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Last week, I had the opportunity to moderate an excellent session on spend analysis best practices. The esteemed panelists shared many gems of wisdom on how to launch a success spend analysis program. I won’t rehash these here. (You can listen for yourself by accessing the free replay.)
However, one off-subject line of discussion raises an interesting (and oft heard) question: We know we need to improve our supply management operations. But where is the best place to start?
Greg Shifflett, Director of Enterprise Spend Managemetn at Alliant Tech Systems, says to “Get a handle on your spend first,” adding that spend visibility provides a solid foundation to identify and prioritize opportunities for sourcing, category, and supply base improvements. Greg also notes that accurate, detailed, and timely spend data has also helped secure both top-level support (including from the CEO) and frontline compliance. “CFO’s really want to know how it’s going to get to the bottom line, how it’s going to track, and when it’s going to be there.”
Greg’s slide below illustrates Alliant Tech Systems’ three-year supply chain overhaul below. (You can access Greg’s complete slide presentation, “Spend Visibility: Foundation for Supply Management Transformation,” here.)
(Click to enlarge.)
As the graphic indicates, Alliant Tech is using its foundation of accurate and timely spend intelligence to define category management and sourcing (and e-sourcing) strategies. Next, the company will move to automate supplier registration and performance scorecarding, followed closely by contract management. The final phase of Alliant Tech’s transformation plan will be to automate the procure-to-pay cycle.
This methodical approach reinforces the importance of securing a baseline and targeting improvements in areas that can deliver the quickest and greatest impact on supply costs and performance. It also signals a shift from the approaches of the late 1990s, when companies rushed to streamline req-to-pay processes before determining if they had fully leveraged, best-value agreements in place with the best suppliers.
To borrow an old advertising slogan: “We’ve come a long way, baby.”
2 responses so far ↓
1 John Martin // Dec 16, 2006 at 6:40 pm
Starting with spend management to prepare for strategic sourcing has indeed emerged as the best-practice approach in most circumstances.
However, there are some cases where this is difficult or not effective, specifically with some types of services, as we presented at the ISM Services conference in Phoenix last week.
Beyond the usual challenges getting good spend information, transactional information about services are usually insufficient to determine either deliverable quality or supplier performance - for example, with consulting projects or temporary workers. Knowing how well suppliers performed and the quality of the services deliverables are key to gaining the best results from a services sourcing event.
With other types of services, delving into spend information in order to hold a sourcing event will create significant resistance from the spend owner - e.g., for Marketing or Legal services.
In these cases, starting with automating procure-to-pay will capture detailed visibility into spend, supplier performance, and demand drivers that can greatly improve the results of the subsequent sourcing event.
This approach allows going back to the spend owner a few months later to say, “Here’s how we can increase value of your services for the same price, and here are the suppliers that are performing the best in delivering these types of services.” This gives you credibility and allows you to address value & quality as well as cost, which are needed to gain influence over business-owned services.
In the meantime, by implementing services P2P using the same suppliers & contracts you can immediately lower many risks endemic to services (such as security, safety, and co-employment risks) as well as eliminate cost leakage by enforcing compliance to existing terms and rates.
So I would advocate that in these outlier cases, starting with P2P can prove to be more effective and valuable.
- John Martin, IQNavigator
http://www.buildingsaas.com
2 Mark Usher // Dec 17, 2006 at 2:38 pm
John raises a good point about the more contentious commodities needing to be treated differently, however in my experience I’ve yet to find a P2P system that will effectively prevent cost leakage. You need spend analysis to identify the maverick spend going outside of the P2P system and then implement a change/stakeholder management program to get maverick spenders on board. By implementing P2P “using the same suppliers and contracts” you actually won’t do anything to understand spend for suppliers you never even knew people were buying from. This is true whether it’s office supplies or marketing spend. It’s true that areas like marketing will often present the greatest resistance & challenges but, hey, the fact that it’s hard, hard work doesn’t mean it can’t and shouldn’t be done - in fact, best practice CPOs are signing up for the challenge every day now.
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