At the Ariba LIVE Chicago event a few weeks back, AMR's Mickey North Rizza fired her Gatling gun for 30 minutes at her 7 best practices in Spend Management. To say it was drinking from a fire hose would be an understatement, as her presentation offered enough material to digest in a much longer slot (which I wish Ariba would have given her). Still, the presentation was notable for both its content and Mickey's clear expertise -- gained from decades of background as a procurement practitioner -- talking about the subjects she covered. In this post, I'll summarize some of the more salient and useful numbers and topics she touched on.
Perhaps most insightful were some findings from a recent study AMR conducted of procurement professionals, dividing companies into laggards, average performers and leaders. Within these groups, the average savings achieved (as a percentage of overall spend) was 4%, 8% and 17% respectively (in other words, leaders achieved savings levels over four times what laggards did). In terms of cost avoidance, AMR found that each group performed in the 8%, 11% and 23% range respectively. For spend under management, the variance in the numbers for each level were even more profound. Laggards achieved 3% spend under management, average performers reached 25%, and leaders achieved 65% spend under management. Leaders also invested more in diverse technologies, using 4 different applications in total to manage their procurement and sourcing operations (versus 3 for average performers and 1 for laggards).
From a process standpoint, top performers are doing more to understand how buy-side activities directly impact the income statement and balance sheet. This is a theme I've been harping on for years, but it can never be said often enough. One of Mickey's examples here is that all procurement team members should understand how material costs, write downs / write offs and inventory all impact the income statement and how shorter order to cash cycles can drive a stronger balance sheet through better working capital management. As part of this training and education process, procurement needs to look more carefully at tying inventory into the Spend Management process (e.g., rather than just evaluating performance based on unit cost savings, companies should evaluate individual and corporate performance looking at the total cost of sourcing decisions, including inventory implications). Along very similar lines, the best procurement organizations not only understand and consider the operational implications of inventory -- they also closely tie their efforts into the finance function as well, according to AMR.
It also goes without saying -- though it's well worth restating -- that one of the more important best practices in Spend Management today is to focus on compliance, risk and performance with the goal of precluding events that negatively impact supply. Here, AMR has an entire methodology and approach to reducing supply disruptions and supply risk that I won't get into here given space constraints. But one final note that is worth including is that when it comes to managing supplier information (e.g., certifications, banking details, etc.) companies that take a supplier information management approach leveraging self-service technology save an average of $430 per supplier, according to a recent AMR study. Which further suggests to me how leaders are distancing themselves from the pack in savings, cost avoidance and overall procurement operating efficiency.
As a final aside, I've got to say that it's been a blast to watch Mickey grow into her role at AMR over the past couple of years. I have no question that she is one of the best industry analysts -- if not the best -- in the market today covering the sector. If I were looking for an informed opinion from an analyst firm regarding technology or services selection in the Spend Management sector, I know I would definitely turn to Mickey and AMR.