Factors that drive positive ROI for Procurement SoftwareBusiness | February 01, 2023 | By
Return on Investment (ROI) is a way to calculate the success or failure of an investment. It is a critical metric used to determine the profitability of an expenditure before even utilizing resources on it. And knowing whether an investment such as sourcing and procurement software will provide great returns, before actually making the investment, is an absolute boon for the organization.
Factors affecting ROI
Implementing enterprise-level software is not new for product manufacturing companies. Majority of the companies work with legacy, enterprise systems. And when you ask them, how was/is the experience of such an undertaking, most of them would nod their heads in dismay sharing their bitter experiences.
Legacy systems churn out a myriad of problems such as:
- From a sourcing and procurement POV, the software will not cover the entire spectrum of direct material procurement. This is why it was implemented in the first place!
- Integration with other enterprise systems is a huge undertaking. And if it does integrate, it will only be after truckloads of customizations. Further, updates will take a lot of time and even a small error might crash the servers! (Legacy software run mostly on on-premises servers and not on the cloud)
- Implementation times may exceed months, if not years, hindering the products’ development!
- Legacy software is highly expensive: future developments, user testing, support, and maintenance costs. This is a major dent in the bottom line!
When evaluating procurement software for direct material procurement, companies have to carefully consider the solutions available in the market. At Zumen, we have developed an Ultimate guide to choosing the right software. The guide elucidates the steps to follow and factors to consider while selecting the software for procurement. At this juncture, calculating the ROI is critical.
Here are a few factors to consider, to drive positive ROI for Source-to-Pay software.
Process Coverage, Best practices, Level of Automation
One of the basic criteria of Source-to-Pay software is that it should cover the entire spectrum of the Source-to-Pay process. Let’s consider direct material procurement- the software should cover the RFx process to invoice approvals for payment.
The software build must have industry knowledge and experience so that global best practices are put into use. Otherwise, product manufacturing organizations will limit themselves only to their superficial capabilities.
Next is the level of automation. The primary feature to consider here is how quickly can a process be executed. Automation will reduce manual errors, improving process accuracy and data management. For example, RFx processes handled manually vs. execution done using the software saves a lot of time, thereby significant savings on costs, reflecting on the ROI of investment.
Integration with Legacy Systems
Even today, most of the sourcing and procurement-related transactions happen via an ERP or PLM system. But data for sourcing is needed from both. Manufacturing and historical purchase data are fetched from the ERP system and design data from the PLM system when needed. So it is a necessity for the Source-to-Pay software to be able to integrate with ERP and PLM legacy systems. And seamless integration with the organization’s ERP and PLM system can help streamline procurement processes and reduce errors. This can result in a lot of cost savings, which will be reflected in the ROI of the investment.
The faster the software is implemented the sooner the teams get to use derive value from it. Procurement software that requires a lot of time and is difficult to implement or requires a lot of customization will take longer than expected time to see a return on investment. Higher customization means that the tool is not the right fit. Also, another reason for the delay could be that the software is being built on older technologies. This makes it difficult to implement, update, and maintain. Simply put, the software will not be able to work fast enough.
So software built on the latest technology will be easy to implement, integrate with legacy systems, upgrade, and maintain. Thus saving a lot of time and thereby again cost.
Lower Investment Cost
Software that is built on the latest technology, covering the entire process, with the best of industry practices and best possible level of automation; software that easily integrates with legacy systems; and software that takes very less time to implement; all of these translate to minimal time and human resources spent. And will directly reflect on the ROI.
Maximize ROI when using Procurment Software
It is important to calculate the ROI of procurement software when evaluating software to handle procurement. By considering the above-mentioned factors: from complete process coverage to low investment cost, organizations can make informed decisions about whether or not to invest in procurement software and ensure that the investment results in a positive return.
Zumen is a comprehensive Source-to-Pay software built with industry know-how. It complements the ERP and PLM system by integrating with them and covers the entire direct material procurement spectrum. And a typical automotive tier-1 company can save $9M when using Zumen. To know how much you can save click the link below. You can also reach out to us at [email protected], or schedule a free demo.