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Like a cyborg from a bad movie sequel, this Supply Management versus Spend Management battle is the debate that just won’t die. Just when you thought it was safe to log onto your favorite Web site, Jason Busch, serial blogger and spend management evangelist is back with another volley.
In his latest installment, Jason mistakenly attributed my concerns with the term Spend Management to a misunderstanding the term “management.” I fully understand the strategic nature of holistic and effective management. (I also understand that truly effective management of anything has an elusive brass ring quality that would make even the most schooled executive act like Gollum. “Oh, my precious supplier.”) What I am concerned about is when a company is focused myopically on managing spend.
To be clear, I do believe spend management is a valuable practice. Companies do need to effectively analyze, leverage, and manage spend. But spend management is only a stepping stone to strategic supply management.
A company that improves its spend management performance will enhance its financial position through leveraged sourcing, more efficient internal operations, and better compliance. However, this inital improvement will be unsustainable and will not deliver differentiated product or value in the marketplace without due focus on establishing supply relationships based on total costs and then working jointly with suppliers to remove waste, improve performance, reduce risks, enhance innovation and competitive differentiation.
Put simply, Supply Management focuses not only on fully leveraging spending power and improving internal operations and compliance but also on developing and nuturing supplier relationships that drive continuous improvements in total cost and performance as well as joint competitive advantage. (Important side note: the principles for supply management excellence are as equally applicable and critical for direct materials and indirect goods and services.)
This final emphasis on holistically defining, managing, and improving the total cost of ownership of a supply relationship is what separates average and best-in-class performers. It is also what makes Supply Management a strategic and preferable discipline for sustained value.
4 responses so far ↓
1 Manoj Ranaweera // May 23, 2006 at 7:21 pm
Just came across your blog for the first time. I blog about document exchanges, Electronic Invoice Presentment and Payment (EIPP) and e-invoicing, and live in North West of England (the wet Manchester), since April 06.
The terminologies such as EIPP and Spend Management are not widely used in UK. The adoptation of these technologies are slowly been accepted in here.
Have you discussed about financial supply chain management? Or is this not a term widely used in States? Its fairly revolutionary in UK. I am not aware of a single provider. We have intention to address this market in the future.
In the meantime, we are putting the final touches to ebdex Document Exchange. You can find more information on http://www.ebdex.co.uk
I will visit your blog again and will comment if I can add anything of value from British end. I must admit, we are bit behind Americans in adopting new technology….
2 Tim Minahan // Jun 16, 2006 at 1:56 pm
Financial supply chain management is an intriguing area. In fact, some leading supply management organizations are taking a more active role in cash management and return on invested capital (ROIC) through advanced demand management, EIPP, and aggressive rebate management techniques.
Consider one large diverisifed manufacturer I know. They have fully automated the invoice reconciliation and payment process to gain immediate and accurate visibility into their invoice reconciliation and payment process.
But that was only step one. Now the company is marrying that information with available cash and budget information. They are using advanced analytical tools to help assess if they should pay a supplier early in order to (legitimately) access their early payment discount. More importantly, they are using this analysis to determine whether to offer suppliers early payment in return for additional discounts or rebates.
This concept of “aggressive rebate management” is returning discount offers of 5% to 25%. Fact is: cash is king. And if you know how much cash you can use and are willing to part with it, you’ll be surprised at how eager suppliers are to get ahold of it. And how willing they will be to offer additional concessions in return.
3 Supply Excellence » In Defense of Aberdeen’s Spend Intelligence Moniker // Jul 14, 2006 at 3:03 pm
[...] Aberdeen’s Spend Intelligence Report: There’s Gold in Your Data! July 14, 2006 In Defense of Aberdeen’s Spend Intelligence Moniker by Tim Minahan at 3:03 pm Following on the heels of Aberdeen Group’s latest report, TheSpend Intelligence Benchmark, Spend Matters champion Jason Busch took issue with the title. While aptly applauding Aberdeen’s continued research in this area, Jason took Aberdeen to task for using, in his words, Orwellian double-speak by introducing yet another name for spending analysis. Jason called the term spend intelligence “misleading” and said it “sounds like a new take or sub-segment of business intelligence (BI) software.” While I’d be the first to caution against the introduction of new jargon. Business executives are already reeling from the flurry of terms and acronyms being tossed their way. (The heated debates between Jason and me on spend management versus supply management is further evidence of this fact.) I must come to the defense of my alma mater on this matter. Jason aptly points out that spend data is tied up in multiple, disparate systems both within (e.g., AP, Finance, Purchasing, etc.) and outside the enterprise (e.g., P-cards, ACH, any third party buying goods/services on your company’s behalf). He is also right in that the real effort in this daunting task is not building a spend cube or reporting but aggregating, cleansing, classifying, and enhancing/enriching spend data. In fact, here is my issue with his complaint. As an analyst, every software vendor — from fledgling sourcing startups to old-school ERP and BI providers — touted their spending analysis capabilities. The caveat: you just needed to give them the data in a cleansed, classified, and structured format. Or, pay them or a systems integrator gobs of money to manually aggregate and structure your data for analysis. (And forget about data enrichment.) In short, most vendors pitched building a data cube or data warehouse from which you could run analyses and reports as spending analysis. They were wrong. And they confused the marketplace (possibly intentionally). It is the automated and repeatable classification of spending information to a structured schema (e.g., UNSPSC, eClass, proprietary schema, etc.) and then the enrichment of this data with related business information (e.g., parent-child relationships, financial risk scores, contracts, performance information) that turns spend information from “dumb” data into true spend intelligence that a company can use to make fact-based sourcing and supply decisions rather than gut-based or hunch-based decisions. [...]
4 Buzzword Lifecycle Management (BLM) and Procurement : Hudgeon! // Dec 6, 2009 at 10:28 am
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