VideoTextron Inc., a diversified manufacturer based in Providence, is using a variety of tools to track spending but is looking for a system that will provide a more complete picture. Textron's finance department uses software from Hyperion that aggregates accounts-payable data from throughout the company. The$11 billion conglomerate, which provides such diverse offerings as aircraft fastening systems, industrial products, and financial services, has more than 100 accounts-payable systems and more than 50 ERP systems, due to historical growth by acquisition. The Hyperion software gathers useful spend data at the chart-of-accounts level, but Textron wants more granular analysis that identifies commodities and products, says David L. Oppenheim, director, integrated supply chain.
Oppenheim says Textron's supply-chain leaders track spending on direct materials—such as parts that go into planes—by gathering accounts-payable information and importing it into spreadsheets to create databases. The company wants a complete solution that will track all enterprise spending, manage contracts, conduct reverse auctions, and provide more-detailed analysis of spending, and it has sent out a request for information to multiple vendors. "We want to make sure that each of our businesses doesn't go out and try to create its own homegrown spend-management system—or worse, buy one," says Oppenheim. He isn't sure any one vendor can provide what Textron wants: an integrated solution.
Toxic Data
Companies implementing ESM say the process isn't simply a matter of installing software and reaping the savings. For one thing, data from purchase orders and other documents needs to be cleaned up. "You can't have a toxic level of data, where you've got missing fields, duplicate records, and errors," says Oppenheim. "ESM is a great concept, but if you have the same poor data, you won't get payback."
At many companies, spending categories aren't well defined, says Mitchell of AMR. Businesses that report $1 million in spending as "miscellaneous," for example, will have to categorize it more specifically if ESM is to provide any value.
To pave the way for ESM, finance departments will need buy-in from business units, because they're the ones who will be feeding data into the system. Getting businesspeople to go along isn't always easy. "Central procurement is a hassle for them," says Crittenden of American Express. "You have to give them an incentive by showing them they'll be saving a lot of money."
Some say the software needs friendlier interfaces so that it can easily be used by nontechnical staff. Perhaps the most common criticism is that many spend-management products lack integration—with other spend-management components, ERP finance systems, and vertical market supplier applications.
Despite these shortcomings, analysts say spend management's time has come. "If I was counseling a CFO, I would tell him the software is now mature to the point where it does the job well," says John Christensen, a partner at Deloitte Consulting responsible for its global procurement and sourcing practice. But he warns against a strictly technocentric approach, instead advising CFOs to take the lead role in creating a strategic cost-reduction program, with ESM as a key component.
Bob Violino is a freelance writer in Massapequa Park, New York.
Managing Spend Management
Thoroughly research the market to find vendors and products most suited to your organization's needs. Many vendors offer spend-management tools, but many products don't work together and some might provide functions your existing systems already address.
Enlist the support of the CEO and other senior business executives. Ensure cooperation from business-department leaders by demonstrating the potential benefits of central purchasing, such as reduced costs and greater accountability.
Put in place processes to make sure the data going into spend-management systems is free of errors and includes all necessary information about purchases.
Enforce the organization's policies regarding procurement and purchasing of goods and services, even if it means fining those who don't comply.
Hire people who are skilled at negotiating contracts with suppliers and also understand spend-management technology. Train employees to use spend-management software to shop for and buy corporate commodities.
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