The power and promise of Web-based procurement tools
Web-based spend management solutions can help companies achieve double-digit savings, but software can't do the job alone. To get the best results, companies must balance individuals' expertise with technology.
In 2009, when I wrote the white paper Riding the Crest of a New Wave: How the Original SaaS Companies Have Gained the Upper Hand, it became clear to me that a paradigm shift in vendor solutions had already been well under way as far back as 2000. The basis for this assertion was my discovery of a 2001 Software & Information Industry Association (SIIA) white paper called Strategic Backgrounder: Software as a Service.
In my own paper, I referenced SIIA's report, including its statement that "packaged desktop and enterprise applications will soon be swept away by the tide of Web-based, outsourced products and services"—a development, I wrote, that established the core principles or elements of the software-as-a-service (SaaS), or on-demand, model.
While there are various pricing structures, the SaaS model is different from traditional software licensing agreements, in that a customer only pays a transaction fee based upon actual usage, as opposed to having to make a large capital investment upfront. From an implementation standpoint, SaaS solutions can be operational within a matter of weeks, if not days. This is a major advantage over something like an enterprise-type solution, which can take up to several years to implement.
The SIIA paper concluded that the emergence of the new model would remove the responsibility for installation, maintenance, and upgrades (and the associated heavy costs) from overburdened management information systems (MIS) staff. As a result, the paper predicted, "packaged software as a separate entity will cease to exist."
Although the SIIA report stressed at the time of its publication that due to "technical and business issues" such drastic predictions had not yet come to pass, it nonetheless had sent up the first flare warning that a very significant change was about to happen.
This third-party confirmation of the SaaS trend is significant because it challenged (and still challenges) the mainstream pundits who question the viability of these new platforms. While some have begun to change their views, there are many who consider SaaS-based spend management solutions (the subject of this article) to be "nothing more than Madison Avenue buzz terminology designed to shoot some Botox into a segment of the spend management market" and think that references to the type of market shift identified by SIIA are somehow "misleading."1
This is an important point, as anyone (myself included) who takes the position that spend management solutions are capable of delivering double-digit savings—subject, of course, to an individual organization's purchasing practices, both past and present—would have to prove that the prerequisite technological breakthrough is in fact real. If, as the above-referenced pundits maintain, the new spend management solutions are nothing more than vacuous marketing "sizzle," then the prospects for savings, let alone sustained savings, become highly questionable, and the discussion would have to shift from one of leveraging new technologies to one of discovering why existing platforms have consistently failed to produce the expected results.
Not by technology alone
One of the key positions championed by the naysayers regarding SaaS-based spend management solutions is that obtaining true spend intelligence is solely dependent upon the expertise of individuals to gather, synthesize, and analyze the data, and then produce meaningful insight and results. If this is in fact the case, then why are these same "experts" hard-pressed to explain why the great majority of technology-based e-procurement initiatives fail to achieve the expected savings?
There is no shortage of articles and reports pointing to a high failure rate for spend management initiatives that are based on the traditional, enterprise resource planning (ERP)-centric licensing model. The actual rate of failure is subject to debate; some observers place it at more than 50 percent while many others say it is as high as 90 percent. The reason for the discrepancies is that most e-procurement undertakings are part of larger ERP-based implementations. This makes it difficult to narrow the analysis to a supply chain management (SCM)-only problem. That said, reports from research organizations such as the META Group (now part of Gartner), which in 2001 estimated that 70 percent of SCM technology projects had failed, to the more recent 2007 Toolbox.com article, which reported that 90 percent of such projects "fail to deliver any ROI (return on investment)," are nonetheless disconcerting.
Given that abysmal track record, it should come as no surprise that many people consider the low-cost, pay-per-use SaaS models to be the solutions of the future—or that many companies are already adopting them. The fact that some ERP vendors have abandoned their traditional business model in favor of offering an on-demand solution testifies to the monumental shift to SaaS that is now under way.
Of course the impact and effectiveness of any technological breakthrough are to a certain degree dependent upon the proper application of data to make informed decisions. Yet without the new technology, no amount of internal expertise would have produced the double-digit savings some companies that use these solutions have achieved. This is because with traditional spend management applications, the mere extraction of the required data proved to be a laborious exercise that failed to produce meaningful intelligence on a timely basis. Put another way, SaaS-based spend-intelligence solutions make meaningful data readily accessible to anyone and everyone associated with the purchasing function—not just the individuals who have the level of expertise required for data extraction and analysis with traditional software applications.
That said, it is important to note that I am not suggesting that technology, no matter how advanced, will in and of itself lead to savings without the active involvement of knowledgeable and engaged purchasing personnel. Instead, it is the combination of the timely access to spend intelligence afforded by new Web-based platforms and the ability of individual purchasing professionals to properly apply that information that drives savings.
This, as it turns out, is the linchpin—the critical factor that makes possible the transformational cost savings that have eluded so many organizations that rely on traditional ERP-based applications in their spend management quest. To illustrate my point, let's consider the case of an organization that achieved double-digit savings over a multiyear period.
The Department of National Defence (DND) in Canada struggled with poor service-level agreement performance and escalating costs associated with the procurement of indirect materials.
With the introduction to the purchasing process of a Web-based, pay-as-you-go solution, frontline buyers were able to leverage both key historical value indicators (past delivery performance and product quality) and real-time value indicators (such as current product costs and factors affecting price) to select the right vendor 98.2 percent of the time.
A particularly telling example of the impact of real-time value indicators (information that previously was not available to the DND) involves the relationship between product cost and the time of day a product was ordered. Trend analysis using the new software demonstrated that a particular maintenance and repair part that was sourced at 9:30 a.m. might cost C$130. If the same product was sourced at 3:30 p.m., it was not uncommon for the cost to rise to as much as C$1,000.
Because this data was available to buyers as part of the purchasing process (as opposed to becoming available through an adjunct, after-the-fact reporting function) the DND used this information to its advantage when making purchasing decisions, and thus realized significant gains. These included:
An almost immediate improvement in next-day delivery performance, from 53 percent to 97 percent of all orders arriving at the appointed destination within 24 hours;
A year-over-year cost-of-goods savings of 23 percent for seven consecutive years; and
A reduction in headcount over the first 18 months, from 23 buyers to three buyers.
An interesting point: despite the impressive results in the areas of delivery performance and cost reduction, it is the third point of savings that has garnered the greatest attention. In light of the DND's recent announcement that the agency would be cutting 2,300 positions from its present workforce, one can understand why.
Situational circumstances driven by external factors (such as a struggling economy) notwithstanding, it would be erroneous to assume that a reduction in headcount is a primary savings component, because technology **italic{empowers} an engaged workforce, as opposed to replacing or reducing it. This is not to say that there are no instances in which a reduction would be warranted, as demonstrated by the DND example. However, to blindly believe that automation alone will enable an organization to reduce its workforce, and do so in a window of time that is commensurate with immediate financial concerns, is pure folly.
In the DND's case, reducing headcount was a by-product of increased efficiency that had been achieved not just through automation but also through a solid understanding of the logistical elements needed to meet a service-level agreement's demanding requirements. It was only after the SaaS solution had been successfully implemented and had begun producing the expected results over a 12-month period that the organization could strategically consider eliminating personnel, and then act upon that plan.
Achieve the right balance
When organizations put workforce reduction at the top of the savings list, it negatively skews their focus, creating an over-reliance on technology that, as previously discussed, rarely delivers the expected savings.
In this context, it is the sustainable savings that are directly and predominantly linked to cost-of-goods reductions that should be the primary focus of any initiative—not the one-time benefits like reduced headcount.
So what is the key takeaway relative to SaaS, or Web-based, procurement tools?
Because Web-based spend management solutions are better able to address market volatility, and thus ensure that organizations achieve the best value when acquiring materials and supplies, they are the effective means by which double-digit savings can be realized.
However, the key to realizing said savings are and always will be based on ascertaining and achieving the all-important balance between purchasing personnel's capabilities and those of emerging Web-based technology.
Business software vendor Cleo has acquired DataTrans Solutions, a cloud-based procurement automation and EDI solutions provider, saying the move enhances Cleo’s supply chain orchestration with new procurement automation capabilities.
According to Chicago-based Cleo, the acquisition comes as companies increasingly look to digitalize their procurement processes, instead of relying on inefficient and expensive manual approaches.
By buying Texas-based DataTrans, Cleo said it will gain an expanded ability to help businesses streamline procurement, optimize working capital, and strengthen supplier relationships. Specifically, by integrating DTS’s procurement automation capabilities, Cleo will be able to provide businesses with solutions including: a supplier EDI & testing portal; web EDI & PDF digitization; and supplier scorecarding & performance tracking.
“Cleo’s vision is to deliver true supply chain orchestration by bridging the gap between planning and execution,” Cleo President and CEO Mahesh Rajasekharan said in a release. “With DTS’s technology embedded into CIC, we’re empowering procurement teams to reduce costs, improve efficiency, and minimize supply chain risks—all through automation.”
And many of them will have a budget to do it, since 51% of supply chain professionals with existing innovation budgets saw an increase earmarked for 2025, suggesting an even greater emphasis on investing in new technologies to meet rising demand, Kenco said in its “2025 Supply Chain Innovation” survey.
One of the biggest targets for innovation spending will artificial intelligence, as supply chain leaders look to use AI to automate time-consuming tasks. The survey showed that 41% are making AI a key part of their innovation strategy, with a third already leveraging it for data visibility, 29% for quality control, and 26% for labor optimization.
Still, lingering concerns around how to effectively and securely implement AI are leading some companies to sidestep the technology altogether. More than a third – 35% – said they’re largely prevented from using AI because of company policy, leaving an opportunity to streamline operations on the table.
“Avoiding AI entirely is no longer an option. Implementing it strategically can give supply chain-focused companies a serious competitive advantage,” Kristi Montgomery, Vice President, Innovation, Research & Development at Kenco, said in a release. “Now’s the time for organizations to explore and experiment with the tech, especially for automating data-heavy operations such as demand planning, shipping, and receiving to optimize your operations and unlock true efficiency.”
Among the survey’s other top findings:
there was essentially three-way tie for which physical automation tools professionals are looking to adopt in the coming year: robotics (43%), sensors and automatic identification (40%), and 3D printing (40%).
professionals tend to select a proven developer for providing supply chain innovation, but many also pick start-ups. Forty-five percent said they work with a mix of new and established developers, compared to 39% who work with established technologies only.
there’s room to grow in partnering with 3PLs for innovation: only 13% said their 3PL identified a need for innovation, and just 8% partnered with a 3PL to bring a technology to life.
Even as a last-minute deal today appeared to delay the tariff on Mexico, that deal is set to last only one month, and tariffs on the other two countries are still set to go into effect at midnight tonight.
Once new U.S. tariffs go into effect, those other countries are widely expected to respond with retaliatory tariffs of their own on U.S. exports, that would reduce demand for U.S. and manufacturing goods. In the context of that unpredictable business landscape, many U.S. business groups have been pressuring the White House to pull back from the new policy.
Here is a sampling of the reaction to the tariff plan by the U.S. business community:
American Association of Port Authorities (AAPA)
“Tariffs are taxes,” AAPA President and CEO Cary Davis said in a release. “Though the port industry supports President Trump’s efforts to combat the flow of illicit drugs, tariffs will slow down our supply chains, tax American businesses, and increase costs for hard-working citizens. Instead, we call on the Administration and Congress to thoughtfully pursue alternatives to achieving these policy goals and exempt items critical to national security from tariffs, including port equipment.”
Retail Industry Leaders Association (RILA)
“We understand the president is working toward an agreement. The leaders of all four nations should come together and work to reach a deal before Feb. 4 because enacting broad-based tariffs will be disruptive to the U.S. economy,” Michael Hanson, RILA’s Senior Executive Vice President of Public Affairs, said in a release. “The American people are counting on President Trump to grow the U.S. economy and lower inflation, and broad-based tariffs will put that at risk.”
National Association of Manufacturers (NAM)
“Manufacturers understand the need to deal with any sort of crisis that involves illicit drugs crossing our border, and we hope the three countries can come together quickly to confront this challenge,” NAM President and CEO Jay Timmons said in a release. “However, with essential tax reforms left on the cutting room floor by the last Congress and the Biden administration, manufacturers are already facing mounting cost pressures. A 25% tariff on Canada and Mexico threatens to upend the very supply chains that have made U.S. manufacturing more competitive globally. The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs. These businesses—employing millions of American workers—will face significant disruptions. Ultimately, manufacturers will bear the brunt of these tariffs, undermining our ability to sell our products at a competitive price and putting American jobs at risk.”
American Apparel & Footwear Association (AAFA)
“Widespread tariff actions on Mexico, Canada, and China announced this evening will inject massive costs into our inflation-weary economy while exposing us to a damaging tit-for-tat tariff war that will harm key export markets that U.S. farmers and manufacturers need,” Steve Lamar, AAFA’s president and CEO, said in a release. “We should be forging deeper collaboration with our free trade agreement partners, not taking actions that call into question the very foundation of that partnership."
Healthcare Distribution Alliance (HDA)
“We are concerned that placing tariffs on generic drug products produced outside the U.S. will put additional pressure on an industry that is already experiencing financial distress. Distributors and generic manufacturers and cannot absorb the rising costs of broad tariffs. It is worth noting that distributors operate on low profit margins — 0.3 percent. As a result, the U.S. will likely see new and worsened shortages of important medications and the costs will be passed down to payers and patients, including those in the Medicare and Medicaid programs,” the group said in a statement.
National Retail Federation (NRF)
“We support the Trump administration’s goal of strengthening trade relationships and creating fair and favorable terms for America,” NRF Executive Vice President of Government Relations David French said in a release. “But imposing steep tariffs on three of our closest trading partners is a serious step. We strongly encourage all parties to continue negotiating to find solutions that will strengthen trade relationships and avoid shifting the costs of shared policy failures onto the backs of American families, workers and small businesses.”
In a statement, DCA airport officials said they would open the facility again today for flights after planes were grounded for more than 12 hours. “Reagan National airport will resume flight operations at 11:00am. All airport roads and terminals are open. Some flights have been delayed or cancelled, so passengers are encouraged to check with their airline for specific flight information,” the facility said in a social media post.
An investigation into the cause of the crash is now underway, being led by the National Transportation Safety Board (NTSB) and assisted by the Federal Aviation Administration (FAA). Neither agency had released additional information yet today.
First responders say nearly 70 people may have died in the crash, including all 60 passengers and four crew on the American Airlines flight and three soldiers in the military helicopter after both aircraft appeared to explode upon impact and fall into the Potomac River.
Editor's note:This article was revised on February 3.
GE Vernova today said it plans to invest nearly $600 million in its U.S. factories and facilities over the next two years to support its energy businesses, which make equipment for generating electricity through gas power, grid, nuclear, and onshore wind.
The company was created just nine months ago as a spin-off from its parent corporation, General Electric, with a mission to meet surging global electricity demands. That move created a company with some 18,000 workers across 50 states in the U.S., with 18 U.S. manufacturing facilities and its global headquarters located in Massachusetts. GE Vernova’s technology helps produce approximately 25% of the world’s energy and is currently deployed in more than 140 countries.
The new investments – expected to create approximately 1,500 new U.S. jobs – will help drive U.S. energy affordability, national security, and competitiveness, and enable the American manufacturing footprint needed to support expanding global exports, the company said. They follow more than $167 million in funding in 2024 across a range of GE Vernova sites, helping create more than 1,120 jobs. And following a forecast that worldwide energy needs are on pace to double, GE Vernova is also planning a $9 billion cumulative global capex and R&D investment plan through 2028.
The new investments include:
almost $300 million in support of its Gas Power business and build-out of capacity to make heavy duty gas turbines, for facilities in Greenville, SC, Schenectady, NY, Parsippany, NJ, and Bangor, ME.
nearly $20 million to expand capacity at its Grid Solutions facilities in Charleroi, PA, which manufactures switchgear, and Clearwater, FL, which produces capacitors and instrument transformers.
more than $50 million to enhance safety, quality and productivity at its Wilmington, NC-based GE Hitachi nuclear business and to launch its next generation nuclear fuel design.
nearly $100 million in its manufacturing facilities at U.S. onshore wind factories in Pensacola, FL, Schenectady, NY and Grand Forks, ND, and its remanufacturing facilities in Amarillo, TX.
more than $10 million in its Pittsburgh, PA facility to expand capabilities across its Electrification segment, adding U.S. manufacturing capacity to support the U.S. grid, and demand for solar and energy storage
almost $100 million for its energy innovation research hub, the Advanced Research Center in Niskayuna, NY, to strengthen the center’s electrification and carbon efforts, enable continued recruitment of top-tier talent, and push forward innovative technologies, including $15 million for Generative Artificial Intelligence (AI) work.
“These investments represent our serious commitment and responsibility as the leading energy manufacturer in the United States to help meet America’s and the world’s accelerating energy demand,” Scott Strazik, CEO of GE Vernova, said in a release. “These strategic investments and the jobs they create aim to both help our customers meet the doubling of demand and accelerate American innovation and technology development to boost the country’s energy security and global competitiveness.”