In the second of the 4 part series, we will dive more deeply into the first possible approach to finding savings in indirect goods and services: Spend Visibility.
Although most companies realize how important spend visibility is, many companies struggle with three common issues:
1. How do I build a business case to prove we need visibility?
2. I have an ERP system, can’t I use that?
3. I have a spend visibility provider, but I am not sure if it is giving me the best results.
Spend visibility is critical to framing the problem. Do you know what your indirect spend is? What is your largest spend category? Has it grown or diminished over time? Can you see down to level 3 or level 4 detail? If you don’t have that visibility, you need to determine if the problem is your current provider or limitations in your ERP system. Revisit the market—most providers will offer a proof of concept to demonstrate their results.
Spend visibility will assist you in building a fact base to detail out the savings, as well as demand opportunities to drive long-lasting change.What are the high spend or high vendor count categories?Where does the most savings potential exist?
Key to success: Give the operating entities detailed reports of spend by category and vendor and then take the next step—benchmark their per unit cost versus other operating units, nationally and/or globally. Report on potential savings across various opportunities to the operating units and to the finance executives.
End Game: Let the operating entities continue to source and procure their goods and services. Let a central finance function provide real time information to the entities including spend, supplier and transaction data as well as internal benchmarking across the organization of unit cost and contract terms so everyone can get the best deal possible.
You can read Part 1 here.