SPENDMANAGEMENTAll that you need to know.By Vijay Sharma
ContentsChanging economic scenario: Working in a Globalized post-Recession worldSpend Management: What is it?Cost reduction v/s value additionWorking of Spend Analysis: How is it done?Need of Spend Management: Why do you need it?Customer Snapshot: Business case StudySpend Management Differentiators
Working in the Post-Recession Globalized scenarioDue to globalization,corporates have to dealwith plethora of big-smallorganizations spread Suppliersacross the globe toremain competitive.Its viable to onlyconcentrate on the core Production Organization Clientscompetency of the unitscompany and outsourceother processes.Global competition hasforced organization to Outsourcedoffer improved services at processeslower prices.Thus, optimization ofspent resources isimperative.
Lessons from the RecessionEconomic recession has a profound effect across all sectors ascompanies have to take a harsh relook at cash flow patterns,revise forecasts cut budgets and fundamentally change businesspractices into opportunities.The need for optimized spending has been the single-mostinfluential lesson. Get more out of every dollar spent by: Improve Better supplier Focus on spend visibility relationships overall value Enhance Streamline compliance resources tracking“Convert the economic crisis into opportunity togenerate significant business value”
What is Spend management?• Spend management is the way in which companies control and optimize the money they spend.• Requires cutting operating and SG&A costs associated with doing business.• A company needs a mechanism by which they are not only able to save money but control costs.• Spend management is managing how outsourcing procurement to spend money to best effect in order to build products and services.• Systematic way t o get line item visibility into enterprise spend – by commodity, part no., supply chain e- geography and business unit. management procurement “Spend Analysis helps save more than $19 million for every one billion dollar of spend.” Source Aberdeen Group
Spend Management: Cost reduction v/s value generation• In hard times, companies typically turn to cost cutting measures such as layoffs and product quality reductions.• Creates little long term value, nor any long term sustainable savings.• Spend Analysis today is much more than spend visibility.• 78% of organizations cite cost savings as the top driver for Spend Analysis in their respective companies.• Spend analysis helps save resources by performance optimization instead. Thus, instead of cutting costs, focus is on value you bring to the market. “Cutting costs by $100 has a similar effect as an increase in revenue by $300 ” Source NPI Financial
Spend Management: How do they do it? • Identify opportunities to reduce costs, improve service • Collect all forms of data available about organizational processes Identifyopportunity • Execute on a clear plan • Data analysis • Category Management Validate • Supply market expertise • Actionable analytics • Strategic Sourcing Finalize • Supply Chain Management • Prioritization, finalization and management of savings opportunities Prioritize • Tell how much to spend and where Saving Opportunities and Value-addition
Spend Management : What it does for you?Best Practices in Spend Analysis coupled with a mix of content, insight and skillsoffers your company the competitive edge while maximizing profits. Category Supplier Market Data Analysis Expertise Management Category Category • Supplier Market Supplier Market Navigate business Data Analysis Data Analysis • Understand all the Management Management Expertise Expertise volatility, and Data analysis provides categories that supplier you with make up enterprise performance • Spend aggregation spend degradation with • Internal price • Standardize broader market benchmarking requirements and insight and expertise • Variance analysis processes for • Get a head start by • Price trend analysis managing measuring supplier categories performance against market benchmarks Impact : Using spend Impact: A global Impact: By analysis to move business pharmaceutical company understanding market from one supplier to defines enterprise-wide forces, the Procurement another, one European sourcing strategies – Officer avoids long-term company saved €3 million in reducing the number of contracts for better one year. suppliers and gaining flexibility and price volume discounts performance.
Spend Analysis : A Business CaseDel Monte Foods is one of the largest and most well-known producers, distributors and marketers ofpremium quality, branded food and pet products for the U.S. retail market, generating approximately $3.7billion in net sales in fiscal 2010.• Undergoing spend management transformation.• First Needed detailed visibility into existing spending• Lacked reporting capabilities to make sense of data• Control over direct spend but little indirect expenses under management• Current ERP system was inefficient and lacking necessary data • Today over 98% of data classified into commodity codes. • Leverage supplier parentage information for leveraged negotiations. • Aggregated and leveraged spend data being leveraged for MRO and other indirect categories bringing it under spend management for the first time. • Reporting Capabilities leveraged to manage supplier item approval process. • Purchase price variance reporting available based on company defined measures and data. • Tool behind leveraged beyond procurement; including other functionals like quality assurance, R&D, finance and IT. Source: Ariba Inc.
Spend Management differentiators: Spend visibility at your finger tips, no need to further analyse results. Achieve savings mandates through a transparent, predictable process. Refresh spend data at the push of a button. Accurate classification of cryptic and multilingual spend data. Greater alignment between spend management and corporate objectivesGain Better Visibility Generate Greater Savings Maximize Return On InvestmentsOptimize available resources