Per Year, How Much Should You Outlay for a Multi-National Enterprise Source to Pay? Good Question! Poor Answer. 500K+

Whereas we were willing and able to put a real, actual, number, or a very tight range, for mid-markets, the situation gets more tricky for a multi-national enterprise with 1 Billion + in Revenue.

Why? Aren’t they using the same advanced tech as a large mid-market, except using advanced capabilities across the board? And, because of this, shouldn’t it max out at 500K? Well, yes, but there are additional considerations you don’t have in the mid-market.

[01] If you are using a lot of decision optimization, semantic analysis, network modelling, etc., then you are using a lot of computing power — that’s driving up the vendors’ hosting costs well beyond the mid-market. Now, at some point, it maxes out at costs on a dedicated machine basis, but it’s still higher.

[02] As a true multi-national enterprise, you are going to need a vendor that has extensive multi-lingual and multi-currency support in the product AND at the help desk when suppliers and third parties have difficulties using the solution to bid, provide information, submit invoices, etc. And while it’s only a one-time cost for a a suite built for true internationalization to add another language pack and currency, an enterprise that offers support in those languages usually has to add more headcount to support that language, and that adds cost.

[03] You’re not only going to have a larger Procurement team using it, but you’re going to have a decentralized global team with a lot more differentiation in capability, with a lot less people capable of being full DIY. They’re going to need more support on a regular basis, and you’re going to need to contract for this up front.

[04] You’re going to need a lot more data. You’re going to be subject to a lot more regulations and you’re going to need to collect, and verify, a lot of data on your partners and suppliers. A LOT of data. You’re going to need a number of data subscriptions on business identifiers, (beneficial) owners, and credit scores for verification that they aren’t on any embargo lists, involved in any legal suits, and acceptable to your insurance provider. Then you need data on their human/workers’ rights practices, compliance, and third party assessments for those countries with laws enforcing compliance and putting you responsible for your supply chain actions. Then you need Carbon/GHG data for countries with reporting requirements or limits. Then you need other ESG/Risk data for your own internal risk assessments. And so on. These subscriptions add up.

So even though the suite itself should still be within that 250K to 500K per year range, when you add up the additional support needs, additional data needs, and dedicated computing power needs, you’re going to double or triple that cost. That being said, before you sign on the dotted line, especially if the quote gets close to 7 figures (one million), you need to do your expected ROI calculation. If you’re not going to see at least a 5X ROI a year on a conservative estimate, with an expected ROI of 7X to 10X a year by years 2 and 3, you need to step back and decide if you need all the functionality, all of the support, and all of the data subscriptions you’re asking for / being quoted, and if so, if you’ve included the right vendors in your RFX for (a) technology solution(s). The reality is that you should NOT be paying a million plus annually for an extended S2P suite unless you’re getting the ROI.

Also, be sure to build that model in-house or engage a third party that is not a reseller or implementer of the suite you’re considering. First of all, their savings averages are not guaranteed to be applicable to your situation. Secondly, their manpower requirements, and reduction, averages might not be appropriate for your business either. Thirdly, because they often build their savings model as a rollup of savings models across the different modules / functions, many of these suite models often end-up double-counting resource time or savings numbers by way of their design.

(Please note our choice of wording here — “end up“. Usually the provider or consulting organization is not trying to deceive you, and they often don’t realize that their roll-up model is double counting. What we’ve seen happen is they take the best calculators they have access to (through consultant or analyst relationships) in each area they are selling in the suite — sourcing, SXM, CLM, etc. — and then roll them up. But they fail to understand that the attributions of a savings percentage in each model always favours the solution/module being sold, which may also assume some baseline functionality of another module. As a result, especially since the savings opportunity often changes based on what technologies are available and applied together, all the estimates will be “Best Case” for the selected modules, and when you add those up across five/six modules, you will sometimes get a total “Best Case” that is as much as double what is actually reasonable. For example, you can have a category where if you just applied spend analysis on the RFX you could identify 6% savings, if you just applied supplier risk profiling to the RFX and eliminated the high risk suppliers and then took the low bids you could identify 4% savings, and if you just applied strategic sourcing decision optimization you could get 10%, but if you applied all three you only achieved 9% (since optimization finds everything spend analysis finds, but the risk assessment resulted in the manual elimination of a high risk supplier that optimization didn’t catch, lowering the initially identified savings opportunity). Rolling up 3 separate models, it would produce a 20% savings opportunity when it was in fact 9%. Now, in other situations, the rollup could be worse than the actual of combining all three technologies, i.e. the RFX is projected to only identify 3% on it’s own and the negotiation module to save 3% on overheads, but the application of both to a targeted subset of suppliers which are deemed to be most willing to negotiate based on volume could allow for an 8% reduction. But overall, these rollups don’t average out and usually over-count.)

[Also, most vendors feel they have to do it this way since most buyers don’t buy all the modules and they don’t have enough average savings data across the application of all advanced modules to all categories to have reliable numbers. So you really need to do your own models based on your own situation and come up with realistic estimates.]

Depending on your current state of affairs, current market conditions, and technologies available that your organization is actually capable of utilizing, that could be an overall, estimated, cost reduction of 3% against all spend expected to be put through the platform in the first year, or it could be 5% (or more, or less). Even 3% is good if you’re spending 1 Billion a year, 500 Million is addressable, and you think you can address 20% of that, or 100 Million, the first year. That’s an estimated savings of 3 Million, and if your year 1 cost was 750K, that’s reasonable with an ROI of 4X, especially if you think increased efficiency will come in year 2 with familiarity, that you will address 200 Million in year 2, and increases the estimated savings percentage to 4%, which would be 8 Million savings in year 2, and an 8X multiple even if you needed to add more data subscriptions and support, bringing the total solution cost up to One Million.

Probably not the answer you wanted, since the mid-market looks to be getting off cheap, but they are also spending less as an organization, addressing less of that spend, dealing with fewer volume or consolidation opportunities, fewer resources to tackle the mid-size categories, and losing on the tail since they can’t effectively manage it beyond catalogs, budgets, and hoping the 3-bids and a buy are fair (and not rigged through collusion). They might pay less for their S2P solution suite, but their total savings potential is also (considerably) less and, thus, their typical ROI is limited compared to yours.

But, well chosen, at least you’ll get an open, modern, usable solution for One Million dollars per annum — not something you can say in all areas of enterprise software.