'

SaaS: The supply management market’s economic stimulus?

2008 was a very strong year for supply management vendors, despite the dismal global economy. The market grew 9%, reaching $3.

2008 was a very strong year for supply management vendors, despite the dismal global economy. The market grew 9%, reaching $3.0B in spending for software and services. Most buyers focused on improving processes in sourcing, spend analysis, procurement, contract management, settlement, and supplier performance management.

A closer look at the numbers shows that buyers have a strong preference for software-as-a-service (SaaS) deployments instead of the more traditional, on-premises offerings. SaaS sales grew 19% last year and should represent a significant share of the 2009 market as well. Expectations for 2009 are that alternate technology deployment will grow by about 22%, while traditional licensed software will slow down to a mere 4% to 5%.

SaaS as the economic bailout plan Ever since the first e-procurement systems emerged over a decade ago, buyers have been drawn to them for the following reasons:

  • Improved profitability
  • Increased working capital
  • Enforced spending processes and procedures across the company
  • Improved supplier management programs

What has changed, though, is the economic buyer and decision-maker roles have shifted from the chief procurement officer (CPO) back to the chief financial officer (CFO).  When paired with an ROI that hits all or most of these areas, the CFO is giving the approval, while the CPO implements and begins the business transformation process.

Vendors still targeting the CPO and chief supply officer (CSO) will likely encounter longer sales cycles. However, users will expect the ROI immediately upon signing, so vendor beware—your brand and products are expected to produce immediate results.

Why go capex when you can go SaaS? Software as a service continues to build momentum in the supply management market because the line-of-business buyer can realize the following benefits:

  • Faster time to value
  • Avoidance of IT expenses
  • No separate maintenance fees
  • Pay-for-use model

There are many great ROI stories built on the need to manage costs. As one executive at a global insurance company put it, “It’s imperative to diligently manage our expenses to maximize opportunities for growth. Using Ariba’s solutions and expertise, we have implemented a more efficient process for sourcing.” Running the software in SaaS mode allowed this insurer to accelerate the start of the project. Within six months, the company had cut total sourcing costs by 22% and achieved an ROI of 8:1.

Unlike other software markets in 2009, supply management has success written all over it.  What do you think?