Enterprise Spend Management

Within three months of launching an electronic invoicing initiative, a major

international financial services firm was managing more than 70% of its payables

without any human intervention or a single piece of paper.

A major pharmaceutical retail company electronically manages all of its

facilities maintenance invoicing for 4000+ locations. It reduced processing time

by at least 75%.

These are just two examples of companies enjoying the benefits of deploying a

small link of the enterprise spend management chain.

Faced with increasing pressure on operating margins, chief financial officers

are seeking ways to reduce their cost basis. But learning to operate on a lower

cost basis is not simple, nor is it just a quick fix for immediate challenges.

Instead, it must become a core competency for organizations seeking to gain a

sustainable advantage. Many CFOs are turning to their procurement organizations

to build that core competency.

Procurement leaders must take on management of the organization’s entire

spend, measure progress, and improve over time.  They need to build

expertise in Enterprise Spend Management (ESM), a comprehensive process that

enables procurement to analyze, source, contract, purchase, pay for, and monitor

all of an enterprise’s spend.

ESM solutions automate the entire source-to-pay cycle by bringing together

users, suppliers, and systems category by category. In addition, ESM solutions

provide the feedback necessary to measure and improve organizational and

supplier performance. When implemented with best practices, ESM solutions

quickly deliver significant bottom line results and enable organizations to

sustain and improve those results over time.

Spend management initiatives produce significant productivity gains, cost

savings, and efficiency improvements. By taking one or more steps to making ESM

a core competency of their organizations, executives in these companies are

further solidifying their leadership position–and setting the standard for

other would-be leaders.

The Way to Go



1.

Procurement leaders achieve broad adoption for their initiatives and

deliver substantially better results when senior executives set spend management

as a strategic company-wide priority. Procurement leaders are more likely to

gain the necessary support, buy-in, and adoption from business unit managers and

employees when spend management is a strategic priority of the corporation.

Savvy procurement leaders seek and secure the highest-level executive support

before embarking on spend management initiatives.

2. Successful spend management starts with opportunity assessment. Many

companies try to jump-start ESM with a "quick and dirty" spend

analysis. While such projects can identify "low-hanging fruit," they

fail to provide a roadmap for sustainable cost reductions. A comprehensive

opportunity assessment delivers insight into total cost of ownership, supplier

fragmentation, spend aggregation, supply market microeconomics, cross-market

analysis, category benchmarking, and sourcing strategy. It also helps an

organization plan which categories it will source first.

3. Automating the entire sourcing process for a broad range

of categories maximizes spend management benefits. Reverse auction events are a

powerful tool, but they’re only one part of eSourcing. eSourcing also adds

value in preparing specifications, involving stakeholders, collaborating with

suppliers, negotiating on multiple attributes such as quality and delivery time,

and experimenting with complex pricing scenarios and supplier allocations. By

focusing on the entire sourcing process, facilitating collaboration, and

promoting best-practice sourcing templates, companies are achieving significant

savings and productivity improvements.

4. Companies substantially improve their spend visibility and

reduce maverick spend by implementing a procurement system that captures a broad

range of spend categories. Out of a desire to start small, some companies

restrict their procurement system to a few categories. Broader deployments help

companies enforce terms negotiated during the sourcing phase.

This best practice enables companies to turn negotiated cost

savings into realized savings. An industry-standard benchmark program measured

eProcurement effectiveness across 149 global companies that capture more than

$60 billion of spend. Compared with the companies in the bottom quartile, the

top quartile companies have the following key characteristics:

• Spend capture is 168 times higher

• Six times more users work on the system

• The system connects with 47 times more suppliers

5. Receiving invoices electronically and automating

reconciliation to contracts provides insight into demand patterns and supplier

performance. Most organizations still receive the majority of invoices on paper

and process them manually. The group that processes these invoices is usually

disconnected from the group that created the original purchase order, and lacks

access to the contract, terms, and in some cases even the purchase order. Staff

waste time trying to track down this information and answer enquiries from

suppliers. They frequently overpay because they don’t have the information

they need to dispute overcharges.

By requiring all suppliers to submit electronic invoices with

a specified level of retail, companies reduce their processing costs and gain

immediate spend visibility. They are better able to analyze invoice data,

recover overcharges and, in some cases, negotiate better contracts on future

purchases.

Sundar Raghavan, V-P product marketing and strategy, Ariba

Inc.