Software procurement challenges and solutions

Procurement professionals and IT leaders tasked with managing software procurement find themselves grappling with mounting pressure in the present environment. CFO directives have them looking for ways to further tighten spend and increase ROI, often with reduced resources.

To do so, many teams are focusing heavily on software spend. In addition to being one of the top line items in technology budgets at many organizations, it’s widely known to be a source of substantial waste. In fact, over 50% of SaaS licenses go unutilized and 35% of SaaS apps are redundant. Yet, despite the levels of waste, software portfolios and spend continue to grow, with Gartner forecasting a 12% increase in software spend, year over year.

Managing software spend doesn’t have to be an insurmountable task. Highlighting friction points across software procurement can help illuminate key ways for creating a stress-free procurement process that ultimately helps teams optimize their spend.

What are the challenges of software procurement?

The purchasing process for office supplies and marketing materials is often straightforward and relatively routine. There are usually established supply chains and readily available vendors for commonly used supplies and materials. Additionally, the quantity of goods to be purchased is often quickly decided by a small number of stakeholders.

Procuring software and services, on the other hand, can be quite complex and require more strategic sourcing. Offerings are constantly evolving and choosing between vendors isn’t as simple as deciding between paper towels and napkins. Vendor reputation, service delivery, compatibility, compliance, and security must all be investigated and discussed among a variety of internal stakeholders. 

Managing those processes is a feat in its own right, and that doesn’t include the time spent preparing for and conducting negotiations.  Then there’s the matter of renewals. To confidently come to a decision on renewal terms — or whether to renew at all — requires data and alignment that can be hard to come by for many organizations.

The software procurement problem, by the numbers

Time and again procurement leaders say that software procurement is full of friction and stress. That’s a massive issue. Here’s why:

Procurement departments are having to buy and renew more software than ever before

This increase in software procurement is a convergence of a number of factors. First, SaaS portfolios continue to grow. SaaS portfolios  increased in size by 32% from 2021 to 2023. Today, the average SaaS portfolio has grown to 371 apps.

Average SaaS portfolio size. SMB (<500 employees), MM (500-2,000), ENT (>2,000)

Additionally, the percentage of shadow IT — SaaS apps used and purchased by employees and departments outside of ITs purview — decreased from 59% to 51% between 2022 and 2023. Though some of this decrease is the result of unmanaged apps being removed from the organization, many of them are being kept and formalized with contracts. As a result, the number of contracts that teams must manage has increased.

Change in Proportion of SaaS Contract Term Length, All Segments

Lastly, organizations are moving away from long term contracts for many of their apps. Over the last couple years, the percentage of contacts with term lengths of two or more years across all business sizes decreased. Conversely, the percentage of one-year contracts signed in 2021 and 2022 increased by 6% and 2% respectively. The shorter the contact length, the more often it comes up for renewal. This increases the workload for procurement and IT teams.

Procurement tools are disconnected and create silos

Organizations often rely on about seven different tools to support their procurement decisions. These tools include spreadsheets, communication apps, vendor assessment solutions, and procure-to-pay (P2P) or ERP systems. With so many different tools in play, processes aren’t consistently followed across intakes and renewals, which makes every purchase feel like a one-off situation. On top of that, existing ERPs and P2P systems can be hard to use for the average employee, making the experience frustrating.

What’s more, using these systems can be quite costly. Expensive licenses need to be provided to a wide range of people, including employees making requests and stakeholders reviewing and approving them. This cost hurdle makes it challenging for organizations to streamline their procurement processes effectively.

Effective renewal and intake decisions require significant collaboration and data

Purchase and renewal decisions often involve buying teams of 6-10 stakeholders as ownership of SaaS budgets and apps are spread across the organization. Without a single location for data and discussions, teams are left coordinating through spreadsheets, emails, and general Slack channels. 

Gaining alignment for decisions can take tens of meetings and weeks or months of effort. Worst case, decisions stall or no decision is made at all. Not only is this time consuming and inefficient, but the justifications behind the decisions can be hard to track down in the future if questions come up.

The absence of detailed pricing, usage, and spend data at the appropriate level can also result in missed opportunities for cost savings and optimization as well as ineffective negotiations. Each renewal presents an opportunity to streamline the application portfolio by identifying overlaps or similar apps. 

Unfortunately, most organizations lack the proper contract management to drive necessary visibility and insights that help to take advantage of these opportunities. Due to the lack of internal visibility, many teams rely on vendor-provided reports, which are often outdated and biased in favor of the vendor. Additionally, organizations may miss out on potential cost savings of up to 30% simply because they lack pricing benchmarks for their applications.

Vendor risk assessments are complex and lengthy

A staggering 83% of legal and compliance leaders have discovered third-party risks only after the initial onboarding and due diligence process, according to Gartner. It is crucial to determine whether vendors align with your organization’s risk assessment during both purchases and renewals, as any shortcomings must be addressed promptly. Without timely completion of assessments, an organization may find itself pressured by deadlines, such as contract end dates, and unable to conduct a thorough evaluation.

Vendor risk assessments are intricate and can require 30-45 days to complete. The current approach for these processes simply can’t scale to accommodate the needs of every purchase and renewal today.

Creating a friction-free software procurement process

Removing the friction from the software procurement process can ultimately transform it from a source of stress to a source of cost savings. Achieving this comes down to improving across three key areas: automating processes, aligning stakeholders, and assessing vendors.

How can Procurement automate processes?

Lean procurement teams need automation. There are simply too many contracts, stakeholders, and processes to manually manage. Ideally, automated workflows for purchases and renewals will support parallel steps, conditions, rule-based triggers, and multiple task types (such as approvals, reviews, and custom tasks). 

In addition to helping the process move along faster, these workflows can provide instant visibility into where a purchase or renewal is in the process. Integrations with other systems is key to keeping stakeholders informed and seamlessly moving tasks along. Integrations with email and applications like Slack will improve collaboration and ensure the right data is shared with the right people at the right time.

By having all decisions about software purchases and renewals in one system, you can more accurately capture cost savings as well. This makes it easy to routinely share savings insights with business leaders and track progress toward internal goals.

How can Procurement better align stakeholders?

Gaining alignment from stakeholders across finance, IT, security, and other lines of business is critical and very time consuming. But getting everyone on the same page can be simplified with centralized data and streamlined processes.

Take a data-first approach to collaborative decisions on renewals through pricing benchmarks, license recommendations, and usage data. When all parties can clearly see how many licenses are actually being used for an app as well as how much similar organizations are paying, you can conduct more focused, value-driven conversations.

And by creating dedicated chats (e.g. Slack channels) with all relevant stakeholders, you can ensure that no one misses out on important discussions within the procurement cycle. Here, stakeholders can make comments, share documents, and take actions. This information should automatically sync with your source of truth — typically a SaaS Management Platform — for renewals, so it can be preserved for later reference.

Sometimes half the battle is identifying who are the stakeholders for a given intake or renewal decision. By having contacts for an app automatically included in your workflows, it’s easier to identify who should be involved and if any changes need to be made.

How should Procurement assess vendors?

Each software purchase and renewal should be accompanied by an assessment of vendor risk and compliance. Scaling your processes for risk assessments can help your organization avoid delays and perform the proper level of due diligence. As such, it’s critical to have a task in your procurement workflow carved out specifically for vendor assessments.

Reviewers should proactively receive information about an application’s compliance with security and privacy certifications, such as SOC 2 and California Consumer Privacy Act (CCPA). Knowing the compliance status can help you determine whether additional conversations with the vendor are needed. Compliance certification insights can also help address questions that may come up during a renewal, such as whether an app is General Data Protection Regulation (GDPR) compliant before adding licenses to the renewal for a team in Europe. Your procurement and security teams save time when this information is presented as part of the review process, rather than requiring them to search for it.

Additionally, by recording and tracking vendor evaluations and related information, these important details are available for quick reference by other stakeholders. You spend less time locating assessment documents and vendor insights, which can speed up the decision-making process. The information is also available for reference in the future, such as at the next renewal.

Procuring software doesn’t need to be a stressful endeavor. Focusing on automated processes, aligning your stakeholders, and properly assessing your vendors can help turn even the most tedious tasks into streamlined successes. Partnering with a SaaS Management Platform can help ease these processes with data-driven workflows, actionable insights, and integrated negotiation insights to achieve seamless renewals.