Expense Management: Better Ways to Buy

At the height of the dot-com boom, in January 2000, the term "E-procurement" appeared in these pages for the first time. Virtually synonymous, then, with E-commerce, the term joined a burgeoning pantheon of Internet buzzwords and promised a revolution in how companies bought and sold everything from raw materials to contract labor. So your head of sales knows the names of all his clients' kids? Quaint, but pointless: soon all buying and selling would take place in cyberspace, transparently, instantaneously, and impersonally. Welcome to the New Economy.

It has not, of course, played out that way. Online auctions, trading hubs, E-marketplaces, and a host of other sourcing options have come and gone. Putting the letter "E" in front of a conventional business practice, it turns out, does not magically transform it overnight.

But in the intervening years, much has changed — fitfully, often painfully, and sometimes almost invisibly. Today companies can bring automation to bear on a wide range of sourcing and procurement tasks. Virtually every dollar a company spends, in fact, can be spent more wisely if the right systems are put in place.

Companies that want to shop more smartly have a huge range of opportunities to do so, from targeted areas such as travel and entertainment to broad procurement programs for core materials and other supplies. While the current economic climate makes it tempting to mandate cost cuts across the board, a wiser course might be to inject some electronic discipline around expenditures so that you can feel confident that you're getting your money's worth. What follows is a survey of some of the most promising developments in several key spending categories.

Travel & Entertainment
Despite the recent surge in oil prices and the attendant impact on business travel, research firm Aberdeen Group reports that 80 percent of enterprises saw their T&E expenses rise over the past year, by an average of 14 percent. If higher airfares are painful, so too are the hidden costs imposed by clunky monitoring and reimbursement processes. T&E has traditionally been an atypical form of expense, with employees spending their own or company money up front with substantial discretion; compliance kicks in after the fact, when they file expense reports, by which time it may be too late to do much good.

That was the case at Pentair, a maker of water- and pool-filtration equipment. Until two years ago, employees would book trips through a designated travel agency — or not — and often charged purchases to their personal credit cards. Low corporate-card usage made it difficult to tell exactly what employees had done and whether they were using preferred airline and hotel partners. On top of that, a manual expense-reporting process was time- and labor-intensive for both employees and the beleaguered accounts payable department.

But a system that combines online booking with expense reporting changed all that. The booking tool guides travelers to partners with which the company has negotiated volume discounts. Once an itinerary is chosen, all expenses can be loaded into the expense report with a mouse-click. Employees have half their paperwork done before they even leave; once on the road, credit-card charges are automatically added to the report as they accrue. "I tell people, 'You may hate it the first time you use it, but after the third or fourth time, you'll love it,'" says Natalie Chantal McGrady, a former indirect supply manager who now consults for Pentair.

Along with the technology, the company instituted a new credit-card policy. The online booking system accepts only the corporate credit card, and Pentair auto-pays all approved charges made with it. If a traveler books outside the system, he has to pay those charges himself and wait to be reimbursed.

The system generates plenty of data to help Pentair better enforce compliance and manage budgets, and the finance department can run reports by the approving manager, expense type, or department — a process that used to take three days or more but now requires only a couple of hours.

As is the case with much of the technology now reshaping corporate purchasing, Pentair subscribes to rather than owns the software it uses. For a one-time setup fee of $20,000 plus $28,000 in internal IT costs (also one-time), the company can accommodate the 3,000 employees who travel each year. This year alone it has already reaped $100,000 in preferred-provider discounts and savings on travel agent fees, while increased use of the corporate credit card is expected to boost the rebate by the card issuer by about 20 percent.

Pentair also expects to save on process efficiencies, but that payback will take longer due to the expense of training finance staff and rank-and-file employees on the new system. Aberdeen reports that automating expense reports halves the filing time for travelers and cuts processing costs from an average of $30 to $19 per report.

Beyond T&E
For many companies, however, taming T&E is not enough. They're looking to keep better tabs on other expenses through "spend management," a broad category that includes everything from T&E packages to spend analysis, E-sourcing, E-procurement, E-invoicing, and supplier relationship management (SRM) software and services. As with the system described above, virtually all of these capabilities are available as Web-based services priced by some unit of usage, often a per-user per-month basis. Forrester Research says the overall category averaged 14 percent annual growth between 2003 and 2008, easily outpacing the overall software market.

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