What is elastic procurement™ and who should care?
CIOs will recognize the word “elastic” from cloud computing.
Elastic procurement™ is a delivery model that is to Big Procurement technology systems what cloud computing was to the corporate data center. It lowers costs, eliminates complexity, and empowers staff.
Before Amazon Web Services or Microsoft Azure, CIOs managed large private data centers, often in multiple locations. These were anything but elastic. One might characterize them as flabby and inflexible.
Private data centers needed to have enough capacity to handle peak loads. You can imagine demand that spiked on weekends or at specific times of the year like Black Friday. Practically, the data centers lay underutilized most of the time.
In order to ensure continuous availability, CIOs needed data centers in redundant locations. If Data Center A went down, Data Center B needed to be able to step into the breach. More infrastructure meant more expense.
Imagine a startup that grew quickly (or hoped to do so). The new venture would purchase a ton of capacity in anticipation of the future demand. If the forecast proved too optimistic, then the startup would have burned through a tremendous amount of cash. This forecasting risk was expensive.
If a company wanted a global (or even a regional) presence, this meant running data centers in multiple geographies. CIOs who didn’t do this experienced high latency. It might take a long time for customers to download what they needed from corporate web applications.
CIOs needed real estate in which to house the data centers full of servers and they needed IT staff to support them.
Another aspect of the old data center model is the accounting treatment. Before cloud computing, there were large capital expenses for the equipment, depreciated, say, in a straight-line over four years. The operating expense of the IT team made things worse.
It wasn’t just about infrastructure. Before cloud computing, if the technology team built an app, they needed to provision everything themselves such as security. As Microsoft notes, the team needed “middleware, development tools, business intelligence (BI) services, database management systems, and more.”
“PaaS is designed to support the complete web application lifecycle: building, testing, deploying, managing, and updating.”
Cloud computing addressed all of these things.
CIOs could scale up and scale down their resources to match their demand, paying only for what they used. This eliminated underutilization and the forecasting problem that bedeviled so many startups.
Cloud computing economically enabled geographic diversity addressing the need for availability and low latency.
There was no more need for real estate or IT staff. Of course, some companies pursue a hybrid model in which they have corporate data centers that they choose to augment with cloud computing resources.
Most significantly, companies pay for what they use.
“You purchase the resources you need from a cloud service provider on a pay-as-you-go basis and access them over a secure Internet connection.”
Presumably, the costs for the cloud provider of running and managing this infrastructure on a unit basis fell below the internal unit costs given the greater scale at which the provider operates. The CIO benefits from these cost savings.
This kind of flexibility led to a revolution in infrastructure. More and more companies move some or all of their infrastructure into the cloud every day.
It also created the “software-as-a-service” model.
Now, startups could provide scalable offerings for consumers and businesses with a subscription model. In the case of B2B offerings, an enterprise client would purchase seats for its internal staff engaged in some sort of function. For example, salespeople may use a Customer Relationship Management SaaS offering that enables them to manage their workflow in the cloud. These solutions exceed the functionality and user experience of in-house or legacy systems. The SaaS provider updates them automatically and seamlessly.
So, what would an elastic procurement™ system look like? How would it differ from Big Procurement?
First, an elastic procurement™ approach would “auto-scale.” When you needed it, you could increase its availability. When you didn’t need it, you could turn it off. Some businesses have highly seasonal purchasing patterns. Imagine a mining company in northern Canada, for example. They purchase a great deal in anticipation of the warm weather; they are quiescent in the winter.
Second, with an elastic approach, you pay for what you use. When you’re not using it, you don’t pay. With a SaaS offering, you pay expensive subscription fees with no connection to utilization.
Third, an elastic approach would have some base level of free features. Everyone in the organization should have a seat license for free to access core functions. The elastic system would charge for executing value-added services to buyers such as reverse auctions such as RFPs or RFQs or it might charge suppliers for tools that help them sell. Big procurement is often so expensive that only the procurement staff get seat licenses. When you restrict access to the procurement system, when you limit the visibility of the data it generates, procurement shrinks as a business function. Elastic procurement™ is the best path to making procurement a strategic function.
Fourth, when anyone in the organization can get a seat license, cross-functional collaboration becomes much easier. Stakeholders from finance, operations, product, and sales now have a unique place for procurement conversations, oriented around structured data that they can share with one another simply.
Fifth, an elastic approach leverages tools, data, and intelligence that would be very expensive for the individual purchasing organization to develop independently. The scale of the elastic system and the community it creates with its pricing model makes this much easier and less expensive just as cloud computing platforms facilitate “middleware, development tools, business intelligence (BI) services, database management systems, and more.”
Sixth, and most importantly, a truly elastic approach is scale-independent. It works well for small organizations and for large organizations. It works for groups within large organizations. A good elastic procurement™ solution will have the ability to interface and share data with other corporate systems.
As for who should care, CIOs and SMEs should care. Elastic procurement™ is perfect for CIOs who want to manage the purchasing process independently while complying with in-house procedures in a manner that satisfies procurement. Small and medium-sized businesses who are stuck using email and spreadsheets or legacy systems because they can’t justify the expense of Big Procurement now have an alternative.
EdgeworthBox is elastic procurement™. It is the only truly elastic procurement solution around.
We offer buyers and suppliers a set of tools, data, and community. It is free for users to join. We charge buyers to execute competitive purchases via reverse auction and we charge suppliers for additional selling tools such as the Reverse RFP. EdgeworthBox offers an unlimited number of free seat licenses to organizations so stakeholders from across the enterprise can use it as the hub for all conversations about purchasing goods and services, centered on structured data relating to live and historic purchasing activity. On top of our phalanx of free features, buyers and suppliers pay only for what they use. You can see more in this short video.
There is no other procurement system in the world with our approach. And we’re just getting started. We’ve developed an AI tool for RFP templates and we’re looking at using Web3 to replace catalogs, making every purchase, even smaller ones, competitive on price and solution.