This is the second installment in a five-part series discussing the obstacles and potential paths forward to achieve visibility – essential to any Procurement organization. The article was initiated based upon the following Ardent paper – HERE. In the first installment I discussed the overall drive for procurement visibility. In this installment, we’ll discuss the first of the three key areas of procurement visibility: Spend.
Having been a long-term evangelist for spend visibility programs, it continues to puzzle me that there are so many organizations still battling to justify and maintain a proper solution for full visibility across all of their spending.
This is the foundation of analytics for a Procurement organization, and a critical first step on the journey to manage spend, reduce risk and establish procurement as a value-added partner to the business. Given the complexity of the business landscape today, those operating without a Spend Analysis solution are truly in the dark age of Procurement.
Recently I worked with an organization that had historically approached indirect and direct spend visibility independently. Direct, after all, was managed well by each LOB (line of business) and indirect spend was not seen as being critical to the success of the enterprise (an all too common viewpoint).
An acquisition was the impetus for a directive from the board to gain better controls on their spending and leverage their buying power. There were synergies that were expected from the acquisition. For sure they were faced with many of the common challenges to achieving spend visibility including having many data sources, a proliferation of category schemes and poor buying processes, especially on the indirect side. However, once the unified view of spend was achieved, even from the first glimpse at a supplier level it became clear that the expected synergies across business units were there.
Additionally, many surprises and unexpected value began to materialize as the team analyzed the data. One of the most unexpected was the overlap in suppliers serving both the direct and indirect sides of the organization. No one really knew the extent. This new insight had a material impact on the definition of the top suppliers, negotiation leverage and risk spectrum. It also identified a number of large spend categories where no one held responsibility for the category strategy.
A truly wonderful aspect of a Spend Analysis initiative is that on “day 1″ no organizational buy-in or business process change is required! Roll up your sleeves and get going. Certainly and hopefully as the Spend Analysis initiative matures, buy-in and process change will follow leading to better data quality and new insights. All thanks to visibility.
For those still struggling to get their initiative funded, the mandate to act is stronger than ever. If savings hasn’t been enough to move the organization historically, try the risk angle. Engage your CFO, CRO and CIO. There is value here, more so than ever, for all of these stakeholders.
* Watch this webinar with Forrester Research Vice President Duncan Jones to learn how to secure a budget for investing in vital procurement software projects with proof of impact such as realized savings, supplier management and improved risk management and regulatory compliance