Enterprises are increasingly coming under pressure to make valuable use of their available resources, yet a complaint I hear time and time again is that different departments across the organisation are failing to collaborate on spending.
There are myriad reasons for this failure to collaborate, but the most common ones tend to be a lack of formal travel and expense policies, a belief that procurement is too slow or hard to deal with, the existence of disparate systems that aren’t integrated to bring information into context, and a preference for working directly with vendors with which the buyer is already comfortable.
While these attitudes might facilitate a pleasant, carefree environment in which to work, such levels of independence generally do not serve the best interests of the enterprise as a functioning business unit, especially as it looks to reduce costs, ensure the right materials and services are available at the right time, and efficiently leverage resources to meet demand and, ultimately, enhance profitability.
But by bringing an end to siloed, ad hoc purchasing procedures and actively embracing the concept of ‘spend optimisation’, enterprises can become empowered to not only cut their costs but also deliver a higher quality of service and satisfaction to employees, suppliers, partners, shareholders, and customers alike.
‘Spend optimisation’ is the process by which an enterprise establishes policies, procedures, and controls and gains visibility to ensure that its workforce is spending its resources wisely. In order to effectively manage across departmental spending silos, the enterprise must embrace a culture of true teamwork and transparency.
This starts by developing an awareness of all of the types of spending that is happening across the enterprise and an understanding that virtually everyone in the enterprise makes frequent spending decisions. It’s also a matter of having the right processes and systems in place and getting people within the enterprise to adopt them. No single department owns all of the responsibility for spending, no matter how many people may wish to dump this task onto procurement.
Now we understand that it’s not just the people who work in procurement that are spending the organisation’s resources, it is equally important to gain visibility into just what these resources are being spent on. Generally speaking, it is possible to categorise two types of expenditure within an enterprise — managed spend and unmanaged spend. Managed spend is the expenditure that goes through the enterprise’s standard policies, procedures, and controls, generally centralised around the procurement department. Unmanaged spend is all other spend, including items that are purchased and expensed on expense reports or where an individual has gone directly to a supplier and contracted the required services.
Spend optimisation is focused on capturing — as managed spend — most or all of the expenditure that is happening across the enterprise, regardless of who is making the spending decision. And crucially, it is not just about looking backward at what was spent, but also about looking forward to negotiate better rates and terms of service to meet future needs. It’s about pre-empting future planned spend and, if necessary, redeploying resources to reduce costs in times of a budget crunch or to expand resources to better meet demand and potentially increase revenue.
The point is to look at expenditure across the entire organisation and in the context of how spending decisions are being made, with all departments working together for the greater good. Simply obtaining the lowest possible price for a material, product, or service is not necessarily the optimum outcome, especially if it results in unacceptable quality and service levels that hamper long-term profitability.
It is also important that spend optimisation is not viewed by employees as a negative. Yes, controls and auditing play a critical role, but enabling employees to spend smartly can often be a welcome activity, and transformative technologies such as cloud, social, mobile, and Big Data are increasingly making this possible. Many of the spend optimisation initiatives currently in place are limited in scope — either to a single department or function of the enterprise. However, I expect that over time, more enterprises will want to look across the organisation and examine all of their spending in context, driving demand for spend optimisation solutions. And with very good reason.
It is fairly common for enterprises to have about 40 per cent of their expenditure under management, but those enterprises that succeed at spend optimisation can push this figure up to more than 80 per cent. Capturing as much of that spend as possible provides them with the opportunity to proactively manage both their current and future outgoings and collaborate with their suppliers to lower costs, increase quality, and improve customer service and satisfaction. The ultimate goal of spend optimisation is to get the right materials, services, supplies, and more into the right hands, at the right place, at the right time, and at the right cost, all the time. Who wouldn’t be interested in that?!
— The columnist is group vice-president and regional managing director for the Middle East, Africa and Turkey at global ICT market intelligence and advisory firm International Data Corporation (IDC).
