Spend management is the process of controlling and optimizing a company's spending. It requires reducing operating costs through activities like procurement, supply chain management, and e-sourcing. Spend analysis provides visibility into a company's spending through data collection and analysis to identify opportunities to cut costs, improve services, and add value rather than just cost cutting. It allows focusing on overall value generation through performance optimization and strategic sourcing rather than just cost reductions. Case studies show spend analysis can save companies millions annually by moving spending to better suppliers and gaining insights into market conditions.
2. Contents
Changing economic scenario: Working in a Globalized post-Recession world
Spend Management: What is it?
Cost reduction v/s value addition
Working of Spend Analysis: How is it done?
Need of Spend Management: Why do you need it?
Customer Snapshot: Business case Study
Spend Management Differentiators
3. Working in the Post-Recession Globalized
scenario
Due to globalization,
corporates have to deal
with plethora of big-small
organizations spread Suppliers
across the globe to
remain competitive.
Its viable to only
concentrate on the core Production
Organization Clients
competency of the units
company and outsource
other processes.
Global competition has
forced organization to Outsourced
offer improved services at
processes
lower prices.
Thus, optimization of
spent resources is
imperative.
4. Lessons from the
Recession
Economic recession has a profound effect across all sectors as
companies have to take a harsh relook at cash flow patterns,
revise forecasts cut budgets and fundamentally change business
practices into opportunities.
The need for optimized spending has been the single-most
influential lesson.
Get more out of every dollar spent by:
Improve Better supplier Focus on
spend visibility relationships overall value
Enhance Streamline
compliance resources
tracking
“Convert the economic crisis into opportunity to
generate significant business value”
5. What is Spend management?
• Spend management is the way in which companies control and optimize the money they
spend.
• Requires cutting operating and SG&A costs associated with doing business.
• A company needs a mechanism by which they
are not only able to save money but control
costs.
• Spend management is managing how outsourcing procurement
to spend money to best effect in order
to build products and services.
• Systematic way t o get line item visibility into
enterprise spend – by commodity, part no.,
supply chain e-
geography and business unit. management procurement
“Spend Analysis helps save more
than $19 million for every one
billion dollar of spend.” Source Aberdeen Group
6. Spend Management: Cost reduction
v/s value generation
• In hard times, companies typically turn to cost cutting measures such as layoffs and product
quality reductions.
• Creates little long term value, nor any long term sustainable savings.
• Spend Analysis today is much more than spend visibility.
• 78% of organizations cite cost savings as the top driver for Spend Analysis in their respective
companies.
• Spend analysis helps save resources by
performance optimization instead.
Thus, instead of cutting costs, focus is on
value you bring to the market.
“Cutting costs by $100 has a
similar effect as an increase in
revenue by $300 ” Source NPI Financial
7. Spend Management: How do they do it?
• Identify opportunities to reduce costs, improve service
• Collect all forms of data available about organizational processes
Identify
opportunity • Execute on a clear plan
• Data analysis
• Category Management
Validate • Supply market expertise
• Actionable analytics
• Strategic Sourcing
Finalize • Supply Chain Management
• Prioritization, finalization and management of savings opportunities
Prioritize
• Tell how much to spend and where
Saving Opportunities and Value-addition
8. Spend Management : What it does for you?
Best Practices in Spend Analysis coupled with a mix of content, insight and skills
offers your company the competitive edge while maximizing profits.
Category Supplier Market
Data Analysis Expertise
Management
Category
Category • Supplier Market
Supplier Market
Navigate business
Data Analysis
Data Analysis • Understand all the
Management
Management Expertise
Expertise
volatility, and
Data analysis provides categories that supplier
you with make up enterprise performance
• Spend aggregation spend degradation with
• Internal price • Standardize broader market
benchmarking requirements and insight and expertise
• Variance analysis processes for • Get a head start by
• Price trend analysis managing measuring supplier
categories performance against
market benchmarks
Impact : Using spend Impact: A global Impact: By
analysis to move business pharmaceutical company understanding market
from one supplier to defines enterprise-wide forces, the Procurement
another, one European sourcing strategies – Officer avoids long-term
company saved €3 million in reducing the number of contracts for better
one year. suppliers and gaining flexibility and price
volume discounts performance.
9. Spend Analysis : A Business Case
Del Monte Foods is one of the largest and most well-known producers, distributors and marketers of
premium quality, branded food and pet products for the U.S. retail market, generating approximately $3.7
billion in net sales in fiscal 2010.
• Undergoing spend management transformation.
• First Needed detailed visibility into existing spending
• Lacked reporting capabilities to make sense of data
• Control over direct spend but little indirect expenses under management
• Current ERP system was inefficient and lacking necessary data
• Today over 98% of data classified into commodity codes.
• Leverage supplier parentage information for leveraged negotiations.
• Aggregated and leveraged spend data being leveraged for MRO and other indirect categories bringing
it under spend management for the first time.
• Reporting Capabilities leveraged to manage supplier item approval process.
• Purchase price variance reporting available based on company defined measures and data.
• Tool behind leveraged beyond procurement; including other functionals like quality assurance, R&D,
finance and IT. Source:
Ariba Inc.
10. Spend Management differentiators:
Spend visibility at your finger tips, no need to further analyse results.
Achieve savings mandates through a transparent, predictable process.
Refresh spend data at the push of a button.
Accurate classification of cryptic and multilingual spend data.
Greater alignment between spend management and corporate objectives
Gain Better Visibility
Generate Greater Savings
Maximize Return On Investments
Optimize available resources
