(Part 2) CFO’s Guide to Spend Control

Charlotte Sutton
Charlotte Sutton,
Continued from Part 1, where we explored a number of ways to achieve effective Spend Control including; how to create savings, the business processes involved and systems capabilities required...

Keys to success 

Spend Control is a business process that involves virtually everyone in your organisation as well as your suppliers. Therefore, the underlying eProcurement system is very much a people-oriented system. With such a system, the keys to success are:

  • Employee adoption: Employee adoption is critical to gaining a high level of ‘spend under management’. The key to success here is very simple – your eProcurement system needs to make it as easy or easier for an employee to find and buy what they need within the system in accordance with organisational policies than it is to buy something outside the system. The ultimate goal is to make the experience people have with your eProcurement system as close as possible to the type of experience they have with online websites they use in their personal life. Content obtained from supplier catalogues and website punch-outs will be as important to adoption as the system itself.
  • Supplier adoption: Similarly, your eProcurement system needs to make it easy for suppliers to interact with your company in a self-service manner. That’s how you reduce the administrative load in Procurement and Accounts Payable, and free up more time for value-added activities that lead to lower prices and greater value. Done right, your suppliers will like it too.
  • A proven, complete framework: Because truly effective Spend Control is only gained from the close interaction of the Source-to-Contract process and the Purchase-to-Pay process, it is important that the eProcurement framework you put in place covers that full scope – even if you move into it one phase at a time.
  • A partner with experience: Deployment of an eProcurement system to enable Spend Control is quite different from deployment of, say, an ERP system. In many ways, it is easier and much more incremental. But it involves more people both inside and outside your organisation. You will want a partner that is a specialist in Spend Control, and who brings tools and experience for non-technical activities

How eProcurement impacts our existing financial or ERP systems

As indicated in the answers to the preceding questions, Spend Control business processes and the supporting eProcurement systems are largely outside the scope of your core business systems. Because of that, the impact of implementing eProcurement is minimal from a systems perspective.

Without going into great detail, the following are likely steps and touch points:

For implementation of the Purchase-to-Pay portion of eProcurement:
  • If you are using some form of purchase requisition process within your ERP system (or that you have added yourselves over time), you will turn that off
  • Your chart of accounts will continue to be maintained in your G/L and simply pass to eProcurement.Budgets in your G/L will be accessed in real-time for use in ‘cost pipeline’ enquiries
  • Unless you are also deploying the Supplier Management application in Source-to-Contract (see below), your supplier master file will continue to be maintained in your ERP system and passed to eProcurement for use in raising POs
  • Most POs will be raised in your eProcurement system and passed to your ERP system as accruals or commitments
  • Payment cheques will continue to be written from your existing AP system, but most invoices and credit notes will be registered and processed in eProcurement and passed to AP as authorised payments

For implementation of the Source-to-Contract portion of eProcurement:

  • You will make the comprehensive Supplier Directory in eProcurement your new master repository of supplier information and pass only basic supplier information from there to your ERP system as needed
  • If you have any form of supplier contract file in ERP, you will replace that with the more robust eProcurement contract repository and use that as your new contract master
  • All other information will be additive to what is in your existing systems
  • It’s really pretty simple and Spend Control solution providers like PROACTIS are very experienced in setting up the nominal level of required integration. 

So with that in mind…

  • Do we need to replace our existing ERP system before embarking on a Spend Control program? Unless you have other reasons for replacing it, the answer is almost certainly no. If you are getting the fundamental financial management and reporting capabilities you need today, eProcurement is not going to disrupt that, but will certainly give you more information to work with – especially a longer-term view of your cost pipeline.
  • Is the eProcurement system that comes with our ERP system my best option? Very few, if any, ERP systems have an eProcurement system with the range of applications to fully support both the Source-to-Contract and Purchase-to-Pay business processes. Those that come close have all acquired and packaged together the solutions they offer, so they may be no more integrated than solutions from elsewhere.

In any case, if your ERP system offers an option for eProcurement, you will probably want to consider it along with best-of-breed options. Just keep in mind that, because ERP and eProcurement are relatively separate systems, the advantages of a solution from a provider that is fully focused on Spend Control and eProcurement may well outweigh the advantages of a single solution provider.

  • Can we deploy eProcurement to support our Spend Control program now and then replace our ERP system later without replacing our eProcurement system? Yes – by all means take the opportunity to gain the benefits of Spend Control now. The same straightforward integration points will apply in your future system as in your existing system. You should be able to replace your internal-facing ERP system later without disruption to your eProcurement system just as you add eProcurement now without disrupting your existing ERP system. The transition of your eProcurement system will add little to the scope of your future ERP implementation project.
  • Can we deploy a single Spend Control process across multiple ERP systems? Yes – many companies are doing this today. If, because of mergers and acquisitions or other reasons, you have several different ERP systems supporting different business units within your organisation, you can gain tremendous advantages by implementing a common Spend Control ‘umbrella’ across all of those business units while integrating as needed with each of the individual ERP systems. It can even make it easy to quickly incorporate newly acquired business entities into your Spend Control process without the need to change their internal systems. A single enterprise-wide eProcurement system enables you to aggregate demand, consolidate suppliers and collect spend history across your entire organisation. This can lead to greatly increased spending power which results in better global suppliers, greater volume discounts and lower overall costs.

Your Spend Control program will be an important business process improvement initiative for your organisation, but the systems aspect is pretty straightforward and non-disruptive. And it can give you considerable flexibility over time.
In Part 3, we’ll explore the final ways to address spend control, including how to avoid getting tangled up in a long, expensive project, how to organise for both early and sustained results and where to start. 

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