Intelligent Spend Management And The Evolution Of Procurement
Organisations are taking a holistic approach to procurement with Intelligent Spend Management
In a recent article for D/SRUPTION, ‘Disrupting Procurement: AI, Predictive Analytics, Blockchain And IoT’, we examined some of the emerging technologies shaking up the traditional business function of procurement. These enabling technologies are rattling the status quo for traditional procurement organisations – should they choose to accept this mission – enabling them to transform their business processes, while unlocking substantial cost savings and operational efficiencies along the way.
As an example, robotic process automation (RPA) can typically drive up to 25 to 50 per cent in cost savings; advanced analytics, including should-cost analysis, can reduce the cost of component products or services by up to 40 per cent, and it’s estimated that blockchain for invoice processing could reduce cost per invoice by up to 60 per cent.
In parallel to these technology trends is an even broader business one, in which companies and government agencies are starting to look beyond the procurement function towards the bigger picture of their overall spend management across the entire organisation.
This trend, known as Intelligent Spend Management (ISM), is focused on managing how all your vendor-related spend is done. This includes procurement, both indirect and direct, spend related to employee travel and expense, external workforce management and so on.
ISM is therefore a comprehensive approach to managing all your vendor-related spend with one unified view, producing what l call a ‘Single View of the Supplier’ (SVOS), which is similar to a ‘Single View of the Customer’ (SVOC). ISM’s functional reach within an enterprise includes procurement as one audience, but additionally supply chain, finance and HR-related audiences.
Why is ISM so important for organisations and why now?
According to Drew Hofler, VP of Portfolio Marketing at SAP Ariba, to understand why ISM is becoming so important, we must look at the evolution of procurement and spend management. It started in procurement and then expanded outwards. The first evolution was from paper based processes to digitised processes via techniques such as scanning and EDI. It then evolved to become more integrated and automated via B2B business networks such as Ariba.
We’re at the point now where most companies have evolved their spend processes to be highly digitised and automated, but these processes are still functionally siloed by spend category such as travel and expense or supply chain. With more intelligent technologies such as AI/ML and RPA readily at our disposal, we can now start to make more sense of the events and data across all these silos and make more intelligent decisions. This more-unified view is also enabling procurement leaders to have more strategic conversations with the C-Suite in terms of how and where they can optimise their spend.
A benefit of this more holistic approach to spend management is the internal efficiency, and cost savings, generated by the unification of supplier data into a master view. This helps avoid duplicate efforts, provides a more unified application experience for end users, and enables data-driven insights to be more strategic in their scope. Ultimately, the integration of these silos helps Chief Financial Officers better manage risk and ensure that supplier policies are more consistently and uniformly applied.
Charting your ISM Roadmap
According to Hofler, with indicators of an economic downturn in the future, enterprise interest and investment in this area are on the rise. Where you spend and how you spend is one of the most controllable things you have in terms of your cash flow and revenue as a company.
Some of the early use cases and quick wins related to ISM involve tapping into third party data from connected supplier ecosystems. Hofler cites the example of third party data sets such as those from Made in a Free World which can help organisations spot supplier risk due to forced labour conditions or other circumstances. All of these data feeds, including news feeds, weather data and so on, are hard for an individual person to stay on top of, but technologies such as AI can automatically notice patterns, trigger alerts and offer suggestions for end users.
Another quick win for organisations is related to invoice approvals. AI and ML can be used to move towards autonomous spend whereby procurement policies are checked, decisions are automated and a dashboard on a mobile app can help spend management professionals view status and manage exceptions.
Procurement’s new strategic role
ISM clearly has the potential to help procurement professionals become less operational and more strategic in their conversations with the C-suite, but what about their work with suppliers? For small suppliers, procurement is often synonymous with bureaucracy, red tape and lengthy cycle times for accounts payable which can place an unnecessary strain on promising partnerships and collaborations.
With the pace of innovation accelerating, the procurement function needs to change to move at the pace necessitated by the business. As an example, government agencies may wish to innovate rapidly to counter evolving threats related to terrorism – or simply to better serve citizens and cut costs at the same time. Likewise, enterprise organisations may wish to innovate rapidly and act preemptively to combat external threats of digital disruption. This all requires a more agile and flexible approach to procurement that can embrace rapid formulation of new partnerships.
The good news is that enabling technology plus ISM appears to hold the key: the two pronged approach of leveraging enabling technologies combined with moving to a more unified view of the supplier though intelligent spend management can drive both internal efficiencies as well as external agility.
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