On-demand applications are making headlines in a number of functional areas, the most prominent being sales force automation. However, this phenomenon is spreading quickly through the supply management world and in the minds of procurement professionals.
Continued pressure to reduce costs, improve performance, and compete globally have elevated the strategic importance of supply management within the enterprise. To mobilize such improvements, procurement executives must compete with other functional groups for scant budget to pay for new resources and systems. In response, procurement organizations are increasingly evaluating available lower cost, rapid deployment on-demand delivery models. The Aberdeen Group defines on-demand supply management applications as externally hosted and managed applications, content, and services that are delivered as Web-based services. On-demand applications also offer flexible pricing models.
A recent study entitled "The On Demand Supply Management Benchmark Report" uncovered certain areas in which on-demand solutions perform better than the traditional "license and install" model. The top three were: ROI, ease of upgrade, and implementation time and effort. The findings, which are based on surveys and interviews of approximately 135 industry executives, indicate that there are clear challenges with the on-demand model, two of which are data security and integration with internal systems such as ERP.
Cost Considerations
Typically, a licensed ERP system represents a 15-year commitment for an enterprise, whereas an on-demand solution is seen as a two- to three-year commitment after which companies are likely to reevaluate their decisions. Aberdeen found that a higher percentage (34%) of small and mid-size companies plan to use on-demand solutions for more than three years. These enterprises are more attracted to the usage-based and transaction-oriented natures of certain on-demand solutions.
On the other hand, more than 40% of larger companies represented in the survey are likely to use on-demand solutions for two to three years -- then reevaluate their decisions. However, Aberdeen found that when the time comes to reevaluate their commitments, companies often choose to extend their use of on-demand solutions. In a successful on-demand rollout, this is largely due to the cost of switching vendors, including the cost of retraining and data migration.
Follow-up questions with respondents revealed that enterprises using hosted solutions (including on-demand) were able to improve spend under management approximately 27.5% within a year after deployment. On the flip side, companies utilizing installed on-site solutions improved 21.5%.
Why the gap? History shows that licensed solutions do not immediately roll out enterprise-wide. Most licensed solutions go live within a specific location or business unit, then to multiple business units in a step-by-step manner until propagated throughout the enterprise. In fact, some e-procurement implementations can take as long as two-to-three years.
Fast & Wide Deployments
Further stressing this point, the second most popular reason for utilizing an on-demand system is the ability to deploy the solution enterprise-wide. On-demand solutions deploy more quickly, and thus will propagate throughout the enterprise much faster than an on-site solution will, therefore accelerating the value delivered to the enterprise.