For years, procurement has been considered a back-office function, the realm of finance, supply chain, and operations experts. But with the rise of intelligent spend management, procurement can drive board-level conversations about business strategy.
At the recent SAP Ariba Live event, experts presented their vision for intelligent spend management and explained why it has the potential to change the game for procurement professionals.
First, what is intelligent spend management? Drew Hofler, vice president of Portfolio Marketing at SAP Ariba, explains that it’s the process of managing purchases from all sources, including direct, indirect, travel, and external labor. “From source to pay, it’s about bringing all that spend into one unified view and being able to understand the data related to every source and category,” says Hofler.
Hofler says SAP solutions encompass all those areas. Over the past seven years, SAP has acquired companies that allow it to oversee sourcing, procurement, and payment processes as well as spend for travel, external workers, and services. Because these solutions integrate with SAP HANA, procurement experts can easily and quickly access and understand data from those applications – making SAP ready to deliver intelligent spend management.
Platform is Key
Mike Quindazzi is a managing director at PwC and recognized as a top financial-tech influencer. According to him, “Procurement is one of the lower-regarded functions in the organization, but when it gets it on management’s agenda it’s very high value.” To get there proactively, he believes that organizations need an intelligent spend management approach. Primarily, that means a digital platform that allows companies to collaborate with suppliers and offers up a more holistic view of corporate spending across a network.
“It’s also about being ‘fit for growth,’ knowing where your spend and returns are, so management can redirect investments to where they’ll get better returns,” Quindazzi says. Once procurement gets that platform – meaning both the technology and a seat at the management table – then executives from across the company can collectively decide on a company spending strategy that supports and drives the business.
Big Data is the Fuel
Marcell Vollmer is the chief digital officer at SAP Ariba and served as SAP’s chief procurement officer and senior vice president of the Global Procurement Organization for more than four years. He explains, “Everyone knows Big Data is the fuel for the economy. But now we have a way to access and use data for all sourcing and spending activities.”
Procurement is often one of the last back-end processes to be digitized, but having access to that data will allow organizations to better understand every aspect of acquiring goods and services and how it impacts the bottom line. That information can also be fed into machine learning algorithms to analyze, predict, and prescribe spending strategy.
With the insight delivered by intelligent spend management, Vollmer believes procurement will move beyond a contractual orientation and toward a strategic and innovative one. For example, procurement professionals can drive value by creating strategies for risk management and sustainable supply chains. He says, “In most cases, procurement is dealing with the line-of-business executive like the CIO, CMO, or chief supply chain officer. But in many of those cases, the executives tell procurement what they need, and procurement does it.”
Vollmer explains that with spend aggregate data from across all different parts of the business, procurement conversations with top executives become less operational and more strategic. For example, as the head of Procurement at SAP, Vollmer received data about company spend on servers bought outside of the IT organization, which enabled a different kind of conversation on the data center strategy with the CIO. “Once we got beyond debating the veracity or completeness of data and could show where servers were being maintained and existed outside the network, we had a very different discussion about how procurement policies could help protect company intellectual property,” he says.
Context, Culture, Cloud
Dion Hinchcliffe, vice president and principal analyst for Constellation Research, says that, “Intelligent spend management lets you look contextually at everything we’re doing around spend and, now that we have that data, how can we make the most of it.”
That can mean using Internet of Things (IoT) data to show the location of packages and if they are at risk due to abnormally high temperatures, for example. Blockchain can also add context, such as real-time information about products and a layer of trusted data, to the entire procurement process.
But Hinchcliffe cautions that acting on new information and adopting a more holistic approach to spend requires cultural change. “Intelligent spend management can enable new business models but to do that you need to break down barriers and silos across the organization, “he says.
Once on board, however, opportunities abound. For example, he explains that, “With new intelligence, you could tell supply partners how they’re doing in real time and charge for that information or charge for industry-specific spend information. There is a lot of supply chain knowledge that people want, and this is an opportunity to get it to them.”
“SAP is a leader in intelligent spend management. A lot of CFOs and chief procurement officers are not doing anything like what SAP can enable,” says Hinchcliffe. But he believes procurement executives need to start building for future markets and products. The first step means moving to the cloud. “The gateway drug for intelligent spend management is to get procurement and supply chain on the cloud. Without it, you won’t have the networking or easy upgrade capabilities. Until you do that you can’t get to intelligent spend management.”