Faced with funding constraints, fast-paced business environments, and ever-evolving procurement needs, businesses cannot rely on a one-size-fits-all approach to deploying and managing best-in-class procurement capabilities. Organizations need to be able to choose the model that meets their individual requirements.
While some organizations are best suited to the traditional approach of building technology competencies in house, for others, this approach can be time consuming and capital intensive. New options like on-demand solutions can lower price and deployment barriers, but raise questions about solution configurability and location of assets. Businesses also may not have the requisite knowledge and resources in house to address technology and procurement requirements.
So which procurement software licensing and deployment model is right for your business? While answering this question may tempt you to resort to a game of "rock, paper, scissors," there is a better way. This article explains the available licensing and deployment options and reviews the business factors for determining the best approach for your company.
Procurement Software Licensing Models and Deployment Options
There are currently two main ways to license your procurement software: the software-as-a-service (SaaS) subscription model, or the perpetual license model. Figure 1 provides an overview of the deployment options available with each of these licensing models. To make the best decision for your organization, it is critical to have a solid understanding of the models and options.
||Procurement licensing and deployment models
The SaaS Subscription Model
In the SaaS model, a software provider or business process outsourcing (BPO) partner deploys the software and centrally hosts its associated data. This on-demand deployment model has grown in popularity due to its low cost of entry and pay-as-you-go subscription model. The user organization subscribes to the software, and users access the application through a thin client, such as a web browser. While on-demand solutions are typically multi-tenant, single-instance models are also an option.
In the on-demand model, procurement best practices are preconfigured into the solution and updated versions are released frequently. And the software vendor is responsible for all product releases, updates, fixes, and product uptime as part of the service level agreement (SLA), freeing user organizations from expending the associated costs and resources.
The Perpetual License Model
By definition, a perpetual license is a one-time software purchase that does not expire as long as the software is used in accordance with license terms. Traditionally, a perpetual license meant an on-site (on-premise) deployment of the purchased solution. But changing market conditions and an increased demand for third-party services have led to additional deployment options. There are currently three ways to deploy a perpetually licensed procurement solution: an on-premise deployment, a deployment hosted by the software provider or third party, or a deployment hosted and managed by a BPO partner.
In an on-premise deployment, the procurement software is installed and runs on the user organization's infrastructure. This method requires an organization to purchase and house the required hardware to run the software, deploy and configure the software to meet specific business needs (usually with the help of a systems integrator), manage ongoing system support and SLAs, and manage software upgrades as needed. The solution is often deployed as a shared service, with the procurement software and business functions managed as a center of excellence so that standardized policies and processes can be enforced. This deployment model is a significant undertaking and typically appeals to large enterprises that want to control and consolidate operations globally.
Companies that leverage a hosted software option turn to a third-party provider to take care of installing, setting up, and supporting hardware and software. The perpetually licensed software resides on the third party's server, alleviating the need for hardware and IT oversight by the user organization. An SLA binds the third-party provider to guaranteed uptime and scheduled hardware maintenance that is tailored to meet the user organization's needs. The user organization retains ownership of the software package and, in most cases, still manages daily procurement operations and the function of the software.
Some hosted service providers can offer extended levels of support, but keep in mind that procurement-specific expertise is not always a competency of hosting providers. The hosted deployment model is used by organizations that prefer to outsource the technical aspects of their systems management.
Using a BPO partner for deployment has become the go-to option for user organizations that want to own the procurement software, but want a third party to host and manage the solution while providing additional procurement-specific services. Like the hosted option, the BPO partner is responsible for maintaining uptime and managing the hardware necessary to support the solution. Unlike hosted solutions, BPO partners take much deeper ownership of the solution configuration, functions, and daily operations. In many cases, the BPO partner is responsible for processing purchase orders and managing strategic sourcing activities, acting as a true extension of your organization's procurement function. With the procurement BPO market growing at a rate of 30% to 40% over the past five years, this model has matured into an equally viable option for many organizations1 — especially those that require additional procurement expertise.
Which Option Is Right for You?
A successful deployment strategy is one that aligns with your business needs. By weighing a few key business factors, you can determine which of the licensing and deployment options is the best fit for your company.
Most organizations' decisions come down to a matter of the almighty dollar. Licensing a solution outright and deploying it on premise means a capital purchase, which requires significant planning and budgetary approvals. In fact, procurement initiatives often stall at the point of financial approval because the deployment of other IT-focused projects takes precedence.
This is when many organizations turn to on-demand solutions, which are packaged with a subscription agreement that allows the buying organization to "pay as you go," lowering the barrier to entry and reducing costs to a simple monthly or annual payment. Additional benefits include regular software upgrades and product fixes at no extra charge.
But don't overlook the benefits of perpetually licensed on-premise solutions over the long term. While the initial cost outlay for an on-premise solution may be high, there can be economies of scale over time. For example, when your peers are in their tenth year of subscribing to their on-demand solution, your perpetual license will have been off the books for some time. And given the tight alignment of your procurement and ERP functionalities, you may also be able to share existing infrastructure for these solutions, enabling you to reduce overhead costs.
Availability of IT Resources
Despite your procurement department's readiness to deploy new purchasing software and processes, your project may be tempered by the availability of IT resources and funds. In addition to cost pressures, many organizations find it difficult to attract and retain essential IT talent. On-premise procurement applications require IT ownership of the solution — from solution deployment to the management of workflow, catalog content, and EDI connectivity. If your IT organization doesn't have the bandwidth or hardware to accommodate another enterprise-level software solution, then consider on-demand, hosted, or BPO partner solutions. These alleviate the need for behind-the-firewall IT support.
Remember that third-party-managed solutions will likely require some level of integration with existing IT systems, so keep your IT colleagues closely involved as you weigh your options.
Complexity and Adaptability of Processes
Organizations that use standardized purchasing processes and have the flexibility to adjust their procurement processes can readily benefit from on-demand products and take advantage of the highly iterative and customer-driven releases these products offer. Administrators can configure aspects of these applications — such as basic workflow steps and user roles — but extensive customization is not an option.
If you require customized processes to support highly complex functions from your procurement software — like unique workflows or integration with third-party systems — turn to either on-premise software or private (single-instance) editions of on-demand solutions to meet your specific needs. These solutions are yours to modify and are more flexible in addressing your non-standard integration requirements.
Regulated and Confidential Information
Some organizations prefer to have their corporate data exclusively served on their own hardware and behind their firewall. If your organization handles highly regulated, confidential, or sensitive information throughout purchasing processes, an on-premise deployment may be the best option to address your corporate governance. This approach is also a good fit if you're concerned about protecting contract prices or if you need to restrict the location of corporate data.
Paper Covers Rock, But a Carefully Selected Plan Means Winning Odds
You have many options when choosing the best deployment model for your procurement investments. Associated constraints and risks, such as costs and security concerns, make the decision a challenge. Weigh all of the determining factors with key stakeholders from procurement, finance, and IT. Be honest about your organization's in-house resource levels and abilities, as well as its appetite for the introduction of third-party providers to which you can outsource some or all of your needs. A comprehensive evaluation of all options will enable you to make an informed decision, guard against adverse impacts, and increase the probability of success.
SAP offers a full suite of procurement solutions that support all of the licensing and deployment models discussed here — with the added flexibility of being able to integrate solutions that are deployed on different models and migrate from one model to another to meet your changing business needs.
With help from its extended partner network, SAP delivers a wealth of procurement solutions, as well as a breadth of services to help scope the right solution and meet your needs for change management, solution rollouts, and long-term support and maintenance.
To learn more about the SAP procurement suite and what it can offer your organization, visit www.sap.com/procurement-excellence.
Suzanne Miglucci (email@example.com) is Senior Director of Procurement Solutions Marketing at SAP. In this role, Suzanne contributes to the direction and market awareness of procurement portfolio solutions to ensure customer value and business growth.
1 Capgemini Consulting, "Supplier Relationship Management (SRM) Research 2010-2011: Solution Analysis and Business Insights." [back]