Spend management has consistently ranked one of the top ROI value propositions in the entire technology industry and far out distances the ROI opportunity of other areas such as ERP, CRM, among others, with return on investment of properly implemented Spend Management initiatives often exceeding ten times the initial investment
Many organizations, are quickly realizing the benefit of dedicated Spend Management programs with meaningful savings in just a few months, whereas for others the full opportunity of dedicated enterprise-wide spend management can seem a long way off. But don't give up. With the right approach, you can save a fortune for your organization and deliver a wealth of business benefits.
Spend management injects visibility, control and efficiency into how you purchase goods and services to run your organization - and the way you pay for them. Only then can you take control of spend and the way you engage and interact with suppliers to deliver greater value, savings and compliance.
However, the start of the journey can seem daunting. In fact, it might feel as though you need to take five steps backwards before you can move forwards at all.
That might sound over-dramatic, but spend management project teams will often encounter a series of major barriers that need to be solved:
- Disparate data: Spending data is typically found in multiple systems that may not be connected, from Accounts Payable spreadsheets and finance management systems, through to ERP tools, corporate purchasing systems and p-cards.
- Inaccuracy: Spending data is often inconsistent because of mistakes, duplications, chasms in records or a large amount of data classified as “other”. It may also be old or present several competing versions of the truth.
- Inconsistent product information: Names and codes for suppliers, products and services may be recorded incorrectly, adding to the fog and limiting negotiation leverage with suppliers.
- Offline/Unorganized sourcing methods lead to missed opportunities in negotiated contracts with suppliers.
- Localized decision making tends to focus on price-only versus best total value for the organization and alignment with corporate goals. These processes are also labour intensive and time consuming.
- Compliance management: It’s difficult to ensure all purchases across the entire organization are in line with the corporate rule-book, established budgets and negotiated supplier agreements to avoid costly off-contract or ‘maverick’ purchases.
- Weak contract management: Contracts lay dormant in filing cabinets and often renew automatically because no-one's watching. Any hard-fought gains won elsewhere can be lost overnight. Equally there is no oversight to ensuring supplier and contract compliance.
- Non-repeatable processes: Many activities have most likely been conducted on an ad-hoc basis with no defined or repeatable methodology. There are no systems to enable a seamless, end-to-end stream of strategic procurement activities by connecting buyers and suppliers.
Put simply, without the right tools and disciplines in place, it's almost impossible to say how much you're spending, with whom, and on what - then to control and streamline the complete end-to-end process.
Resist the temptation to run for the hills
Many people are tempted to give up at this point. And this is where the wheels come off some solutions - because they just can't deal with the messy reality of business life.
But the best spend management solutions can overcome these tricky issues and more -using a suite of tools to clear up any mess you've unearthed.
Here's a taste of the kind of transformation that's possible:
- Spend analysis tools: These can aggregate, cleanse, validate, categorize and analyze every ounce of data across your transactional systems. Supplier data enrichment can enable industry codes to be added too, so products and services appear under the right headings. Suddenly, you've got a crystal-clear picture of spending. Any patterns will show you where you could fuel the sourcing pipeline and enforce compliance.
- Strategic sourcing and eSourcing: You can use the most efficient and appropriate sourcing methods, from online auctions, RFx automation, supplier identification, bidding/ negotiations and advanced optimisation tools to dramatically increase the value of goods and services used.
- Contract Management: These solutions provide enterprise-wide contract visibility that allows for reduced cycle times, improved contract renewal rates, a lower total cost of ownership, and increased compliance. Your Procurement teams work hard to negotiate “great” deals with preferred suppliers and it's important that maverick buying doesn’t dilute the intended value.
- Supplier Relationship Management: Get a handle of your supplier base – to monitor their performance, status of transactions, and administer self-service capabilities. The end goal is to have a single view of the truth and improve supplier performance through the use of supplier evaluation systems and collaboration.
- Purchase-to-Pay: Provides automated workflow, in-built controls and integration thereby improving cycle times. It facilitates a seamless, end-to-end stream of strategic procurement, purchasing and payables activities by connecting buyers and suppliers, whilst reducing the cost of transactions with efficiency improvements.
And that's just a taster of some of the capabilities available. With spend management, every dark corner of your procurement, purchasing and payment operation can be swept and made useful.
Using the right suite of tools, you can mend the leaks, reduce the waste and fix the cracks for the first time. It doesn't take years or cost a fortune to get right either.