Source to Pay vs ERP [The Showdown]

Procurement Transformation 3 Part Series

Authored by: Daniel Haitz

Part I: Source to Pay or ERP First?

Introduction

Source to Pay (Also known as - Business Spend Platforms or Digital Procurement Software) Cloud Transformations are definitively part of the digital transformation roadmaps strategies employed by Fortune 1000 firms. This is often juxtaposed or done in tandem with ERP transformations to the cloud. This 3-part series seeks to outline many of the considerations companies face when evaluating / selecting a solution,

Part I: Determining investment order (ERP vs. S2P investments),

Part II: Understanding business case value and their drivers, and finally,

Part III: How risk is radically changing the decision-making model.

Organizations have been trying to transform all their operations over the last 10 years to consistently get more digital. It may be the most used buzzword in all of consulting. This paper seeks to discuss the “big rocks” decision-making our clients have been facing over the last 5 years.

Historically speaking, many enterprises ran their ERP and Procurement solutions against their “on-prem” solutions. Often, their solutions had to be maintained on their servers and could be customized based on their business. This model was not working for software providers. Enterprises would take those solutions and radically change them, sometimes making them unrecognizable to the original provider. This led to difficulties in providing security patches, break-fix solutioning, and deploying software capability enhancements. In other cases, corporations elected to build their own solutions or own legacy solutions from companies that no longer exist or have been gobbled up through acquisition.

Why does this matter? Because cloud computing came along. Starting in the early 2010’s, providers realized not only can they deliver their solution at a lower cost, but they could retain more control over the configuration capabilities afforded to their clients to ensure security, enhancements, and break-fixes could actually be supported.

ERP History

Cloud-built solutions allowed providers to retain control, deploy multiple instances to clients (if required), and constantly release capability enhancements based on the needs of their clients. In the ERP space, this led to the big players e.g., SAP and Oracle mandating the move to their cloud solutions by early 2020s and slowly halting support for on-prem solutions. Did that play out? Not really. They frequently pushed that timeline back but have discontinued security patches and support for parts of their legacy software. The journey is evolving but the end goal – no more on-prem.

Source to Pay (S2P) History

Most of the leading class solutions were built on the cloud from the beginning. This series will be focusing on Coupa specifically but for other references think SAP Ariba, Ivalua, GEP, or Jaggaer solutions. These solutions had a massive head start in the cloud delivery game not having to re-create their solution on the cloud but originating there. They were all built with open API integrations in mind with the capability to integrate into any ERP, Master Data management, data lake, etc. solutions out there. Now having roughly 10 years of experience delivering regular updates on a scheduled basis provided security and capability enhancements.

ERP vs. S2P Transformation

For most organizations, capital deployment is an art and is always in short supply. Determining where to invest funds is critical in supporting their IT infrastructure strategies and living up to their business case.

There will be an element of the decision-making that comes down to timing. When is the contract up? Can we live with the on-prem solutions for another year? Two years? Are there planned acquisitions that play a part in this strategy? For the purposes of this paper, we are ignoring those as they should be evaluated on a case-by-case basis with a technology strategy partner to help walk through those considerations.

To keep it simple, your ERP is the backbone of your organization. It handles most, if not all, of your financing operations, bookkeeping, supports financial reporting, and often your direct materials and payments. For some, it also handles indirect procurement. In a manufacturing environment where direct materials are sourced and procured – it is critical to procurement activity as the S2P platforms out there are still maturing in this space.

S2P on the other hand is typically seen as an indirect procurement platform and/or supporting the front-end Sourcing, Contracting, Supplier Management, and Risk elements of your directs business.

Given the progress both areas (S2P and ERPs) have made moving to the cloud and the excess of capabilities provided vs. their on-prem counterparts – Enterprise decision-making on where to invest in IT infrastructure finds these at odds. ERP or S2P first?

The answer will not be found here but I wanted to give a point of view [15 years in the S2P space] as to why I lean heavily towards S2P first. ??

S2P First

·??????Less Capital Intensive (65%-85%)

·??????Shorter duration to benefits case and a funding Mechanism to execute ERP implementation

·??????Preps organization for significant changes coming with ERP upgrades

·??????Forces considerations against current op-model

Less Capital Intensive

This matters a lot for most organizations. Capital is limited and an S2P transformation costs considerably less due to the nature of how Systems Implementors have turned this into a science. At Accenture, we come with a global mindset, pre-configured solutions (processes) to limit KDDs (Key Design Decisions), focusing on the biggest ticket item – Integrations. While the platform and implementation costs are significantly lower as compared to ERP transformations, it does mean the integrations would have to be rebuilt to support an ERP transition/Upgrade. My experience has been those costs are limited and the ongoing value received significantly outweighs those costs.

Moreover, for Coupa, Accenture has developed a Middleware as a Service to help bridge those needs. We have a pre-built middleware solution that is plug and play into your current ERP that can be utilized until an upgrade has been made to your ERP. This negates the need to source, build, manage, integrations in the meantime while your ERP transition is ongoing.

Shorter Duration to benefits case, fund other transformations

Not all enterprises are created equal. That said, compressed transformations are what we are known for and our experience shows a typical S2P deployment can be done in 5-8 months depending on the complexity. Part II of this series focuses on business case value and how I think about Coupa’s business case more in-depth, but for purposes of quick math, 1.5%-2% of addressable spend is what an organization should be thinking. There are ways to get this case up to 3-4% that require a more in-depth view of your current sourcing execution strategies, contract pricing, and whether or not you want to shift to a V card program. Thinking conservatively though – we stick with 1.5%-2%. This is roughly 15M-20M per billion in spend sent through the system. By the end of your first year, all spending should be within the system and you are collecting against that benefits case.

My view: these savings should be utilized to finance other transformations (ERP) within the organization

Prepares the organization for an ERP transformation

When executing an S2P transformation you must review many overlapping design considerations that will be reviewed within an ERP transformation. Chiefly, Supplier Master setup, Chart of Accounts / GLs, approval flow, tax implications (software, codes, etc), payment terms, units of measure, budgets, users, shipping terms, exchange rates, contract/procurement connections, and addresses. Getting the ball rolling on these decisions and their impacts on future ERP changes opens many of our client’s eyes as to the work they need to do and/or consider when looking to upgrade their ERP, providing them a roadmap of internal prep work they can execute themselves without an SI partner (system implementation).?

Additionally, as capabilities are delivered through Coupa – you find this system can front load or take on many of the activities previously held within the ERP. Think contracts, approvals, budgeting, inventory (in some cases), BOMs (bill of materials), Supplier management onboarding, and payments. These realizations lead to a more refined scope and emphasis for your ERP transformation. ?

Operations Model Considerations

S2P transformations bring a lot to consider when it comes to op-model:

• How is the business/finance involved in sourcing execution or savings recognition? Is that tied to General Ledger updates / Budgeting activities?
• How are we digitizing contracts and connecting their contents to PO’s / invoices? Who is responsible for that?
• Approval chain reviews – we find organizations have outgrown their prior approval chain model and need to re-evaluate
• How does the risk organization fit into the contract approval or supplier onboarding process?
• Who has the authority to execute supply chain finance, early pay discounting offers, or what is the P-Card / V-Card policy with particular buying channels
• How do we identify ad hoc / rogue spend and re-route to a procurement desk for execution when certain criteria are met?
• Does a Procurement desk exist to meet these needs?

All of these are critical design elements I consider when implementing Coupa that impact the entire procurement organization agnostic of ERP / S2P solution. Framing up and understanding the transformation path for your procurement organization will impact any organization's approach to an ERP transformation. Moreover, Accenture brings an array of tools and options to the table to help fund/combat these transformation issues. We manage over $500B+ annually with our business process outsourcing services offering. Allowing clients to reduce resourcing and focus on core capabilities. This type of offering, combined with Coupa, offers compelling savings and transformation opportunities.

Summary

Enterprises have a lot of decisions to make when it comes to their technology stack and as a trusted partner for countless organizations, we have had unique insight into everything that might impact those decision-making criteria. You’ll notice this paper was not too Coupa oriented, while we cannot say the same for the next few in the series we wanted to lay the framework through the decision-making process many of our clients are facing. Digital transformations are at the forefront of every organization, and understanding benefits and viewpoints to help make this decision is what we do. We dive deeper into this transformation process by understanding Coupa’s business case value and its drivers in part II of this series.?