This is the second part of a three-part interview series with Michael Schmitt. Schmitt, who many credit with developing the Spend Management movement, is currently an advisor to Ariba. Formerly, he was CMO of Ariba.
Spend Matters: What was the Genesis of Spend Management?
Michael: Based on our research and customer interviews [back in 2001-2002], it became very clear that customers were looking to develop closed loop procurement technology capabilities, core competencies and processes to drive success, as well as the ability to execute on an ongoing basis.
This helped put everything in perspective for us and laid out a blueprint for Ariba's development. For example, back in 2001 / 2002 our core product, Ariba Buyer, was transaction based. And for analytics we had a partnership with Informatica. We had some sourcing capabilities through our Trading Dynamics and Supplier Market acquisitions. But we needed to enhance, link, and develop all of these areas together to close the loop.
To start, we needed to drive increased visibility capabilities and link procurement and sourcing together, then ultimately combine these capabilities with downstream eProcurement. This led to the phrase: Find it, Get It, Keep it.
Spend Matters: How Far Has the Spend Management Movement Come?
Michael: It’s mixed. Some companies like Exxon Mobile, Astra Zeneca, Merrill Lynch, and others ... they get it 100%. They have rock-star organizations that have realized great results. They've combined world-class teams, people, processes and technology together to achieve huge savings and cost avoidance.
All of these organizations have one thing in common: a centralized procurement function with responsibility for setting standards that can work across multiple decentralized divisions. Leadership is also key. Spend Management leaders target all categories: indirect, services, and direct materials. And they put processes, people, organizational structures and systems in place to do this. Behavior like this leads to great things. Look at Southwest Airlines and their huge cost avoidance by hedging jet fuel. And consider Dell computer who looks at every dollar they spend. This came from top management down into the trenches.
Spend Matters: Are There Any Parallels to Spend Management You Can Think Of?
Michael: Consider what happened with supply chain planning. When supply chain planning came out and got hot in the early to mid nineties, it displaced MRP (which could look at inventory and the cost to get it). But SCP was also about fill rates, customer satisfaction, cost of capital, etc. This brought tremendous results and forced ERP to react. Within a couple of years, there was a new and better way to manage inventory and warehouse distribution. Between 1995 and 2000, there was a total change across all of industry moving to SCP systems.
If you look at purchasing, the change from first generation procurement systems and processes to Spend Management offers a similar value from the change from MRP to SCP. But while there is tremendous value in Spend Management processes, sourcing tools, analytics, contracting and compliance systems, the stampede that happened with SCP is not happening at the same pace with Spend Management. Hence, there are clear winners, laggards and losers. Those who adopt and embrace are at a huge advantage versus those who do not.