Intelligent Spend Management – The Best Practices

In my previous blogs, we learnt the why and what of the Intelligent Spend Management. I often get asked about the best practices that lead to Intelligent Spend Management. In this blog, I will be focusing on how “best-run” companies move from just the standard operating procedures to best practices when it comes to sourcing & procurement. The guiding principle for Intelligent Spend Management.

To help you better understand, I have logically grouped the best practices under sub-processes of the entire Source-to-pay process. Please also be aware that these best practices are derived out of the knowledge that we have got out of the estimates, benchmarks etc. at SAP. Notably, with these best practices I am barely scratching the surface as there are many more that I have not included here. The key message of my blog is to get into the mindset that will lead your company to manage the spend intelligently, moving beyond merely the cost savings to value added by the procurement teams.

So, let us start..

Basic Procurement Information

• Procurement is aligned with real-time customer’s needs & expectation with a “closed feedback loop”
• The organization actively measures & reports total value contribution by key procurement activities
• The organization effectively utilizes major procurement technology tools

Operational Procurement

• The organization has an effective self-service requisition process with rule-based checks enabled to enforce company policies and determine optimized source of supply
• The organization has well-defined tactical sourcing process to manage & source one-off procurement requirements
• The organization leverages electronic catalogs, which are updated in real-time to reflect latest product information

Strategic Sourcing and Supplier Management

• Sourcing strategies are formalized and documented for all major spend categories, and is closely integrated with risk management and category management
• The organization adopts standardized sourcing selection criteria and includes the total cost of the purchase (technology, delivery, flexibility, warranty, etc.) for effective source of supply determination
• The organization has advanced sourcing capabilities that is integrated with product development, manufacturing, and R&D processes
• The organization has clearly defined roles and responsibilities for contract authoring, workflow approval and delegation of authority that is clearly communicated and well understood by stakeholders
• The organization has in-depth visibility into current purchasing contracts and contract consumption rate to plan for future contracts

Treasury and Accounts Payables

• Invoice capture is automated via e-Invoicing solutions to alleviate the workload of Accounts Payable
• Suppliers have real time visibility into invoice and payment status
• The organization has electronic payment system for invoices
• The organization can support invoice compliance based on country specific regulations and tax rules
• The organization optimizes working capital across its process by developing proactive payment strategy and pursuing dynamic discounting opportunity

Guided Buying and Requisition

• The organization uses automated distribution process for requisition, guided by the tiered distribution rules for preferred suppliers
• The organization has tools to guide requisitioners to the correct supplier and engagement path in line with internal polices across all spend categories
• The organization uses standardized requisition workflow across the organization, configured for multiple authorization levels, financial limits and/or multiple departments

Performance and Risk Management

• Organization considers risk monitoring as a continuous process from onboarding and qualification to performance management
• The organization has streamlined processes to track assets and their usage tied to external labor as part of its asset management
• The organization has well defined process for external worker evaluation and replacement

Rate Management

• The organization enforces all requisitions to be bid and maintains an automated process for reviewing, shortlisting, and/or selecting service providers
• The organization has well defined rate structure for rationalizing the rates based on location, skills and tenure with rate revisions happening throughout the year
• The organization leverages benchmarks to drill into actual rates vs. supplier rate ranges to ensure negotiated rates are in tune with market rates

Reporting and Analytics

• The organization can simulate and predict external talent scenarios continuously and plan for long-term external labor requirements, modify the same with respect to change in permanent employee strategy
• The organization utilizes real-time data to automatically generate dashboards by business units/supplier levels and prompts alerts to supplier/user for action in case of exceptions

Worker Administration

• The organization actively enforces all on-boarding and off-boarding activities for external workforce by integrating with the provisioning systems for automatic notifications and approvals
• The organization identifies best fit resources by streamlining the screening process and identifying candidates with the best skills and qualifications

Innovation-driven procurement

• Procurement facilitates knowledge sharing and collaboration on product design/development and process innovation from suppliers
• Procurement plays a key role in partnering with R&D teams to find and develop suppliers for various innovation projects

Strategy and Enablement

• Procurement drives various purpose-driven supplier programs
• Procurement is aligned with and supports the overall business goals & objectives of the organization

Supply Chain Collaboration

• The organization collaborates on business decisions and share insights across business networks (suppliers, contract manufacturers etc.)
• The organization can collaborate with contract manufacturers and component suppliers on POs, which include BoM and its components, for real-time visibility into supply situation
• The organization maintains right sized inventories and flow in the supply chain and drives replenishment based on actual demand

Let me know what are other key best practices that lead to intelligent management of spend.

P.S.

If you are interested, you can read the entire source to pay value paper at one go here.

You may also wish to learn how our vision to value methodology links your vision for the future and SAP technology innovations to tangible business outcomes.