In today's fast-paced business environment, most organisations rely on Enterprise Resource Planning (ERP) systems as foundational tools to manage and integrate various business processes. ERPs traditionally offer a broad spectrum of functionalities, assisting in handling essential operations such as procurement, data management, accounting, and supply chain management.

ERP systems provide a comprehensive suite of software functionalities to enhance and optimise various aspects of business operations. Over time, these systems have evolved, shifting from on-premises solutions to cloud-based platforms. However, organisations still face challenges when implementing ERP solutions across their enterprise.

One significant aspect often overlooked in ERP systems is their limitation regarding financial operations & intelligence. ERP solutions primarily focus on improving business processes and management but do not directly handle monetary transactions or provide financial products. This necessitates the integration of external financial institutions and banks with ERP systems.

Moreover, traditional ERP systems struggle to keep pace with the dynamic demands of modern procurement, particularly in the ever-evolving supply chain environment. Today, ERP systems need to be more proactive, incorporating features like real-time analytics and flexible processes to meet the ever-shifting requirements of procurement. Adapting to these changes is essential for businesses aiming to enhance their procurement efficiency and agility.

ERP Systems vs Procurement Solutions: How Are They Different?

ERP systems were initially designed to automate business processes and offer insights for internal controls, while procurement solutions comprehensively manage the ecosystem.

A P2P or a procurement solution is primarily built to meet an organisation's procurement and supply chain needs, an arena always problematic for traditional ERP.

Innovative organisations are now adopting leaner and cheaper solutions for their procurement processes. These tools can deftly handle specialised tasks and yield instant results.

Limitations of ERP

Factors like market volatility, evolving work dynamics, and shifting supply chains have made it challenging for businesses to integrate their procurement processes into their current ERP systems. Hence, it is vital to use specialised solutions to cater to dynamic business processes.

But before exploring the benefits of specialised solutions, let us consider the limitations of ERP:

Long Implementation Duration that Impedes ROI

Customising legacy ERP to meet procurement or supply needs is a hassle. It contributes to a longer implementation duration lasting several months. Customisation projects are resource-intensive. That makes a fast ROI virtually impossible to achieve.

Moreover, businesses must hire ERP consultants or trained partners for the implementation. The success rate and the implementation duration heavily depend on the expertise of such third parties.

With many companies already strung tight regarding capital, implementing legacy ERP to function as procurement systems may prove counterproductive.

Expensive Implementation and Maintenance

Legacy ERP licenses come at a high price. Depending on your software, ERP implementation costs can range from $150,000 to $750,000.

Moreover, procurement processes almost always require extra modules that can further increase costs. It also includes the additional burden of maintenance costs and training employees to use the software.

Failures To Meet Business Goals

The success rate of ERP implementation is dwindling. Recent studies from Gartner indicate that the failure rates of ERP implementations can exceed 75%. McKinsey, a reputed global consultancy, supports this claim as it quantifies the failure rate of all digital transformations to be higher than 70%.

One famous example is Hershey's ERP implementation failure in 1996 as they set out to replace their legacy IT systems with an integrated ERP environment. They chose SAP's R/3 ERP software, and an implementation time of 48 months was recommended, which was later cut down to 30 months. The result - a $10 million investment leading to a loss of $150 million in revenue, a 19% reduction in share price, and a 12% loss in international market share.

With such massive costs and periods involved in achieving numbers from legacy ERP solutions, using specialized procurement systems can make achieving business objectives far easier.

Lack of analytics and insights

ERP systems often fail to deliver the necessary analytics and data for effective operations. Managing vast volumes of data within these systems can be daunting. Challenges include ensuring data quality, the lack of real-time insights, limited data analysis capabilities, and integration issues with other software applications.

Poor User Experience

Many ERP systems require makeshift solutions to modify their functionality according to user demands, leading to frustration with end-users.

Legacy ERP systems are notoriously complex, making them challenging for end-users. Frequently, users must navigate between multiple interfaces, hindering productivity and adoption.

Furthermore, the lack of mobile apps and scattered functionalities exacerbate the issue—problems that a dedicated procurement solution can readily address.

Complex User Interfaces

ERP systems offer enterprise-grade capabilities, yet their inherent complexity and poor user experience pose significant challenges. Users often struggle with confusion, as traditional ERPs are overly intricate. The need for add-ons further exacerbates the complexity, as these additions must seamlessly integrate with the existing ERP system. This constant juggling of different user interfaces not only hampers productivity but also hinders widespread adoption.

Compromised Collaboration

One of the most disappointing aspects of legacy ERP systems is the lack of in-built communication channels. ERP systems struggle with establishing themselves as a medium of dialogue between internal business users and external suppliers, as they are not accessible from outside the business network. It tangles communication channels through unnecessary phone calls and scattered information exchange lines.  

They are also severely limited in their capacity to maintain supplier pipelines, requiring most data to be entered and managed through several spreadsheets.  

Urgent reports, design changes, and other important information cannot be communicated promptly, which may lead to losses. It leads to unnecessary time consumption and inaccuracies.

Solving ERP Issues with Dedicated Procurement Solutions

Addressing the limitations of ERP systems, organisations are increasingly turning to dedicated procurement solutions to streamline their purchasing processes and enhance efficiency. These specialised solutions offer advanced analytics, real-time insights, and improved data quality, making it easier for businesses to manage their procurement operations effectively.

By integrating dedicated procurement solutions with their ERP systems, organisations can bridge the gap between data management challenges and their need for comprehensive procurement intelligence, ultimately driving better decision-making and cost savings.

Addresses Overspending Issues

Integrating P2P software with ERP can prevent overspending in procurement. By harnessing ERP with eProcurement solutions, you can efficiently assess expenses across purchasing categories.

It allows you to manage budgets and increase savings. Moreover, integrating procurement solutions with ERP simplifies procurement management by automating approval processes.

Boosts Vendor Collaboration

Vendor collaboration is one of the most essential aspects of procurement. Keeping them informed of the relevant business operations helps avoid miscommunication.

By integrating procurement solutions with ERP systems, buyers and suppliers can access real-time data, empowering them to make informed decisions. This integration brings advantages such as:

• Enhanced collaboration: Seamless collaboration between buyers and sellers, achieved through transparent access to purchase orders, invoices, and receipts.
• Supplier empowerment: Suppliers are empowered with real-time insights into payment statuses via a supplier portal, which enables sound financial planning.
• Stronger buyer-supplier relationship: Heightened transparency nurtures and strengthens the critical relationships between buyers and suppliers, a fundamental cornerstone for any successful business.
  

• Improves Scalability and Flexibility

As businesses expand, stakeholders must seek platforms that can swiftly adapt to increased operational demands and changes in the operational cycle.

Procurement software provides essential features like mobile and remote access that most businesses require to scale operations. It also allows businesses to create highly specialised and efficient platforms, saving money, time, and human resources.

Helps Eradicate Duplication Issues

Procurement solutions can help connect all departments to ensure office supply orders are placed through a centralised system. They help share real-time data across tech, IT, finance and accounting, HR, sales, and marketing teams. It helps prevent duplicate purchases by coordinating buying across departments. Improved coordination also allows teams to maximise discounts and negotiation opportunities while saving time, money, and effort.

Reduces Procurement Errors Through Automation

Specialised software can help organisations optimise deals, accelerate processes, and reduce errors through automation. It helps allocate repetitive and simple tasks to the system rather than to users.

For example, businesses can automate their supply ordering with this technology. Automation helps set limits to ensure timely orders, prevent shortages, and follow any restrictions they have in place.

Handles Compliance and Risk Management Issues

Managing procurement-related risks and complying with regulations can be pretty challenging. An ERP-procurement integration empowers the software to handle compliance matters and mitigate risks during procurement processes, even involving multi-currency transactions.

Supplier Performance Management

Managing supplier performance during the procurement process can be quite challenging without the right tools at your disposal. However, by integrating procurement software with an ERP system, you can simplify collecting and analysing data related to supplier performance.

This valuable information encompasses delivery times, product quality, and responsiveness, enabling you to decide whether to maintain or end supplier relationships.

Inventory Management

Inadequate inventory management can result in too much or too little stock. These outcomes affect working capital and operational efficiency. One practical approach to tackle this problem is integrating procurement solutions with ERP systems. Such integration offers benefits like:

• Real-time visibility into inventory levels, allowing for monitoring.
• Automated reordering process, reducing the burden on manual efforts.

For example, a supermarket chain can leverage sales data to automate the reordering of items, minimising waste and ensuring the availability of products.

Provides Analytics for Better Insights

By integrating procurement solutions with ERP, businesses gain a flexible data model capable of handling big data. It manages the data and offers valuable insights to enhance information generation, storage, and decision-making. Procurement software encompasses advanced spend analytics, supplier benchmarks, and comprehensive performance management.

Drastically Improves End-User Experience

Procurement solutions are built from the ground up, keeping procurement operations as the top priority. It helps avoid a cluttered, mismanaged UI that comes with legacy ERPs, enabling users to be more productive.

End-users can adapt to changes in the software much quicker, increasing efficiency.

Conclusion

Procurement and sourcing processes require a dedicated platform in 2023. Unlike legacy ERP, such dedicated solutions can handle complex sourcing and procurement operations. They ensure a streamlined and seamless flow of relevant information between internal business organisations and external suppliers, allowing all stakeholders to have complete project visibility.

The outcome of implementing a smaller yet far more efficient tool will facilitate faster time to market, subsequently letting you achieve your ROI at an expedited rate.

While customising an ERP may sound enticing, opting for an eProcurement solution is smarter.