Traditional IT systems have generally been found wanting when it comes to addressing an obvious gap in enterprise cost management: indirect spend control. That’s one of the reasons why so many ERP procurement modules lie dormant.
But infinitely configurable and best-in-class systems are rapidly giving global enterprises the opportunity to establish common practices and spend visibility with short project lead times and minimal disruption. This gives you, as CFO, a vehicle for turning Spend Control into instant profit – as long as you plan your rollout carefully.
Less than 20% of organisations around the globe are exploiting the benefits of spend management, according to investment bank Triple Tree. Given that between them they are spending more than $20 trillion every year on direct and indirect goods and services, that’s a staggering degree of inertia.
Any single dollar saved would contribute instantly to the bottom line, and yet at a turbulent economic time when complete visibility on costs should be a priority, staff continue to follow ad hoc, maverick purchasing practices around the globe.
So as CFO of a multi-national enterprise, you are effectively presiding over the leakage of your share of more than $500 billion annual profits that are lost through inefficiency and non-adherence to an effective spend management strategy – and missing a major opportunity to consolidate the financial and organisational benefits of a coherent, global spend control framework.
Urged on by the board, you are driven by the need to cut costs and drive down administrative overheads, improve financial control and compliance with policies, and increase organization-wide productivity.
It’s clear that everyone will benefit. But as you contemplate the sheer scale of the challenge, it’s equally clear that significant change will be required to see it through:
- Accounts Payable are immersed in manual processing, excessive troubleshooting and mountains of sticky-notes that represent an underlying lack of control. They should positively support the working capital and cash position.
- Information Systems are largely locked down, fire fighting existing IT issues. Instead, they should be effectively supporting common enterprise-wide Purchase-to-Pay processes: automating workflow, ranging from data capture to the review, approval, cost allocation, payment authorization, delivery of goods, and more.
- Procurement are struggling to maintain accurate, complete and up-to-date information and are constrained by time-consuming and inconsistent supplier adoption and communication processes. Instead, they should be enabled to build improved relationships for Best Value procurement across the organisation.
- ‘Maverick’ spending is endemic. Methods should be created to reinforce the vision for improved Spend Control across all quarters of the organization. This might sound like the platitude of a sharp-suited consultant would promote, but true compliance and control can only be achieved if ‘maverick’ spending is contained.
With the evidence gathered, your first step is to establish a baseline in which you can identify the existing spend control position and measure performance against internal targets and industry standards. You must define the needs of the organization and set goals and strategy for achieving them, without embarking on a monolithic process re-engineering project that is costly and time-consuming.
This requires a clear idea of your organisation’s global structure, including local behaviours that it makes sense to preserve, and elements that are ripe for collaboration and cost saving throughout the organisation. For example, you might decide to decentralise Accounts Payable or Procurement spanning across multiple sites and/or divisions in the same geographic area and deliver them as shared services across the group.
Whether the model you arrive at is based on a set of common processes or the principles of shared service, it will require a supporting system that enables you to manage spend control and procurement across your territories: language independent so that it is equally accessible to every user, allowing the mixing and matching of local and global suppliers, enabling an appropriate level of local autonomy, integrating easily with the variety of underlying ERP and business systems and accommodating local tax and currency regulations... continued