As a senior financial executive, you are probably asking yourself what you can do next to make a significant impact on your company’s profitability.
As a senior financial executive, you are probably asking yourself what you can do next to make a significant impact on your company’s profitability. Many executives in your position are looking at Spend Control and eProcurement as a likely next move.
In this series of blog articles, we discuss the key considerations for deployment of new eProcurement solutions to work hand-in-hand with your existing financial and operational systems.
If you are considering Spend Control as your next important initiative, the first questions you're probably asking are 'What is our fundamental objective?' and 'Exactly how will we create savings?'
What is our fundamental objective?
The fundamental objective of Spend Control is to gain control and visibility of the way your organisation buys goods and services, and to minimise the total cost of those goods and services as well as the cost of the process of buying them.
That includes the actual cost of the goods and services, the internal operational costs of obtaining them, and the costs that occur when there is a delay in delivery, less than expected quality, or when any form of liability is passed from a supplier to the organisation.
Though easily stated, meeting this objective is really quite a challenge when you consider the wide range of goods and services your organisation purchases over the course of a year, and when you consider the range of people throughout your organisation and supplier base who are involved.
But it’s a challenge well worth attacking because the return is so great. Many organisations in all types of businesses as well as the Public Sector have successfully addressed this challenge with amazing results.
Exactly how will we create savings?
Every organisation in the world has opportunities to create savings by reducing these costs. The savings are created through:
- Prevention of unnecessary purchases
- Better matching of what is purchased to actual needs
- Lower prices for what is purchased
- Reduced administrative costs for buying and payment processes
- Reduced occurrences of erroneous payments, late charges or lost early payment discounts
- Reduced occurrences of supply disruptions and supplier problems that create unnecessary operational costs
This combination of savings can only be obtained on a predictable basis for purchases meeting the following criteria:
- Made with proper purchase authorisation
- Made with suppliers that were properly sourced and managed
- Paid with correct pricing and terms
- Processed quickly and efficiently organisation-wide
In addition, for proper financial management, those purchases should be:
- Clearly visible to both operational and financial management
- Properly coded for both financial allocation and purchase category
Purchases meeting all of these criteria can be considered ‘Spend Under Management’ – i.e. spend that has been made within the organisation’s Spend Control framework and therefore spend that captures maximum savings.
For answers to more questions about deploying new eProcurement systems to work hand-in-hand with your existing financial and operational systems, download our white paper: Spend Control for CFOs