Cost Of Poor Procurement Tools: $1.5 Billion

U.S. companies are losing more than $1.5 billion per year and are wasting more than 32 million man hours because their procurement tools are ineffective, a new survey report shows.

Conducted by the Topline Strategy Group, the SciQuest-sponsored report “Optimizing Your Sourcing and Procurement: Five Simple Rules,” found that just 28 percent of sourcing and procurement professionals believe their procurement system makes them much more productive.

“With North American companies spending more than $1.4 billion on enterprise software applications in 2013, according to Gartner, this amounts to a massive productivity gap eating away at bottom lines,” according to the survey findings announcement.

For its research, Topline Strategy surveyed 241 sourcing and finance professionals at more than 200 U.S. companies with $500 million in revenue. Its goal was to determine the steps organizations can take to achieve a positive return on their procurement investment.

Impact beyond cost

The findings suggest that ineffective procurement systems have an impact that goes beyond hard costs, as 68 percent of respondents who said their procurement systems do not make them more productive said that they would use the time lost to inefficiency to find more savings opportunities. They would also use that time to guide purchasers on making better choices, to get more spend categories under contract, purchase more cost-effective items and get more bids per tender, according to the report.

“When sourced and implemented correctly, procurement systems represent an opportunity for organizations to drastically reduce costs, improve process efficiency and gain visibility into spending decisions,” Mark Digman, SciQuest senior vice president of m, said in a statement. “This research from The Topline Strategy Group indicates that most organizations are falling well short of these transformative benefits. The concept of turning spending into a source of savings takes some getting used to, but it’s an idea that more purchasing and sourcing professionals need to embrace.”

Improvement recommendations

To help companies to maximize their return on investment in procurement systems, Topline Strategy suggests they take the following steps:

Choose the right software: More than 50 percent of respondents who were not satisfied with their procurement systems cited a convoluted user interface as a reason for dissatisfaction, while 38 percent said their system lacks critical features that limit what can be done.

Don’t get caught up in vendor standardization: Only 16 percent of respondents who used two applications from the same vendor rated both as “making them much more productive.” Meanwhile, only 6 percent of respondents cited ERP integration as a driver of satisfaction.

Invest in implementation: Regardless of who performed implementation services, respondents found that how well that organization performed, which correlates highly with the level of investment, makes a big impact. Seventy-three percent of companies where the implementer “did a great job and added a lot of value” were either extremely satisfied or very satisfied with their system.

Frequently update and improve the system: Forty-eight percent of companies that regularly improve their system with new features and capabilities, something closely associated with Software-as-a-Service delivery, said their procurement system makes them much more productive. Only 16 percent of respondents whose systems are not regularly improved said the same.

Use software that is easy for casual, occasional users: Seventy-eight percent of respondents believe that employees would find better deals and save their company money if corporate procurement tools were easier to use. Eighty-one percent believe that easier-to-use tools would reduce rogue spending.