How To Get the Most Out of Your ERP System:

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1 How To Get the Most Out of Your ERP System: Cost Savings and Process Improvement Through Electronic Catalogs In This Paper * ERP Business Challenges * ERP System Limita ons * SaaS Requisi on Solu ons Gateway * Choosing a SaaS Requisi on Powered by Value Innova on Technologies, an APD company

2 Driving down procurement costs is a high priority for businesses in today s environment. These businesses know that u lizing technology is a way that they can drive the desired savings, however there are some challenges that make this ini a ve more difficult to successfully complete than it may seem at first glance. 55% of organiza ons have management control of their spend 60% of organiza ons plan to invest in procurement technology, training or recruitment of organiza ons recognize that a lack of investment in procurement technology will contrib- 27% ute to a shor all in spend under management Source: 2013 Procurement Trends: Cost S ll Key But Purchasers Lack Resources, March 2013 Business Challenge Essen ally, there are four primary drivers of savings for large enterprises when procuring repe ve products and services: price reduc ons, business analy cs, management control, and process efficiencies. Large enterprises are generally good at leveraging their size to nego ate low prices. They have achieved price reduc ons by perfec ng the prac ce of holding RFPs (requests for proposal), reverse auc ons, and other price nego a on tac cs to ensure that the prices they pay for goods and services are as compe ve as possible. The opportunity for large enterprises to drive significant savings lies in the other three components, i.e. business analy cs, management control and process efficiencies. For large enterprises, there are thousands of employees who have the authority to repe vely purchase on behalf of the company products and services such as office supplies, tools, printed goods, food services, document shredding services, and other products and services on behalf of the company that are core to their respec ve industries. The number of goods and services available for these purchasers to buy is astronomical. Consider that most companies have hundreds of contracts for the purchase of goods and services on a repe ve basis. Consider also that many contracts cover the purchasing of tens of thousands or even hundreds of thousands of individual goods and services that are available for purchase. The combina on of these facts creates a scenario such that within most large organiza ons, there are thousands of people who have the ability to purchase millions of different items. As men oned above, the tradi onal approach has been to simply try to nego ate the lowest pricing available, however, this only represents one component of total cost savings. 2014, APD, Inc. 1

3 Consider that merely trying to nego ate the lowest price available on so many items is nearly impossible. In addi on, even if a company were successful, low prices alone will not necessarily yield the most effec ve cost savings results (see figure 2, Four Components of Cost Savings). As a result of the glut of product choices, and the limited informa on that end user employees have, many of those employees will choose to purchase an item that is not a good value for the company, simply because it is convenient or because it has features that they want but do not need. Figure 1: Four Components of Cost Savings Business analy cs provide managers with the informa on they need to make be er policy decisions about purchasing on behalf of the organiza on. Procurement execu ves know that they can generate significant enterprise savings by standardizing products and services and op mizing the product mix, improving the ability to compare items at the ins tu onal contract level, and at the end-user shopping level. Making be er business purchasing policy decisions is a great start but it is only useful if those policy decisions are effec vely executed in the field. Procurement execu ves also need management control systems that allow them to be er control the purchasing behavior of the employees who have the authority to buy on behalf of the organiza on. By u lizing technology, management can drive end users toward the products and services that have been determined to be best for the business, based on the business analy cs. This can be achieved through automated controls for ered approval, purchasing limits, item restric ons, etc. In order to op mize the benefits of the business analy cs and management control systems they desire, procurement execu ves must also have process efficiencies. They must seamlessly integrate the new systems with exis ng systems in areas such as customizing the ordering and billing processes, just to name a few. When considering these factors, what makes intui ve sense requires significant effort and resources to implement because of the constraints of exis ng systems and budgets, not to men on change management. 2014, APD, Inc. 2

4 ERP System Limita ons In today s business environment, organiza ons perceive an Enterprise Resource Planning (ERP) system as a vital tool for organiza onal compe on, as it integrates dispersed organiza onal systems and facilitates error-free transac ons and produc on. Companies prefer to implement an ERP suite to achieve higher levels of integra on and improve customer rela onships and overall supply chain efficiency. However, a tradi onal ERP system o en has feature gaps even a er configura on is complete. The Supply Chain Management Module of ERP Systems typically has deficiencies for requisi ons. Companies need a more comprehensive solu on that fills in the gaps le by an ERP system and simplifies the ordering process. Figure 2: Supply Chain Management Module of ERP Systems This paper deals specifically with solving some of the challenges inherent in SCM (Supply Chain Management) modules with most ERP systems. A cri cal aspect of supply chain management is managing the ordering process; and ERP systems generally struggle to meet the requisi on needs of large enterprises. These systems are not typically user friendly for the purpose of shopping for items to purchase. The primary cri cism of ERP systems is that the so ware is designed around a specific business model, based on specific business processes. Although the business processes are usually adopted based on best prac ces in the industry, the adop ng firm must change its business model and associated processes to fit the built-in business model designed into the ERP system. Therefore, the adop ng firm must restructure its processes to be compa ble with the new ERP system. This has resulted in a very unusual situa on where a so ware system determines the business prac ces a firm should implement, instead of designing the so ware to support the exis ng way of conduc ng business. Despite the widespread adop on of costly ERP systems by large firms since the Y2K scramble, many implementa on challenges remain unsolved and scores of ERP systems are grossly underu lized. 2014, APD, Inc. 3

5 ERP customers have several op ons to reconcile feature gaps, each with their own pros and cons. Technical solu ons include rewri ng part of the delivered so ware, developing a homegrown module to work within the ERP system, or interfacing with an external system. These three op ons cons tute varying degrees of system customiza on with the first being the most invasive and costly to maintain. Alterna vely, there are non-technical op ons such as changing business prac ces or organiza onal policies to be er match the delivered ERP feature set. For purchasing products from vendors who have the ability to integrate with the ERP system using punchout catalogs, these systems work very efficiently. When enterprises need to purchase from vendors that do not have punchout capabili es, users of the SCM module of ERP systems are forced to choose to (1) use the cumbersome and wasteful requisi on process within the ERP system, or (2) develop separate processes for employees to purchase from each vendor, which is also inefficient and difficult to manage (see figure 3). Many large enterprises have spent money on an ERP system that does not capture all suppliers. This creates inefficiencies with different processes for these suppliers. Enterprise ERP System Integrated Suppliers Non Integrated Supplier 1 Non Integrated Supplier 2 Non Integrated Supplier 3 Figure 3: Typical Requisi on Process of ERP Systems Common problems with shopping within ERP SCM modules include: Complex and costly customiza on Inability to view images Difficulty in searching for products to purchase Offers very limited product informa on at point of purchase, leading to incorrect product choice Lack of pricing control, leading to paying the incorrect price Lack of side by side product comparisons (specifica ons & pricing) Cumbersome and inefficient ordering process Difficulty in enforcing vendor compliance Limited scope of data collec on (for procurement decisions) 2014, APD, Inc. 4

6 SaaS Requisi on Solu on So ware as a Service (SaaS) is a so ware delivery model in which so ware and associated data are centrally hosted in the cloud. SaaS is typically accessed by users via a web browser. Business applica ons of SaaS include accoun ng, customer rela onship management (CRM), sales force automa on and content management (CM), to name a few. Figure 4: SaaS So ware Delivery Model Enter SaaS: A Means to Deliver Process Efficiencies A SaaS requisi on solu on u lizes cloud compu ng to develop and maintain online procurement catalogs for products and services that large enterprises purchase. ERP systems generally do not handle product requisi ons well. All SaaS requisi on solu ons are not the same. However, there are some solu ons that fill in the gaps le by ERP systems and increase efficiencies in the ordering process. This allows management to be er control purchasing behavior in a way that op mizes the procurement func on, achieved by purchasing control, savings and cost avoidance, and business improvement. The major benefit of some SaaS solu ons is in their flexibility. As we become a more virtually-connected and web technology-savvy society, more and more SaaS solu ons will emerge, par cularly those developed by smaller companies who are generally more nimble in adap ng to the ever-changing needs of their business customer base. 2014, APD, Inc. 5

7 An effec ve SaaS requisi on solu on should include purchasing control, which allows management to control buying behavior before purchases are made. This ensures purchasing compliance and eliminates rogue spend. Other features that will allow organiza ons to control purchases through their SaaS solu on include: Extensive management repor ng Pricing control Managed online catalogs Easy integra on with ERP systems The primary goal for any SaaS requisi on solu on should be to provide large enterprises with savings and cost avoidance. This can be achieved by allowing management to receive comprehensive data analyses that will provide recommenda ons for ongoing cost savings. This will also ensure that the SaaS system is genera ng savings while streamlining processes so enterprises can quickly realize their ROI. Other features that will allow organiza ons to achieve greater savings and cost avoidance through their SaaS solu on include: Product standardiza on Product comparisons with images Product subs tu ons Consistent pricing across all customer loca ons As with any IT solu on, a SaaS requisi on solu on must streamline tasks to improve efficiencies (Business Improvement). Business improvement can be achieved by effec vely managing mul -vendor catalogs and strategic sourcing to meet the organiza on s product requirements. Other features that will allow organiza ons to achieve business improvement through their SaaS solu on include: Quarterly business reviews Dedicated account management 24/7/365 online ordering Core business strengthening Enterprise Cost Savings More Informa on Be er Controls Process Efficiency ERP System Integrated Suppliers SaaS Requisi on Solu on Non Integrated Supplier 1 Non Integrated Supplier 2 Non Integrated Supplier 3 Figure 5: SaaS Requisi on System Model 2014, APD, Inc. 6

8 By implemen ng a SaaS requisi on system, large enterprises can streamline and be er control the procurement process with the following benefits: Detailed Product Descrip ons Improves the search process, allowing for key word searches, product specifica ons and easier iden fica on of the correct item Product Images Improves order accuracy; Eliminates difficulty of loading images of products in ERP systems Product Comparison Allows side-by-side comparison of mul ple items; Improves ease of use, adop on rates, and compliance Product Subs tu on Allows management to set certain items to be automa cally subs tuted for others; Drives compliance, op mizes savings and resource u liza on Pricing Control Allows the client (not the vendor) to control pricing; Ensures items are purchased at contracted prices; Eliminates overpayment Cost Significantly less expensive than ERP systems; More cost effec ve than developing online catalogs internally BEFORE Many large enterprises have spent money on an ERP system that does not capture all suppliers. This creates inefficiencies with different processes for these suppliers. Enterprise ERP System Integrated Suppliers Non Integrated Supplier 1 Non Integrated Supplier 2 Non Integrated Supplier 3 AFTER Enterprise ERP System Cost Savings More Informa on Be er Controls Process Efficiency Integrated Suppliers SaaS Requisi on Solu on Non Integrated Supplier 1 Non Integrated Supplier 2 Non Integrated Supplier , APD, Inc. 7

9 Choosing a SaaS Requisi on Solu on The popularity of SaaS models for SCM are steadily increasing, because they simplify deployment and reduce customer acquisi on costs. However, not all SaaS requisi on models are created equal. As large enterprises develop a SaaS strategy, they should not overlook some of the most cri cal elements for a successful integra on, which are more comprehensive than a tradi onal SaaS solu on. An administra on component organizes and simplifies the process of building and maintaining electronic catalogs. These features also allow customized business rules, such as item restric ons or product subs tu ons. Addi onal features include automated and ered approvals, rich content development and product restric ons by category, item, and user profile. Shopping Capabili es are cri cal, because they allow shoppers to browse, compare items, and complete orders at the point of purchase. Some SaaS requisi on systems allow auto subs tu ons (required vs. recommended) for cost savings and to drive vendor compliance. Addi onal features include mobile shopping access, real- me product availability, historical item re-order, order tracking and online product inquiries. Lastly, it is important to have access to Analy cs; some type of extensive repor ng tool that captures significant data for every order is cri cal. Some SaaS requisi on systems even have the capability to manage workflow tasks such as order approval and managing end user inquiries. These features provide users with unlimited access to purchase history and data views by user access level. Addi onal features include super-user workflow management, exportable reports, customized management reports and consolidated supplier repor ng. Collec vely, these capabili es support the acquisi on of goods and services required by enterprises. These modules allow management to control purchasing behavior to op mize performance in the areas of cost, quality and efficiency. 2014, APD, Inc. 8

10 Conclusion Enterprises looking to seriously drive down procurement costs should augment their ERP systems with an electronic catalog requisi on system, using SaaS technology. This will allow enterprises to fill in the gaps of their exis ng ERP systems, resul ng in maximum cost savings and greater control. Some of these gaps include pricing control, product search capabili es, item preferences, ease of ordering and compliance with preferred vendors. By filling these gaps, an organiza on improves processes and reduces opera on costs. By inser ng a Saas requisi on solu on to build, implement and maintain customized direct URL and punchout catalogs for the products and services of contracted suppliers, organiza ons can take advantage of a new business model that not only applies new technologies, but a new approach to business altogether. The benefits are obvious and compelling organiza ons get sophis cated func onality that integrates with an ERP system without the up-front expenses or the hassles associated with the installa on and maintenance of tradi onal so ware. Another compelling benefit of a SaaS requisi on solu on is its ability to manage the product and service choices of end users across the en re supplier base. This model fills in the gaps of exis ng ERP systems, resul ng in maximum cost savings and greater management control. About APD For over 20 years, APD has generated millions of dollars in annual cost savings for some of the country s largest organiza ons using our unique Value Innova on philosophy and proprietary technology. Our system is a customized, automated program that systema cally drives down procurement costs to achieve sustained, con nuous cost savings year-over-year for large enterprises. Value Innova on gives senior procurement management the Analy cal Informa on to make major procurement cost savings decisions and the Automated Controls needed to ensure the execu on of those decisions. Value Innova on can be applied to any product category on a SaaS basis. For more informa on, please visit or contact us at Gateway Powered by Value Innova on Technologies, an APD company 2014, APD, Inc. 9

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