As pointed out in this recent piece on responsive supply chains thru flexible warehouses over on the ChainLink Research site, “optimal” does not last long. Demand changes, product mix changes, freight costs change, available carriers change, available suppliers change, raw material costs change, and so on.
It’s not just the warehouse. It’s the end-to-end supply chain operation. That’s why it’s crucial that not only are sourcing projects conducted for each category consistent with the cost cycles (and, specifically, when they tend to hit their low points if the organization is able to source at that time), but that each time the project is conducted, serious effort is put into analyzing and optimizing the buy. Because if the organization simply makes the same decision it made last time, it likely is not making the optimal one.
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Basware recently released its annual Cost of Control study for 2010, which contained, among dozens of other statistics and tables, the top 10 challenges for Finance over the past year. Reviewing them, it immediately struck me how most of them would be addressed with the adoption of good, modern, spend analysis and e-Procurement solutions. For example:
Spend Analysis would solve:
- Spend Visibility
You’d instantly see what you are spending, with who, for what, and by whom
- Difficulties in Realizing Cost Saving Opportunities
A good spend analysis system instantly presents you with the low-hanging fruit and gives you the power to easily explore over twenty different types of savings opportunities, as discussed in the recent Illumination on Strategic Spend Visibility.
- More Visibility into Contract Management
It’s easy to integrate contract management into a modern spend analysis solution, even if you don’t have a contract management solution! Just create a contract dimension, as per this post on integrating contract management and spend analysis, and you’ll see not only what you are spending on contract, but what’s not being spent on contract. This visibility into contract and non-contract spend gives you an instant read on contract management, and what you need to do to fix it.
- Difficulties in Realizing Cost Savings Across the Business
By integrating AP, Invoice, and Contract data, you can see not only what spending is on contract, but what spending is at contract rates, or, in the case of best-price contracts, where pricing isn’t trending down where it should be. This allows you to go after overpayments to realize the negotiated savings. Also, you can see when you are hitting discount or rebate thresholds, and aggressively go after those as well.
- Need to Squeeze Suppliers on Payment Terms
When you are realizing your negotiated savings, there will be less of a need to squeeze suppliers on payment terms. Plus, improved visibility into spend puts you in a better position to take advantage of early payment discounts, which will help you save even more!
- Increased Supplier Risk
Many modern spend analysis systems integrate, or allow for the integration of, third party data feeds from the credit agencies that track financial risk. This will give you a quick insight into the majority of suppliers who are most likely to go bankrupt. While it won’t be perfect, it’s much better than nothing.
- Environmental Regulations / Compliance
Integrate ERP data, and you can calculate carbon output, energy usage, water usage, etc. and automate production of your social responsibility and carbon footprint reports!
E-Procurement would solve:
- Need to Improve Invoicing and Payment Processing
E-Invoicing allows for automatic receipt, matching, and, if it meets the defined payment rules, automatic queueing for payment and e-payment systems allow payments to be queued and made automatically.
- Need to Automate Financial Processes More Quickly
Not only does e-Procurement allow every step of the procurement process to be automated, but it allows your procurement professionals to process POs, invoices, payments, etc. on an exception basis only — which means they only have to get involved when there’s a problem.
- System Integration / Technology Challenges
Most modern e-Procurement platform providers already integrate into most of the major ERP and relational database systems on the market, and there are scores of specialist shops that can assist with custom integrations.
In other words, if Finance wants to solve it’s greatest challenges, spend analysis and e-Procurement solutions are the answer.
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