In today’s service-oriented economy, subscriptions have become the new normal. Here are the pros and cons of subscriptions for B2B enterprises.
In today’s increasingly service-oriented economy, many products are being transformed into services, a development that is by no means limited to software products either. Manufacturers and media companies and other sectors are also starting to deliver their products on demand, giving themselves and their clients space to scale and adapt with constantly changing market needs. Products from many industry sectors are now being offered in the form of subscription-based services, which are poised to radically change the way B2B enterprises manage their supply chains. The following paragraphs will explain what that means for procurement.
What are the Benefits of Digital Subscriptions?
As we enter the era of ‘everything-as-a-service’, established B2B enterprises face increasing pressure to rethink how they manage their supply chains. Subscriptions help overcome many of the biggest challenges today’s enterprises face, such as the growing need to become more resilient and adaptable to change.
#1 Scalability & Adaptability
One of the most important benefits of subscription-based products is that they are scalable and adaptable, with many products being offered on demand. As such, companies only need to pay for the resources they actually need and use. With new methodologies, such as just-in-time manufacturing, flexible subscriptions are rapidly becoming the new norm.
Subscriptions are inherently more adaptable than one-time purchases since they often come with free trial periods, product samples, or demonstrations. This makes them ideal now that businesses face a growing need to innovate and adapt rapidly.
#2 Simplicity & Flexibility
Subscriptions are typically easy to start and, with many vendors, easy to cancel or scale back and forth per requirements. Costs are also predictable, and most subscription management routines are easily automated.
The boom in subscription-based products was one of the few positive developments during the pandemic, in which paid subscriptions increased by up to 40%. This growth was largely down to the fact that subscriptions enhance business resilience by reducing costs and enabling greater adaptability in an increasingly volatile and unpredictable global economy. In other words, if a business requires a particular product to be provided on a regular basis, then the subscription model is the obvious way to deliver it – especially if the subscription offers a reasonable degree of flexibility.
#3 Improved Spend Management
For procurement teams, subscriptions can save a great deal of time and offer improved cost control, since vendor relationships can be largely automated. This is particularly important in long-tail spend management, in which managing dozens
or even hundreds of minor vendors quickly becomes an enormous burden. Subscriptions, on the other hand, can help alleviate that burden by putting the indirect procurement on autopilot. The traditional approach, by contrast, usually involves manually creating purchase orders for every individual purchase and managing multiple invoices and payments.
Overcoming the Drawbacks of Digital Subscriptions
While there is no denying that subscriptions have come to play a vital role in B2B enterprises, especially in the case of SaaS and other technology products, they do introduce new risks and limitations. For a start, subscriptions come in many different forms, including term-based contracts and consumption-based licensing. Although things are gradually changing for the better, there may also be a risk of vendor lock-in, which can end up negating many of the biggest benefits of subscriptions.
A common drawback of subscriptions is that they are often managed across many employees,
which can make it difficult to maintain oversight. In these cases, some subscriptions may run indefinitely without any evaluation, even when the service is no longer required.
Because of this, it is important to have a clear approval flow that leverages automation to reduce the risk of human error as well as a cockpit to help finance and procurement keep an overview of all the subscriptions in the organisation.
When it comes to procurement and supply chain management, legacy systems and processes were not built to accommodate today’s subscription-based models. This makes subscriptions difficult to track, thereby negating the cost-control benefit.
Fortunately, businesses can resolve such issues by implementing a procurement platform that largely automates the management of subscriptions. This ensures that all transactions remain traceable and that routine operations, such as invoice handling and digital payments, can be automated. That way, procurement teams can free up the time they would otherwise spend managing long-tail suppliers to focus on relationships with strategic suppliers.