Having visibility into a corporation’s spending is one of the most efficient methods to assess a company’s costs, what the money is spent on and how much could be saved. However, it can be a challenge to track every expense -- especially when that might include everything from dry-erase markers to new data center architecture and employee payroll.
In many companies, complications arise from having a number of different tracking systems. So even if there is a record of every dollar being spent, it might not be organized in a way that makes financials easy to evaluate.
That’s where spend management software comes in. By using spend management systems, or spend analysis, as part of a procurement package, companies can organize all their spending into one system that allows administrators to see what they’re spending money on. Besides helping to identify savings opportunities, spend management can reduce supplier risk and improve compliance, according to its proponents.
Table of Contents:
* The basics: What is spend management software?
* Identifying savings opportunities from spend management systems
* Spend management: one piece of the procurement plan puzzle
* SAP: spend management vendor
While spend management is a pretty all-encompassing term, spend management software specifically relates to the system that combines all of an organization’s spending information into one package for easy analysis. A spend management system usually includes many separate tools, but they all work together to clarify who a company is doing business with and what it’s buying. This can help avoid complications like out-of-contract purchases and compliance issues.
Extra tools are commonly added to spend analysis systems. One tool might be supplier management, which can help with regulatory compliance and contract management. Often, companies will go to different providers and vendors to buy several pieces which together form a more comprehensive spend analysis system.
Taking that route can be more complicated at first, so organizations should keep in mind that complex spend management systems require significant integration and customization. We’ve compiled a list of tips to help prepare for a smooth spend management launch.
There are plenty of reasons why spend management software is a good investment (compliance, for example) but the biggest driver for any organization is the one that affects the bottom line: savings. Identifying savings opportunities can help an organization be more cost effective in the areas where they’re spending the most. For many organizations, that’s the IT department.
IT professionals have long been recognized as necessary players in keeping business processes running smoothly.
If companies have to spend on the technology, they should know the smartest way to do it. For IT departments to justify expenditures, it helps to have an IT spend management system that makes chargebacks transparent. That way it’s easier to communicate IT needs and costs to the business side of the company while evaluating where the real priorities lie.
IT spend analysis can also be part of a larger cost reduction program, which usually targets sourcing costs. Such a program can identify more opportunities for consolidation while reaffirming commitments in sourcing contracts and allowing more flexibility.
Further savings can be accrued over time by reducing the risks associated with the value chain. It can be easier to reduce financial risk exposure with the information provided by tools from vendors such as SAP (see number four).
If all these savings sound too good to be true, here is some CIO testimony about how it can work.
Spend management alone can provide many benefits, but it’s most often implemented as part of an overall procurement plan. Procurement software can manage every level of commerce in the supply chain, from suppliers to manufacturers and consumers. Spend management is the piece that specifically manages how much is paid to whom and for what.
Some of the advantages of procurement, also known as e-procurement, are similar to spend management, in that organizations can use it to cut cost and mitigate risk. Procurement also helps with control and oversight of outsourcing, program performance improvement and boosting of ROI.
As complicated as implementing spend management may seem, it can be even more so with procurement. Because procurement systems usually consist of many parts, there will almost always be parts that don’t cover a particular area or that prove to be unnecessary. For that reason, companies often deploy not a single best procurement system, but a combination of solutions. Rather than one set of ERP tools, or one specialized, “best of breed” procurement vendor, there might be a mix of both that uses the strengths of each component.
The complicated integration process has been shown to cause an extended period in which procurement and spend management are not used to their full potential, according to the London-based Procurement Intelligence Unit (PIU). The PIU reported last year that it takes an average of 39 months for an organization to reach sophisticated use of procurement and spend analysis software.
The benefits of procurement and spend management continue to outweigh the initial integration headache for private companies and their partners, as well as those that deal with the government. Bill McCluggage, the United Kingdom’s deputy government CIO, advocated the use of procurement systems to increase competition and cut costs for the government.
Ironically, the people who need to use spend analysis the most wisely are often procurement executives themselves. Because they become known for supplying high-quality products at low costs, they have to make sure that there isn’t a chink in the supply chain that can create problems for the rest of the links. Spend management can give these procurement managers visibility into their relationships with suppliers at many levels.
There are many vendors in the spend management arena -- companies like Oracle, Ariba, and IBM’s Emptoris division -- and one of the real heavyweights is SAP. SAP's Spend Performance Management software combines spend analysis, supply risk information and some aspects of supplier performance management to help manage both internal and external risk. SAP was the first among vendors to offer supply risk “enrichment” as part of its spend management suite, while others outsourced that capability as an add-on.
One vendor that rivals SAP in the spend visibility market is Oracle with is Spend Classification software. After a careful comparison, a SearchSAP.com contributor recommended implementing both products, but giving priority to SAP’s Spend Performance Management and its add-ons.
For vendor spend analysis, SAP MDM comes highly recommended by our experts, and even in tough economic times, SAP SCM is something they think companies should hold on to due to its ability to offer quick ROI.
This was first published in March 2012