procurement needs, these platforms offer quicker implementation and easier user adoption than the larger, enterprise solutions.
Unlike ERPs - which are designed primarily for sales, finance and operations - S2P tools provide advanced procurement capabilities, especially for handling indirect spend. They are great for digitisation and automation of more tactical and operational procurement tasks.
Suppliers can easily manage key tasks like PO acknowledgements, invoice submissions, and payment queries directly through these platforms. Stakeholders can self-serve when it comes to buying non-complex, non-critical items through features like e-procurement, B2B marketplaces, and punchout catalogues. All of this helps to reduce the volume of email and eliminates unnecessary data entry.
In contrast, ERP systems often have limited functionality in this area and require cumbersome third-party integrations to achieve similar results.
Where S2P suites tend to fall short is that they’re generally not built with features such as market intelligence, contract management (except for simple repositories), and strategic supplier management. This is especially the case for those targeting mid-market businesses.
Best-of-breed tech concentrates on solving one solution, or a few closely related specific solutions, in a more comprehensive manner.
Mercanis, for example, is a procurement software with a strong focus on strategic procurement functionality with S2C (Source-to-Contract) at its core. It covers key modules of Sourcing (RFx), Supplier Management (SRM) incl. LkSG (German Supply Chain Act), Contract Management and Spend Analytics.
The platform drives significant cost savings in prices and processes and, as a single source of truth, brings transparency to the supplier base to enable data-driven decisions.
While S2P solutions cover a wide range of features, they sometimes fall short in their depth. They usually don’t excel in the more strategic aspects of procurement.
This is where best-of-breed tools such as Mercanis have successfully established themselves in the market.
For example, let’s say you need a dedicated e-sourcing, contracts and SRM tool. You might find that buying Mercanis alongside a more straightforward procure-to-pay (P2P) solution will give you more advanced features, for an even lower cost than trying to do all of this in a traditional S2P suite.
When you buy an S2P suite, you’re buying something that kind of attempts to be everything to everyone. You’ll find case studies of the traditional Source-to-Pay suites from pretty much every industry sector. This indicates that they can be broadly adopted. However, because they have such a wide appeal, they inevitably lose some functionality and agility.
Look at it a little bit like a Windows PC. Great for everyday stuff, but not really the best solution for specialist gaming, producing music, editing videos and so on. This is where Mercanis is stronger too: for deep functionality and features in the areas which the Mercanis product niches down on.
When exploring your options, consider how much additional functionality you might need. S2P suites can indeed cover the basic end-to-end building blocks of a modern procurement team. However, many fall short in features such as spend analytics, supplier risk management, and contract management.
Even with a high-end S2P suite, customers often still find they require point solutions to cover these to the depth necessary.
Lastly, let’s not overlook the wealth of niche procurement tools available. Whether you’re focused on agricultural commodities, SaaS procurement, subcontract manufacturing, or freight sourcing, specialised software can help you tackle specific challenges effectively.
These tools cater to various sectors and requirements, ensuring that whatever your procurement needs are, there’s likely a tailored solution available.
What is your biggest challenge? Where are you feeling the most pain?
Rather than looking at solutions that solve a specific problem, you should rather approach the exercise from the other way around.
Once you’ve pinpointed your biggest pain point, you’re ready to go to the market and explore what’s out there.
It’s key to point out here that this should not be a price-driven search. Sure, you don’t have an unlimited budget, but this is not like buying an office refurbishment or a stretch wrapping machine, where price is likely the key driving factor in any sourcing event.
So, let’s help ensure that you don’t get sucked in to sales pitches that are full of bluster.
Choosing the right procurement software can be daunting. The market is confusing to non-experts, with even experienced procurement professionals struggling to understand what all of the different solution providers offer as their unique angle.
Let’s look at 9 key points you should consider during your sourcing process.
When evaluating features, consider whether you want a best-of-breed solution or a comprehensive all-in-one suite.
Do you need a tool that excels at a specific task, like eSourcing, Contract Lifecycle Management (CLM), or Supplier Relationship Management (SRM)?
Or do you want something that’s more of a jack-of-all-trades solution?
If you require flexibility and scalability, look for providers with a modular approach, allowing you to add features as your needs evolve. Or choose software that enables easy integration with other best-of-breed tools via API connection, to ensure that your different apps are able to communicate with one another.
Implementing procurement software can be a complex process, especially for enterprise grade software. These projects often take months or even years.
Ask providers how long the implementation typically takes, and how easily their software integrates with your existing systems.
Also, make sure that your implementation team consists of “A players”. Don’t give this task to one of your Procurement Category Managers as extra work, labelled as a “development opportunity”. This is a sure-fire way for them to suffer burnout and overwhelm, leading to a failed digital transformation.
User experience can make or break software adoption. How intuitive is the software for both users and suppliers? A complicated system can deter even seasoned professionals.
Users will often avoid using complex tools because they find them too challenging. A user-friendly interface encourages adoption, so ensure you see a detailed demo and perhaps even request trial access or speak to existing customers, to get a feel for the system.
This is especially important for software which requires access for suppliers, or for casual users within your business who may not use the tool regularly.
Consider the level of customer support offered, especially if you’re looking at a pretty young company. Does the provider have a dedicated customer success team? Will you have a single point of contact for support?
If the company relies on outsourced support teams or a ticketing system for customer support, you may face delays in assistance or capability issues with service team members.
Ask the provider what support structure they have in place.
Cybersecurity often slips under the radar but is critical. Involve your IT team early in the process to assess the cybersecurity measures of potential vendors. Look for SOC 2 or ISO 27001 certification on their website. It indicates adherence to recognised international cybersecurity standards.
As data breaches become more common, prioritising this aspect will protect your organisation from unnecessary risks.
Mercanis is a SOC 2 certified platform. You can learn more about cybersecurity and its criticality for procurement technology in our recent White Paper, where we tackle this in more detail.
We’ve not discussed cost yet, but it’s kind of the obvious one. You need to know how the software provider structures their pricing. Most procurement solutions operate on a Software-as-a-Service (SaaS) model. This usually means either:
Sometimes, you'll find a mix of both or a modular pricing model. There’s no right or wrong choice, per se. It depends on your business size, number of users, and growth plans. If you expect rapid expansion, be cautious with per-user pricing as it can quickly add up.
Evaluate the maturity of the solution you’re considering.
Are you open to working with a startup?
Working with a new player can provide advantages, like being able to influence product development as one of their first customers. However, early-stage solutions might have bugs or slower response times.
However, being overly risk-averse and adapting a mindset of “nobody ever got fired for selecting legacy vendor X” is also risky. You could be purchasing a complex, expensive solution with poor UI/UX under the false impression that it’s best-in-class. In reality, its star may be fading and there’s more innovative tech out there.
So, where’s the sweet spot? Mercanis is young enough to still be innovative, but without the inefficiencies of a corporate management structure. Add sustainable growth and a mature but evolving product to the mix, and this is a powerful combo.
Align your internal team on what level of maturity you want from a vendor.
Investigate whether the vendor is already profitable or not.
If they’re heavily reliant on venture capital for growth, how robust is their business model? Have they been hiring too quickly and burning through their money? Or are they showing sustainable, steady growth?
Consider the number of employees, funding history (how many funding rounds have they successfully closed?), and customer base.
For example, it’s easy to check this on LinkedIn. For full transparency, here are our stats. We’ve grown over time but haven’t had a big round of layoffs to conserve our capital.
While I’m not offering business analyst advice, this suggests a positive sign of sustainable growth.
Integration capabilities matter, especially in a best-of-breed ecosystem. If a solution lacks certain features, you might need additional software to fill the gaps.
Explore the vendor’s partnerships and API connectivity with other providers. Make sure they can seamlessly integrate with your existing systems, as this will be crucial for your digital transformation journey.
In light of the complexity of the market, many professionals turn to reviews, "best of" lists, or even costly, specialist analyst reports for guidance.
While these resources can offer some orientation, they often fall short of providing reliable insights. Here’s why you should treat them as a guide, and not as the gospel.
However, you should remain sceptical of "best of" lists and analyst write-ups. Many lack transparency when it comes to their evaluation criteria, and some may even be pay-to-play listings who don’t disclose this.
ERP systems, like SAP or Oracle, are designed to integrate various business functions. When they were designed back in the 1990s, “Procurement” was often referred to as “Purchasing” or “Buying”, and was much more administrative in nature. Therefore, they often fall short in their ability to manage strategic procurement activities. While they can handle operational purchasing well, they are not well-equipped to manage the complexities of indirect spend, or the sourcing of one-time purchases such as capex.
S2P suites are ideal in mature procurement organisations with complex needs. When you need a comprehensive solution, with ERP integration that can manage everything from sourcing to payments, they can be a good choice. However, they may lack depth in certain areas: for example, supplier management, commodity price analysis, visualisation of spend data, and contract lifecycle management. If your business requires highly specialised features for specific procurement tasks, a Best-of-Breed solution might be more suitable. These tools excel in their niche and can offer better functionality.
First, understand your organisation's needs and challenges to ensure the software aligns with your procurement goals. When selecting procurement software, consider factors like the software’s features, ease of integration with existing systems, time and resources required for implementation, the user experience, and standard of customer support. Additionally, don’t forget to consider the provider’s cybersecurity standards, pricing policy, and overall solution maturity.
Analyst reports and "best of" lists can provide some guidance, but they should be treated with caution. Analyst firms often operate a pay-to-play model, where software companies pay 5-figure sums for a write-up. Review sites can be subjective, and the timeliness of feedback is crucial too. Software features frequently evolve in this space. It's also important to consider the reviewer’s experience and whether their perspective aligns with your organisation’s needs. Focus instead on evaluating software through detailed demos and user trials to assess its suitability for your business. Or engage with unbiased, external experts who can provide guidance and mentoring on how to navigate the market.
Fabian Heinrich is the CEO and co-founder of Mercanis. Previously he co-founded and grew the procurement company Scoutbee to become a global market leader in scouting with offices in Europe and the USA and serving clients like Siemens, Audi, Unilever. With a Bachelor's degree and a Master's in Accounting and Finance from the University of St. Gallen, his career spans roles at Deloitte and Rocket Internet SE.
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