Insights
Cloud vs. on-premises: A procurement pro's guide to choosing the right technology
Jonathan Colehower, Managing Director, UST Global Supply Chain
How do you choose the right procurement software? Read this guide about cloud vs. on-premises procurement technology.
Jonathan Colehower, Managing Director, UST Global Supply Chain
In the rapidly evolving world of procurement, technology is no longer just a support system; it's a strategic enabler. It empowers businesses to make critical, timely decisions about acquiring products and services. For instance, technology aids procurement professionals in risk mitigation, contract negotiation, vendor onboarding, and market data analysis, enabling them to navigate changing demands and conditions with agility and precision.
Technology is not just a tool, but a game-changer in the world of procurement. It liberates procurement professionals from the drudgery of time-consuming, repetitive tasks by automating various business processes, such as purchasing, invoicing, and vendor sourcing. This liberation allows them to concentrate on strategic initiatives that enhance the business's long-term value, such as fostering vendor relationships. As a result, technology is revolutionizing the traditional procurement process, enabling companies to enjoy the benefits of efficiency, speed, accuracy, and transparency.
IT architecture is the bedrock of enterprise technology. Consequently, choosing the architecture to run procurement software, services, tools, and technologies is a paramount decision that can make or break procurement initiatives and strategies. Both on-premises and cloud architectures can handle the job for procurement professionals, but each platform has upsides, downsides, and trade-offs.
In this article, our aim is to provide you with a comprehensive understanding of the strengths and weaknesses of on-premises and cloud procurement. We will also equip you with key factors to consider when evaluating both architectures and illuminating the pivotal technology trends shaping the source-to-pay ecosystem's future. This information is not just about technology, but about your professional growth and the success of your procurement strategies.
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Understanding Cloud and on-premises solutions
With cloud procurement, all assets (data, software, hardware, applications, and tools) reside in the cloud, unlike on-premises solutions, where all procurement assets are stored and accessed within a company's physical infrastructure.
On-premises vs. cloud procurement
On-premises procurement architectures give businesses complete control over the data, security, and procurement process since all assets are on the company's physical internal servers and computers. However, this total custody leaves them responsible for installations, upgrades, configurations, security, and maintenance of the assets.
With cloud-based technologies, the assets that constitute a complete procurement solution are hosted by third parties and accessed via the Internet. This setup eliminates the need for organizations to own these assets and their associated responsibilities, such as complex integrations, because third-party providers manage them. Cloud procurement uses a subscription-based pricing model, eradicating the need for costly on-site infrastructure and reducing the workload of internal IT teams.
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Factors to consider when evaluating on-premises vs. cloud procurement solutions
Procurement professionals should consider several factors when choosing between cloud platforms and on-premises solutions, including cost, scalability, flexibility, security, and customizability.
Cost
Cost is a prominent factor when evaluating on-premises vs. cloud procurement solutions. The upfront costs of cloud procurement are significantly lower compared to on-premises. With cloud solutions, businesses do not have to invest heavily in hardware and software licensing fees. Instead, they lease these resources from cloud service providers (CSPs) through pay-as-you-go or low, fixed monthly subscription pricing models.
Cloud procurement increases savings over time. Businesses do not need to replace, upgrade, or maintain hardware and software or worry about physical space, rent, electricity, or IT resources.
However, businesses have different workloads, processing needs, data usage, and storage requirements. Occasionally, extended cloud subscription fees can become more expensive than on-premises solutions, but these instances are rare.
Cloud procurement allows companies to reallocate their IT budgets to other business functions, such as sales, marketing, research, business intelligence, and development, rather than significantly purchasing servers, software, and IT support.
Scalability and Flexibility
Cloud platforms can quickly scale up or down to meet a company's changing workloads, requirements, and growth. This flexibility allows businesses to easily adjust their cloud computing resources and storage on demand. In contrast, on-premises servers are fixed and inflexible, making them arduous, time-consuming, and costly to scale. Few companies can build an internal infrastructure that matches the security and flexibility offered by cloud services.
Security
Cloud infrastructures have robust security measures and protocols, including multi-factor authentication (MFA), regular data backups, and end-to-end encryption to safeguard company resources against unauthorized access and data breaches. However, because the cloud is inherently accessible via the Internet, cloud infrastructures can be more vulnerable than on-premises architectures, which are restricted to authorized employees and partners. On-premises infrastructures are better suited for businesses that handle sensitive data. However, implementing robust security measures with complex, interdependent on-premises systems can be more complicated, costly, and resource-intensive than cloud solutions.
Customizability
On-premises infrastructures are built to meet the unique needs of a particular business. In contrast, cloud-based platforms are designed for a broader audience or industry with off-the-shelf solutions, which may not offer many customization options or provide all the company's required services. When businesses run their infrastructure, they have complete control over all their assets and can make any necessary customizations. However, they also bear the burden of making those changes and additions, often requiring significant infrastructure investments and specialized IT resources.
When considering these factors between on-premises and cloud procurement, it is equally important for companies to align their architecture and technology choices with their organizational goals, budget constraints, and internal IT resources.
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Managing the shift to buying SaaS applications
The widespread adoption of cloud technology is driven by the continued rise of vertical cloud platforms like software-as-a-service (SaaS), tailored to meet the needs and requirements of specific industries, such as retail, healthcare, manufacturing, and procurement. Consequently, the procurement industry is experiencing a significant shift towards SaaS procurement solutions.
SaaS is the future of cloud technology in procurement. It is a cloud-based subscription model in which companies outsource parts or the entire procurement process to a provider that offers procurement services and software on demand. SaaS procurement delivers several benefits, including cost savings, scalability, flexibility, security, reliability, and collaboration between buyers and sellers.
A whitepaper by UST reveals how software selection and purchasing are managed through cloud-based SaaS procurement. The paper discusses the challenges, considerations, and opportunities associated with cloud adoption in procurement, including methods for adapting traditional procurement procedures and a framework for effective SaaS management.
To learn more about the challenges and opportunities of SaaS procurement and the shift to the cloud, you can access the whitepaper here.
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Procurement technology trends
The emergence of innovative technologies and applications, such as AI, Generative AI, machine learning, deep learning, and RPA (robotic process automation), will become pervasive as the procurement industry shifts to the cloud.
The distributed cloud is the foundational architecture capable of running these newer heavy-load applications that require fast, agile, and adaptable architectures to perform real-time analytics, data-driven decision-making, and rapid automation.
The future of procurement will include a mix of these technologies within next-generation applications that help procurement teams streamline procedures and tasks, including sourcing suppliers, analyzing contracts, mitigating risks, optimizing pricing, and managing supply chains.
When businesses shift to the cloud, they've already eliminated AI's most significant barrier of insufficient architecture. This makes them well-poised to unleash the new-age applications that will drive realized value to future procurement initiatives and strategies.
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Wrapping up
Technology is revolutionizing procurement. It enables businesses to make real-time, data-driven decisions and automate routine tasks, ensuring efficient, high-quality sourcing at optimal prices. Advanced technologies like AI and machine learning empower procurement professionals with valuable insights from market trends and historical data, helping them navigate dynamic demands, onboard suppliers, and negotiate contracts effectively.
Businesses must select the correct architecture for their needs to maximize the benefits of these innovative technologies and remain competitive in the fast-paced procurement landscape.
Choosing between on-premises and cloud procurement solutions requires thorough evaluation and strategic planning. Both options offer distinct advantages and trade-offs. Companies must consider their unique workloads, IT budgets, data usage, processing, and storage requirements to determine the best fit. Businesses can identify the most suitable architecture to achieve their procurement goals by carefully assessing costs, scalability, flexibility, security, and customizability.
Access our comprehensive SaaS procurement whitepaper here to gain a deeper understanding of the differences between on-premises and cloud procurement and how SaaS procurement software can enhance your procurement processes.
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Resources
https://www.ust.com/en/insights/how-to-reduce-complexity-in-the-retail-supply-chain