(Part 3) CFO'S Guide to Spend Control

Charlotte Sutton
Charlotte Sutton,
Continued from Part 1 and Part 2, where we explored a number of ways to achieve effective Spend Control including; how to create savings, the business processes involved, systems capabilities required, keys to success and how eProcurement will impact existing financial ERP systems…

Avoid getting tangled up in a long, expensive project

Rolling-out a Spend Control program need not be anything like the arduous and costly project you experienced when you implemented your ERP system.

From a business process perspective

There is no need for a ‘big bang’ approach where you ‘go live’ with everything and everyone one sunny Monday morning (which almost always turns stormy that afternoon!). Although your ultimate goal is to have your Spend Control program ‘firing on all cylinders’ by covering all aspects of the Source-to-Contract and Purchase-to-Pay processes, those processes are not completely interdependent, nor are the spend categories you address.

Spend Control roll-outs are easily segmented into manageable mini-projects that have ROI associated with each step. Deployment phases are usually organised around three key dimensions:

  • Spend categories to be addressed e.g. start with a single category such as IT spend or a grouping of categories that are similar; move through all your categories and associated suppliers in sequence of expected savings.
  • Business processes to be implemented e.g. start with the purchase-to-pay process to get a foundation of solid purchase authorisation controls and AP efficiency gains, then move on to tackle each element of the Source-to-Contract process to incrementally expand the range of suppliers with whom you have competitively negotiated cost-saving agreements, and to improve the supplier and catalogue information integrated into the purchasing process.
  • Organisational entities to use the new capabilities e.g. start with your headquarters operation or a particular business unit to gain experience and refine your processes, then expand to all your branch locations and business units around the world one step at a time.

By making each phase a manageable combination of spend categories, business processes and organisational entities, you can closely control the scope of each mini-project, measuring results and making refinements as you go. Using this approach, you will find that you realise increased savings on a steady basis with little organisational trauma or business risk.

From an IT perspective

You have many technical options for deployment of eProcurement. A modern eProcurement system can be deployed:

  • In the Cloud, but managed by you
  • In the Cloud as a managed service
  • On-premise in the traditional manner
  • A combination of the two – e.g. transaction oriented Purchase-to-Pay functions hosted on-premise and collaboration-oriented Source-to-Contract functions in the Cloud

Regardless of your approach to technical deployment, most Spend Control solution providers offer the option to license the eProcurement software in multiple ways as well:

  • Subscription or transaction-based licensing where you essentially pay-as-you-go with no significant up-front licensing cost; ongoing support is usually bundled in with the fee
  • A traditional one-time perpetual license with the option to include ongoing maintenance and support services with an annual fee

The combination of these technical deployment and software licensing options can take away much of the up-front cost of your Spend Control initiative and align eProcurement solution costs with your step-by-step deployment and resulting savings.

Organise for both early and sustained results

In today’s world, every initiative needs to gain early, frequent and sustained results in order to be a success. A recent ComputerWorld article titled The Rebirth of Re-Engineering said it well: “Unlike the mega-projects of the 1990s that spanned multiple years and revolved around big honking ERP systems that cost millions and produced disappointing results, today’s process re-engineering initiatives feature multiple quick-hit projects, many born out of (focused innovation teams).”
It went on to say: “In a nutshell, today’s re-engineering is not a one-time event. Rather, it’s an ongoing endeavour that involves continually refining and enhancing the hundreds of end-to-end steps involved in (a complete process). What it’s not about is the software that automates those steps.”
That’s why many organisations are organising Spend Control initiatives around focused management of its two key ‘value streams’ – Purchase-to-Pay and Source-to-Contract – with a business person taking responsibility as the Value Stream Manager for each. According to the previously referenced article: “When you have people organised around the processes being delivered rather than silos, those people are attentive to how the processes operate and how they need to evolve and change over time.”
With a clear understanding of the inter-relationship between the Purchase-to-Pay and Source-to-Contract cycles, it is easy for these two important processes to progress in parallel, leveraging each other to increase savings at every phase along the way. In the simplest form:

  • The Purchase-to-Pay Value Stream Manager, quite possibly someone in the Finance organisation, focuses on using eProcurement to create a standardised process that everyone will use to request and buy things within corporate authorisation policies, and from suppliers and agreements generated by the Source-to-Contract process. That establishes the framework to capture savings from all the opportunities created in Source-to-Contract. The Purchase-to-Pay Value Stream Manager also focuses on realisation of the significant efficiency gains to be had in AP.
  • The Source-to-Contract Value Stream Manager, probably a senior procurement professional, focuses on increasing the range of spend categories for which they obtain quality suppliers and well-negotiated agreements. In that way they continually create more and more savings opportunities for the organisation to utilise in the Purchase-to-Pay process. Underlying eProcurement capabilities are used to incorporate the contracts, catalogues and websites associated with those suppliers directly into the Purchase-to-Pay process in a way that makes it easy for employees to see and use them.

In this way, the two Value Stream Managers work together on the ‘ying and yang’ of Spend Control and together steadily increase the percentage of Spend Under Management. That, in turn, increases the cost savings and risk mitigation that creates so much value for the organisation.

Where to start

Most successful Spend Control initiatives are a joint effort between an organisation’s senior financial executive and senior procurement executive. Often, it is the financial executive that becomes the overall ‘champion’ for the Spend Control cause, with the procurement executive being an enthusiastic partner.
The basic steps for getting started are much like those for any other important effort:

  1. Build a common understanding of what needs to be done within your executive team
  2. Define the business case for taking action
  3. Establish a practical way to manage, measure and improve each of the activities required in order to drive towards the objectives (i.e. the business case)
  4. Identify a sequence of steps that self-fund the effort
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