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January 6, 2011

The Need for Spend Performance Management - Part 1

As the economy is coming out of recession, the office of chief procurement officer (CPOs) in every organization is hard-pressed to look beyond the low hanging fruits of cost saving.  The top management is expecting them to deliver the savings to the bottom line of company's result. They are looking for insights from their past spending data to unearth the inefficiencies in their procurement process in terms of transparency, compliance, supplier risk management and complexity handling to identify  saving opportunities to drive the next round of cost saving.

Are you as procurement executives able to leverage the available procurement data in the decision making process in a confident manner?  I am almost able to hear you saying 'NO!' and which is not different from most of your counterparts in other organizations. Despite the critical role spend data plays in supply management strategies and decisions, very few of the organizations have formal procedure to manage and analyze the spend data. The common challenges organizations face towards effective Spend Management are

- Disparate / Heterogeneous  data sources - Spend data is located in multiple source systems across enterprise including Account Payable (AP), General Ledger (GL), Enterprise Resource Planning (ERP), legacy systems, P-Card systems etc. Aggregating data from these disparate systems has historically been manual and time consuming process.

- Incomplete and inaccurate data - ERP systems were designed for transaction processing and control, not reporting and analysis. The detailed information needed for effective spend data classification and analysis is often found in unstructured data within ERP and other business systems.

- Incongruent naming conventions - Vendor and product data are not consistent with in the enterprise, the same data is used in different forms at different occasions.

 

So if I have to define Spend Performance Management process, it is the process of aggregating, classifying and leveraging Spend data for the purpose of reducing cost, improving operational performance and ensuring operation compliance.

 

By having an effective Spend Performance Management system in place in your organization you can gain visibility into enterprise wide spend data which will help in

- Identifying saving potential through informed strategic sourcing initiative.

- Reducing supplier risk by eliminating dependencies on single source suppliers.

- Increasing spends under management by ensuring contract compliance and reducing off contract spend.

 

This blog provides an overview to Spend Performance Mangement in terms of challenges and the benefits of an effective SPM, in the next part of this blog series I will share some of the best practices followed for successful Spend Performance Management.

 

Posted by Madhan Kumar at 1:32 AM | | Comments ( 0 ) | TrackBacks ( 0 )