Expense Management: Better Ways to Buy - Leeds School of ...



Process Improvement Links beyond process efficiency to process effectiveness ways to use accounting software to improve inventory managementExpense Management: Better Ways to BuySometimes costs don't need to be cut so much as captured, quantified, and reconsidered.Yasmin Ghahremani - CFO MagazineSeptember 1, 2008EmailPrintReprintsSingle PageComments (2)Share LinkedIn Del.icio.usDiggFacebookStumbleUponPermalinkAt 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.Related ArticlesThe Key to Meeting-Cost SavingsPutting More ''E'' in T&EWhere Does the Money Go?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 panies 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 & EntertainmentDespite 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&EFor 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.Spend-analysis software, in particular, has taken off in recent years. It helps a business determine exactly what it's buying and from what company. A global enterprise with a multitude of divisions may have dozens of suppliers for the same product, or have different divisions that unknowingly use the same supplier (one division classifies it as "IBM," for example, while another uses "International Business Machines"). In many cases companies miss out on the volume discounts they could get by consolidating and centralizing purchasing.There are two ways to tackle spend analysis. For $50,000 to $100,000, a horde of consultants will sift through invoices, purchase orders, and contracts and produce a report, most likely on one facet of the business. Or, for $100,000 to $500,000, you can tap software that will do it for all aspects of the business all the time.Diebold, which makes automated teller machines and other security systems, opted for the latter. Vice president and chief procurement officer Linda Parcher says the company's spend-analysis tool helps guide a continuous range of global purchasing decisions. "We're constantly using the software to [determine] what our current spend is, and leveraging that in negotiations when we need to add products," says Parcher. "We look at the current supplier-spend stratification to make sure we don't have too much spend with one supplier."Related ArticlesThe Key to Meeting-Cost SavingsThe Key to Meeting-Cost SavingsXerox is among the growing number of companies turning to online meeting management services to aggregate spending and identify savings opportunities.Scott Leibs - | USJanuary 16, 2008EmailPrintReprintsComments (1)Share LinkedIn Del.icio.usDiggFacebookStumbleUponPermalinkHaving cut travel costs drastically through the use of online travel services, in 2004 Xerox began to explore the idea of doing the same for its hundreds of annual meetings and events. In doing so the company joined a trend that had been gathering strength since the late 1990s, though there are many holdouts — even today, analysts often point to meetings as "the next big opportunity" for companies interested in cutting travel costs and related expenses. And so it has proved for Xerox, which estimates that it has saved 40 percent on costs through its aggressive meetings-management program.Xerox's ally in this mission is StarCite, which is among a new class of online service providers that has emerged to help organizations address this need. Their pitches stress greater visibility for meetings: U.S. companies will spend an estimated $175 billion this year on internal meetings, client events, product launches, trade shows, and other gatherings, but the responsibility for executing them is often spread among a plethora of event planners, marketing and sales staff, and administrative assistants. When that's the case, it's a bewildering task to keep track of all the meetings activity in a way that maximizes cost containment. "It’s the Wild West of expenditures," says Michael Boult, president and CEO of StarCite, the leader in the market for SMM (strategic meetings management) programs. Companies like StarCite, Lenos Software, and Arcaneo provide websites that facilitate meeting registration and travel arrangements for attendees, while helping event staff track a wide range of logistical considerations. At Xerox, employees managing meetings of 15 or more attendees, of which 10 require airline or hotel bookings, must register the events through the StarCite-operated Xerox Meetings Online website. As with other forms of e-procurement, this allows a company to aggregate spending and negotiate for better rates. But the benefits go far beyond just reducing travel costs. Pamela Ferranti, manager of meetings management solutions for Xerox, says that with all details pertaining to about 400 annual meetings now centralized in a sophisticated database, she and her staff have identified a host of cost-savings measures, such as analyzing which cities have the lowest cost structures and driving meetings activity toward them. "StarCite also lets us list all Xerox meeting rooms that hold 25 or more people," she says. "That helps us hold many meetings at our facilities that we may have booked at hotels or other venues in the past." The company even discovered that it sometimes paid as much as $1,600 a day to rent LCD projectors. "So we bought some and now we ship them out to meeting sites," Ferranti says. Another major form of savings: reselling rooms you’ve booked for a cancelled meeting. StarCite says it typically recoups 70 cents on the dollar for its clients. Ferranti's quest for savings has even led her to include language in contracts requiring hotels to provide meeting coordinators with such items as Post-It notes, scissors and tape, to avoid duplicative spending, according to a report in Business Travel News. HYPERLINK "" Putting More ''E'' in T&EWhere Does the Money Go?Straight to the E-sourceIn many respects, today's "E-sourcing" delivers what yesterday's E-procurement promised: an easy way for suppliers to bid for contracts online through reverse auctions or by submitting electronic requests for proposals (RFPs), quotes, and information. "It gives suppliers the information they need so they can put their best foot forward," says Roy Anderson, vice president of MetLife's global procurement, "but it eliminates the sales stuff."At transportation and logistics company Con-way, E-sourcing brought some much-needed standardization to a process that was so ad hoc that, as chief procurement officer Mitch Plaat notes, some RFPs were "not optimal" and in other cases "we hadn't even gone through the bid process." Rolling out the system posed some challenges, notably the resistance of managers who wanted to keep their supplier relationships close to their vests. But with C-level support, the initiative pushed through and sourcing acquired more rigor.Con-way declined to disclose figures, but E-sourcing software vendors claim that users can often negotiate 10 to 20 percent savings. Beyond savings, E-sourcing platforms provide a way to compare suppliers on attributes other than price. Some companies, for example, use them to create supply chains based on environmental sustainability or other criteria.MetLife uses E-sourcing as part of an effort to make its purchasing strategic rather than tactical. For instance, if it decides that a key part of its IT strategy is to make greater use of hosted storage over the next five years, it will look for vendors whose strategy matches that. "The data allows us to see which suppliers are moving in our direction," says Anderson. "If their bids are getting further and further away from the preferred structure, they're losing focus on MetLife."Con-way paired its E-sourcing software with an SRM module, which tracks service-level agreements, rebates, and contractual discounts. It also provides a structure for periodic reviews and supplier-performance scoring. "The suppliers know how they're being judged," Plaat says. "It's all measurable on the scorecard and shared in quarterly reviews."Going ShoppingOnce a supplier base is established, whether it be for computer hardware or Post-it notes, buying becomes a breeze. Or, at the least, not a chore that requires a specialist. At MetLife, 95 percent of indirect goods are now ordered through self-serve online catalogs. This makes it easier and more cost-effective for suppliers to do business with MetLife, and frees up procurement staff for more-strategic projects. The procurement department's head count is 10 percent lower than it was seven years ago.Rounding out the buying process is E-invoicing, which has seen rapid growth in recent years. Some of the systems, which are most often offered by either credit-card or software companies, scan paper invoices (which still make up 80 percent of all bills), while others require suppliers to switch to electronic invoices. This is one area of corporate life where the concept of "paperless" is really taking hold. Paper invoices can get lost, damaged, misplaced, misinterpreted, or ignored. In electronic form they can be tracked, processed, and reconciled far more quickly and with lower error rates.David Griebl, vice president of shared services at Monster Worldwide, says that lost invoices were all too common at his company, resulting in everything from canceled cell-phone subscriptions to, in one case, the near termination of electricity to an office where a bill got buried under a stack of papers.Now that the company has instituted an E-invoicing system, "those horror stories are over," says Griebl. An electronic invoice shows up in the queue of the person who needs to approve it. If it's ignored for a few days it goes to the person's boss. That seems to make people more attentive to their queues.Ironically, Monster signed on not for the direct benefits of E-invoicing, but because it also satisfied a Sarbanes-Oxley requirement. "We wanted to make sure that when someone approved a $100,000 invoice they really had the authority to spend $100,000," says Griebl.It Takes an iPodAll forms of spend and expense management come with challenges. Managers complain the software still needs to be more user-friendly, and interfaces with existing software need to improve. And technology alone can do only so much. "Do not assume that the spend-management solution will save you money," says Neil Deverill, a London-based consultant who has headed procurement departments for several large multinationals. "It can improve your knowledge of who is spending what with whom, but you will still need to improve your business processes. And, you may have to recruit specialist talent and do some extra training to get the most from it."The biggest challenge may well be getting the workforce on board. No one likes change, even if it means getting reimbursed for that client lunch far more quickly than before. C-level sponsorship is essential. So is patience. When it rolled out new invoicing software, Monster surveyed a pilot group, used that feedback in training and communications, and held a contest in which the first 50 early adopters received an iPod. "We really thought we'd sold it and that we understood the concerns," says Monster's Griebl. "But they linger. People are difficult to change, even if you're helping them out."Next time maybe a MacBook Air?Related ArticlesThe Key to Meeting-Cost SavingsPutting More ''E'' in T&EWhere Does the Money Go?Yasmin Ghahremani writes about business and technology from New York.What Companies WantTop 10 reasons cited for adopting spend-management software or servicesSpend-Management Priority? Deliver measurable results that correlate to bottom-line metrics? Accessing and analyzing spend data? Identify savings opportunities faster? Increase visibility to upcoming spend in majority of spend categories? Supporting multiple business units or geographies? Completing projects on time and within budget? Recruit, audit, and measure performance of your suppliers? Build internal commitment for spend-management programs? Ensure end-user adoption of your spend-management solution? Extending coverage without adding resourcesSource: Ariba Inc. survey of 600 finance, procurement, and business executivesSometimes costs don't need to be cut so much as captured, quantified, and reconsidered. Yasmin Ghahremani, CFO MagazineSeptember 1, 2008Forrester Report on Spend AnalysisRecommend reading the Forrester Research Report on Spend Analysis. The report reviews 12 spend analysis software providers and notes that the market has three tiers of providers, it places Emptoris Spend Analysis as the Top Tier provider of spend software. "Market Overview 2008: Automated Spend Analysis."Posted by Dave Chase | Sep 16, 2008 1:27 PM ETSpend Analysis - The Window into SavingsMost Fortune 1000 companies do not have a real time view into their spending. The average CEO, CFO and CPO are typically looking at out-dated data. It?s their dirty little secret. Spend Analysis software is becoming the must-have solution to this challenge. I recommend the book 'Spend Analysis" by Kirit Pandit, a consultant with the software firm Emptoris. You can download the first chapter online at by Dan Cahill | Sep 16, 2008 1:16 PM ET"SPEND ANALYSIS: THE WINDOW INTO STRATEGIC SOURCING" RELEASED AT INSTITUTE FOR SUPPLY MANAGEMENT (ISM) ANNUAL CONFERENCEBook’s Author Says The Average Fortune 1000 Company is "Blind to Corporate Spending""The Definitive Book on Spend Analysis" Provides Detailed Action Plans and Dozens of Case StudiesBurlington, MA and St. Louis, MO – (May 5, 2008) –? At the annual Institute for Supply Management (ISM) conference in St. Louis, J Ross Publishing and Emptoris, a leading provider of supply and contract management software, helped launch the new book, ”Spend Analysis: The Window Into Strategic Sourcing,” by Kirit Pandit and Dr. Haralambos Marmanis.“The vast majority of Fortune 1000 companies, and their CFOs and CPOs, are blind to their spending.? It’s their dirty little secret,” said Kirit Pandit, co-author of “Spend Analysis” and a consultant to Global 2000 companies.? “It’s really quite surprising.? Spend visibility should be at the very core of any spend management or sourcing campaign.? Technologies and services exist today that make that visibility readily achievable and affordable.? Our book provides everything a CFO or CPO will need to know to get complete spend visibility and control.”“Spend Analysis: The Window Into Strategic Sourcing” reviews the spend management challenges companies face; the actions companies can take to increase spend visibility and control; and a complete overview of spend analysis best practices and technologies, including dozens of case studies of spend analysis implementations at leading global companies.? The book is published by J. Ross Publishing and is available in business sections of leading booksellers, direct from J Ross Publishing () and online at .? Through agreement with the publisher, Emptoris is making the first chapter of the book available online for free at cmp_08/spend/web/index.asp“’Spend Analysis: The Window Into Strategic Sourcing’ is the definitive book on the subject,” said Donavon Favre, Professor, North Carolina State University and the former managing partner with Accenture, the global consulting firm.? "The book accurately depicts the entire spectrum of critical real-world issues and challenges in spend management, including technical fundamentals, practical applications, and value propositions. It is an extremely thorough and insightful and is certainly a 'must read' for senior financial and supply management executives."Emptoris is helping to promote the book as the company’s solutions and several of its customers are prominently featured in the book.? The book, which has been called "the definitive book on spend analysis," features more than a half-dozen Emptoris customers, all leading Global 2000 companies, along with detailed case studies of the implementations and successes at those companies.The first chapter, which Emptoris is providing for free download, provides a detailed overview of the challenges of gaining visibility and control over spend data, and an outline of the value proposition of and case for the application of spend analysis technologies.? The full text of the book is described by the publisher as "the only reference book to provide in-depth guidance on what spend analysis really is, what it specifically involves, and how it can be used to improve identification of cost reduction opportunities, prioritization of sourcing projects, negotiated results, and the tracking and monitoring needed to ensure that identified opportunities reach the bottom line."Emptoris offers a spend analysis solution, Emptoris Spend Analysis, a fully-automated software solution that empowers companies with greater spend visibility and allows them to realize greater savings through improved sourcing strategies and compliance.? Emptoris has helped companies analyze over $24 trillion in corporate spending.? For further information on Emptoris Spend Analysis, visit:? spend.For further information on “Spend Analysis: The Window Into Strategic Sourcing,” visit:? cmp_08/spend/web/index.aspTop of FormBottom of Form ................
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