Companies spend millions or even billions of dollars with suppliers on the procurement of goods and services. Depending on the industry, this accounts for at least 30% to 50% of total company expenses. So it’s no surprise that these companies are looking for innovative and effective spend management solutions to improve their bottom line and overall performance.
The right spend management technology should address each step of procurement, from spend analysis, competitive bidding, negotiation, and contracting to consumption, payment, and performance management. But the right solution alone is not enough to create a successful implementation, as I discovered during my 20 years leading procurement, sourcing, and finance transformations. There is another critical element – and that’s the need for a strong alignment between IT, finance, and procurement.
While creating this triad may not always be easy, it is essential for success.
Different goals, but a common objective:
When it comes to spend management, IT, finance, and procurement each have their own roles. And each department has its own goals. However, they share a common objective, which is company profitability.
So how do each of these functions come into alignment to select the right innovative spend management solution that can deliver what is best for the company? Here are a few of my observations on what works best.
A common vision of business outcomes:
Collaboration between IT, procurement, and finance can be strained when each department focuses on point solutions that address their own processes and business needs. This is counterproductive and can lead to a duplication of efforts, unnecessary costs, and sub-optimized business outcomes.
I’ve seen the most success occur when there is alignment that starts with agreement on strategic business outcomes and performance goals. Establishing a common objective leads to a technology solution that addresses both individual and collective goals, with significant benefits to all. With this foundation, people are more prone to listen to each other’s challenges and goals. Consequently, trust and creditability are created, which leads to greater team performance and value to the shared goal of company profitability.
An agreed-upon common ground:
The digital age and the evolution of business commerce networks can give procurement, finance, and technology an integrated digital platform where buyers and suppliers can communicate, collaborate, and stay connected. And it’s from this common ground that considerable benefits can be achieved across the board.
For instance, my last company had a monthly average of 20,000 purchase orders for over 3,000 suppliers, with a corresponding 30,000 invoices. This represented nearly $2 billion in annual expense. We digitized our processes by leveraging a business commerce network, which created a significant increase in productivity and in management information through spend visibility tools.
This was a big win for IT, while at the same time, accounts payable automated 90% of its processes. Meanwhile, procurement achieved spend visibility that led to improved negotiations and integrated contract details within invoice payments, which ensured that negotiated savings could be turned into real savings.
We achieved volume and scale that cannot be done across paper.
Select a solution that works best for the company:
When it comes to picking the right spend management solution, each function – IT, finance, and procurement – will have their own biases based on their individual goals. Finance and IT may favor an ERP solution, while procurement may prefer a best-of-breed approach that meets their specific business-process needs.
Therefore, when thinking about what solution to use, there must be a meeting of the minds as to what technology meets the overall business needs.
Here’s what an ideal scenario might look like: Procurement and finance, as the business-process owners, agree upon a solution which provides end-to-end process coverage to meet all of their business requirements of sourcing, contracting, procurement, payables, and cash management. IT takes the lead from an infrastructure and digital enterprise point of view, with responsibility for implementing the technology and ensuring it’s an integrated, end-to-end solution that is user-friendly and meets IT’s requirements.
This approach ensures all parties can fully and sustainably transform their operations to achieve user adoption that is needed to realize their overall spend management objectives.
Measure your success:
Finally, successful partnerships work best if there are shared objectives that are measured and integrated into performance expectations.
Business outcomes can be mapped to specific deliverables with defined independencies, and incorporated into shared performance goals and reviews. For example, in a former role, I was on a team that had weekly review meetings which focused on criteria such as the progress of strategic initiatives, operational issues, process improvement, and key performance indicators. It was not always easy, but the goals and performance of specific targets we shared eliminated emotion from the discussion and created a fact-based guide for long term value realization.
A win-win-win for all:
End-to-end transformation is a journey, not an immediate destination. However, when IT, procurement, and finance work together, a company can achieve greater expense management and realize financial performance goals while optimizing overhead expenses and maximizing productivity. At the same time, the right systems drive effective risk management through an efficient management of the supply base. It truly is a win for all.
To learn more about the power of this triad, listen to this Business Network Innovation radio broadcast: Your New Power Team: Procurement, Finance, and IT.
To learn how SAP Ariba can help IT, click here.
This blog first appeared on CIO Knowledge of the Digitalist Magazine.