Optimizing Source-to-Pay with or without “Best of Breed”

Business application suites, including ERP (enterprise resource planning) and source-to-pay (S2P), are collections of integrated software applications that are designed to automate a range of business processes and functions. An S2P suite automates spend/supply management processes primarily in procurement, accounts payable and inbound supply chain management, but also other areas within legal (e.g., contract management), finance (e.g,. working capital management, treasury and FP&A), R&D (e.g., supplier innovation), IT and GRC (including ESG and third-party risk management).

From a technical standpoint, true suites are “application monoliths” that operate on a single unified data model and code base, even though their functionality can be sold, delivered and integrated (via APIs) in a modular fashion. Other large suites have been built up by large vendors acquiring smaller specialist (“best of breed”) vendors, and then slowly integrating them to increasingly behave as “virtual suites.” These acquired specialist vendors may not always be “best,” but they are usually newer vendors built on more modern technology stacks with more attractive user experiences that offer differentiated capabilities and value propositions than their acquirers.

Re-thinking the “Best of Breed” trade-off

There are many pro’s and con’s to these three options depending on a firm’s individual requirements as shown below on this basic illustrative comparison.

Comparison of suites vs. best-of-breed application strategies (by evaluative requirement)

(From 1 to 4 from lowest average support to highest)

This topic is deceptively complex and not suited for quick analysis, but there are a few points to consider:

• The heatmap above is an aggregate summary, and individual vendor results will certainly vary, especially when considering the various types of buyer personas (e.g., mid-market US-based services firm versus a global automotive manufacturer). Also, we don’t list requirements that don’t inherently vary (e.g., customer satisfaction scores) across vendors.
• The first three “capabilities” areas are extensive, including functional (workflow-centric), analytical (including AI/ML), technical (e.g., data modeling, cloud tech stack, integration, UX capabilities) and value-focused (e.g., integrated ecosystem, services capabilities). Yet, they will vary across ALL the solution types.
• S2P suites generally exhibit both the characteristics of ERP systems (technically), but are built more for the CPO than the CIO (who tends to favor ERP when it’s a single vendor/instance, but is more open to S2P when there’s no ERP or multiple ERPs), especially since the modules are typically purchased in clusters or à la carte.
• Individual modules in a suite can be viewed as “best of breed,” although that term tends to denote specialist solutions that focus on process groups (e.g., spend analytics, sourcing, CLM, supplier management, transactional purchasing and even invoice-to-pay) or spend categories (e.g., indirect spend, direct spend, tail spend, contingent workforce spend or individual category-specific tools). Some of these process groups themselves can be combined in “mini suites” (e.g., purchase-to-pay or supplier management).
• These choices are not mutually exclusive, so having a debate on what option is best can actually be a false argument. Many large firms have ERP, S2P suites and best-of-breed specialists all at once. The specialists are often used to create broader business value beyond automation, and, over time, those specialists are generally acquired by a larger vendor looking to grow inorganically.
• Buyers evaluating these solutions should wisely utilize market intelligence, advisory and consulting services (and/or managed services) in the market to help with digital procurement strategy, diagnostics and benchmarking, project/program management, training and even ongoing managed services to help ensure ongoing business value from these digital investments.

Overcoming digital barriers

Given the situation that there will likely be multiple systems being used across processes, spend categories and geographies, there will inevitably be fragmentation of data (e.g., master data) that then leads to integration challenges and data quality issues. These two issues are in fact the top two barriers to digital transformation cited by 450 procurement executives in the Deloitte CPO Survey:

Top barriers to digital transformation in the procurement function

The study was titled “Using agility to address changing chief procurement officer priorities” and the top two barriers above actually create fragility, rather than agility. Modern procurement organizations looking to be “agile” tend to take an iterative, data-driven and stakeholder-focused approach that doesn’t get bogged down with complex IT-driven–point-to-point integration projects, but rather:

• Use cross-application analytics (rather than just siloed intra-application reporting) to size-and-seize opportunities to improve spending, suppliers, internal processes and the fragmented data sources.
• Fix data issues (e.g., master data cleansing, harmonization and governance) through data management practices and tools on the fly.
• Iteratively move to adjacent processes and spend categories (or go deeper into current ones) alongside stakeholders and help them automate and manage their own spending (e.g., using flexible no-code approaches for analytics, workflow, integration and role-based dashboards).
• Engage partner functions and external digitally-enabled service providers to extend S2P processes strategically across functions to improve customer-facing processes and to also bring “outside-in” supply market capabilities.
• Focus on User Experience (UX) of digital tools used by procurement’s stakeholders and staff alike to make the process more transparent, intuitive, engaging and frictionless to get the processes and value flows accelerated to the cadence of the business.

A good user experience is paramount and is tuned to various personas and scenarios such as:

• Senior business executives looking for performance-based dashboards to show their supplier spending, supplier performance and related performance to their goals.
• Employees that want a consumer-like e-commerce shopping experience, but also with CRM-like system behavior to help guide them to the right suppliers, catalogs, processes or procurement personnel based on the need.
• Procurement staff (and some procurement-savvy “power stakeholders”) such as category management and sourcing staff that need spend analytics, cost modeling, supplier/market intelligence, ERFx, contracting support and supplier management support for managing relationships, performance (quality, delivery, innovation, ESG, etc.), risk and underlying information throughout the supplier lifecycle.
• Suppliers that need flexible supplier portals that allow them to access the multiple systems and instruct them how to engage during sourcing events, performance reviews, invoice submission, customer support and the most important feature: when they should expect to be paid!

This Spend Matters Brand Studio article was written in conjunction with Özge Gülden Güngör, Customer and Product Group Manager, Promena.