Six Reasons Why a Sourcing Solution beats an ERP Procurement Module

When it comes to digitization of procurement transactional activities, many procurement professionals still rely on ERPs. We have often come across many customers who ask, why do we even need to consider a strategic sourcing solution when our existing ERP is capable of handling basic purchasing needs. With all the data about spend, suppliers, specifications, and inventory, available in your ERP, it is natural to think that sourcing and procurement is a natural extension of your ERP system. But the truth is it rarely works that way in practice.  

In many organizations, procurement and sourcing teams often require a specialty or best-of-breed sourcing application, but it can be difficult to justify if significant investments have already been made in an ERP. Decision makers without prior exposure to such solutions struggle to understand how best to evaluate whether their existing ERP solutions are the right fit for procurement’s needs. What leaders need to ask is does your ERP solution really have the capabilities to address the specific needs of your procurement teams ranging from cost reduction, enhancing supplier collaboration and increasing efficiency to create overall value thus gaining strategic advantage?  

Procurement is no longer managed as a straight demand volume vs per unit cost puzzle. Complexities of Sourcing have evolved to span broader areas including supplier risk management, supplier collaboration and creating strategic partnerships. Most ERP systems offer some out of the box or bolt-on procurement modules that can get the job done. On the surface, that sounds great. But as you go deeper, most of the ERP systems only provide very basic purchasing capabilities and only limited support for upstream sourcing and contracting needs. 

According to Gartner, by 2025, nearly 50% of all organizations running a cloud-based ERP will leverage it to manage the procure-to-pay process. However, barely 10% of organizations running a cloud-based ERP will leverage the solution for more strategic processes like e-sourcing, contract management and spend analysis. 

Building supply chain resilience and agility requires procurement teams to evaluate suppliers more rigorously using a more strategic, analytics driven approach to the upstream procurement activities using sourcing, vendor management and contract management.  

Even the most modern ERPs lack depth and breadth in many functionalities to meet procurement’s ever-evolving requirements in areas like category management, supplier risk management, strategic sourcing, spend analytics, contract management and spend management. A dedicated strategic sourcing solution, designed specifically with these sourcing activities in mind offers more flexibility and addresses specific needs of procurement teams ranging from cost reduction to gaining strategic insights to increase procurement efficiency.

Why ERP Procurement Falls Short Today 

Many organisations assume their ERP can naturally extend into sourcing because all spend, supplier and inventory data already lives there. In reality, most ERP modules offer only basic purchasing features. They lack the depth needed for strategic sourcing, supplier risk management, contract management and analytics. As procurement complexity grows, the limitations of ERP systems become more visible. 

According to Gartner, most organisations using cloud ERPs rely on them only for procure to pay. Only a small percentage use them for advanced processes like e sourcing, spend analysis or contract lifecycle management. Building a resilient and competitive supply chain requires more than transactional buying. It requires a strategic platform built specifically for sourcing excellence. 

Below are the six key reasons why a dedicated sourcing solution offers better capabilities than an ERP procurement module. 

The Top 6 Reasons to Choose a Sourcing Solution Over ERP 

Here are the top six reasons why a generic ERP module may be limiting your potential, and why moving to a best-of-breed sourcing solution is the strategic choice. 

1.Ability to Manage Different Types of Spend (Direct & Indirect)  

The Problem: With roots in manufacturing, ERP systems are predominantly designed for direct spend. They often struggle to manage indirect and services spend, leading to fragmented data, non-standardized processes, and limited visibility. 

The Solution: Modern best-of-breed solutions have evolved. While historically focused on indirect spend, top-tier vendors now incorporate robust direct spend management capabilities. 

Unified Tool: Manage all procurement in one place. 

Technical Depth: Look for vendors offering Bill-of-Material (BOM) based sourcing, PLM/CAD integrations, commodity management, and part cost breakdown for “should-cost” analysis. 

2.Improved Visibility and Spend Control  

The Problem: ERPs often silo data. Without a unified view, identifying savings opportunities is difficult. 

The Solution: A Strategic Sourcing solution provides a 360-degree view of spend patterns across categories, regions, and suppliers. 

• Advanced Analytics: Drill down into minute details of spend, savings, and supplier performance for accurate decision-making. 

• Budget Control: Reduce maverick spend by automating business rules and workflows. Unlike ERPs, these workflows are easy to configure without heavy reliance on IT.

3.Stronger Supplier Relationship Management (SRM)  

The Problem: ERPs are good for master data but fail at relationships. Many lack basic features like supplier self-registration or compliance verification. 

The Solution: A dedicated solution acts as a collaborative platform to build strategic partnerships. 

• Supplier Portals: Enable suppliers to update info, respond to RFxs, and upload certifications autonomously. 

• Secure Collaboration: Share sensitive engineering drawings and design specs securely, involving suppliers early in the product innovation lifecycle. 

4.More Sophisticated Sourcing Capabilities

The Problem: ERP sourcing modules usually offer basic RFI/RFQ creation but lack depth for complex negotiations. 

The Solution: Stand-alone solutions offer feature-rich sourcing event management (eAuctions, RFx’s). 

• Granular Data: Use configurable response templates for part-level inputs, volume-based pricing, and cost breakdowns. 

• Effizienz: Features like spreadsheet integration for bulk uploads, side-by-side bid comparison, and award splitting make the sourcing process seamless and data-driven. 

5.Superior Usability and User Experience

The Problem: The “Amazon effect” has changed expectations. Users expect intuitive tools. ERPs, however, are often “old school” clunky, transactional, and filled with lengthy forms and irrelevant mandatory fields. This leads to poor adoption and incorrect data entry. 

The Solution: Modern sourcing solutions offer an e-commerce-like shopping experience. 

• Smart Search: Find items and add to cart in clicks. 

• Guided Buying: Direct users to preferred suppliers automatically, ensuring compliance and best value without frustrating the user. 

6.Better Contract Management (CLM)

The Problem: In an ERP, contract management is often an afterthought. Alert frameworks usually require heavy customization to track specific contract milestones. 

The Solution: Source-to-Contract (S2C) solutions provide a centralized repository for all legal documents. 

• Lifecycle Management: Support for authoring, templates, and clause libraries. 

• Automated Alerts: Out-of-the-box configurations for key milestones (renewals, expirations) ensure you never miss a renegotiation window. 

When to Stick with ERP 

Choosing between an ERP procurement module and a dedicated sourcing solution depends entirely on the maturity and scope of your procurement function. 

If your procurement needs are primarily transactional, your ERP may be sufficient. This includes scenarios where: 

• Purchasing volumes are low 

• Supplier base is limited 

• Categories are simple 

• Processes focus mainly on purchase orders, goods receipts, invoice matching and accounts payable 

ERPs are strong systems of record. They excel at downstream automation such as PO creation, invoice processing and financial integration. For organisations with simple or predictable procurement processes, these capabilities can cover day-to-day requirements. 

If you are a smaller organization with low spend volume, a limited supplier base, and simple requirements, your ERP’s Procure-to-Pay module is likely sufficient. It handles invoicing and accounts payable well enough for basic needs. 

When to Switch to Best-of-Breed 

If your scope covers the full Source-to-Pay cycle, an ERP will hold you back. For organizations managing complex direct/indirect spend, large supplier bases, and requiring deep analytics, a dedicated Spend Management solution is essential. 

Integrating a specialized Source-to-Procure solution with your existing ERP (for the finance backend) offers the best of both worlds. This approach delivers an ROI significantly higher—often 2x to 3x greater than simple ERP automation by unlocking strategic efficiency and operating margins. 

Relying solely on ERP procurement can limit your ability to scale, innovate and extract value. Transitioning to a dedicated sourcing platform increases margins, improves supplier collaboration and drives long term procurement performance. 

If you need guidance in evaluating your procurement technology or deciding when to move to a sourcing solution, reach out to our team. 

If you need more assistance on making your choice or deciding if it’s time to switch to a dedicated procurement solution, Contact us.