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 roll-out 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.
CFOs must plug the gap
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.
Mandate to cut costs
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 organisation-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 Receivable and 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 authorisation, delivery of goods, and moreProcurement is struggling to maintain accurate, complete and up-to-date information and is 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 organisation. This might sound like the platitude that a sharp-suited consultant would promote, but true compliance and control can only be achieved if 'maverick' spending is contained.
First step to spend control
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 organisation 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 behaviors 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.
Fragmented ERP systems
Your COO might tell you that this is already available within your existing ERP infrastructure. But closer inspection will probably reveal that globally, this is highly fragmented with territories and countries all running their own systems and favouring different ERP and financial system brands. Further complications will almost certainly include various charts of accounts and different business processes - all the consequence of growth through acquisition.
The problem is that most eProcurement systems and ERP modules are developed to address the needs of the ideal - a single financial organisation with one set of ledgers. And your reality could hardly be more different. In addition, many of these systems cover a broad function scope and offer a degree of integration across their different applications. Yet this breadth often leads to a lack of focus on issues such as bringing 'maverick' spend under control, giving visibility of the cost pipeline and delivering economies of scale.This is where infinitely configurable, best-in-class Spend Control and Procurement solutions offer advantages and should be considered in an international Spend Control initiative.
One example is PROACTIS
, which is very different from the purchasing module of an ERP system. PROACTIS includes a full suite of modular, integrated applications to support all key aspects of the procurement cycle. Each application is built around proven best practices, with a depth of functionality not often found in packaged software products. Each application can be implemented individually or in combination to complement existing ERP back-office systems and financial packages.
Compare that with the concept of trying to impose a monolithic ERP procurement module across ten territories, each with their own unique mixture of environments. Without rolling the system out across them all, it would be highly problematic to generate complete visibility of Group spend - your ultimate goal - and consultancy, training and integration issues would probably turn a project that should be delivering results in weeks into a five-year development epic.
PROACTIS supports procurement of the tremendous variety of indirect goods and services needed throughout the organisation, as opposed to the relatively few direct materials or products that are usually driven by automated MRP or replenishment methods.
PROACTIS has been designed to be practical for complex organisational structures, and it is highly configurable as an overlying procurement platform or within any number of specific, pre-existing environments. And it has the look and feel of an intuitive front-office application that a generation of Microsoft users has come to expect and willingly embrace. This is where many ERP systems are found wanting: they have been designed for the Finance professional in mind, not the casual user. But unless a system is easy to use, and everybody has access to it, it will be impossible to get any control over 'maverick', discretionary spend.
In one global organisation comprised 2,000 independently managed offices, PROACTIS has been deployed as a single spend management front end across four different ERP platforms. Wherever they are in the world, the user logs in to the same intuitive system, but customised to their location and job function. They know nothing of the underlying sophistication - they simply take advantage of it.
Resistance from territory managers
Once you've made your system choice, you may still encounter resistance from Territory Managers who see it as a threat to their autonomy. Just because the Board is convinced about a rapid global return on investment, it doesn't follow that everybody else will fall into line, particularly when they are concerned about protecting their own Profit and Loss (PNL).
They might see pressure to deploy the ERP procurement module as using a sledgehammer to crack a nut and, even while they are paying their share of the system's cost, they would rather pursue a different solution that is less likely to impact on their established methods of remuneration.
Driving change across the organisation
Triple Tree's estimates have already shown that Spend Control is hardly a nut-sized problem. And this is where the Board - and principally the CFO, aided where possible by a high-visibility CPO - has an opportunity to drive change across the organisation, cutting through political issues to demonstrate the benefits of the new system and encourage comprehensive end-user adoption. Many employees will respond positively to evidence of how cost savings they make by using the system contribute directly to the business's profitability. But ironically, as CFO, you may find yourself pushing non-financial benefits to your Managers in smaller divisions and territories.
For example, increased visibility will actually help them to manage their PNL and budgets more effectively and identify areas for cost cutting. The system may also offer them a way to iron out the discrepancies, inaccuracies and limited analytics hitherto generated by the variety of underlying platforms and applications that now come together under its integrate umbrella. The double whammy of avoiding a massive Process Re-engineering Program simply to establish a system-based model for spend management, and achieving an elevated view of Spend Control should ultimately provide a winning argument against even the most stubborn resistance.