The Cost Management Category

Procurement Metrics: Understanding the Economic Language of Value (Part 2) — Expenditures, Expenses and Financial Reporting (CapEx, COGS and G&A) [Plus+]

finance

In the first installment of this series, we discussed the term “spend” (the noun, not verb), in the context of supplier spending, in a fair amount of detail. We discussed addressable spend, and what's included and excluded for the purposes of spend visibility/management, but also for the purposes of using spend within procurement performance measurement and benchmarking. In this installment, we dive a little deeper in terms of comparing and contrasting spend to other terms, as mentioned in the title.

Procurement Metrics: Understanding the Economic Language of Value (Part 1) — Spend [Plus+]

buzzwords

One of the challenges that procurement faces is "speaking the same language" as finance, as well as the language of its stakeholders. A marketing department, for example, may use the term “investment” for its spending. Similarly, many procurement organizations categorize some of their added value in a category called “cost avoidance,” even though the term is not taught or recognized formally by the finance function.

Even within procurement, many terms are used inconsistently. Consider the term “addressable spend.” Is all spend addressable, as represented by cash disbursements going to external parties? Or is it supplier spending that is reasonably under the influence of procurement? If you say the latter, what defines “reasonable”?

The friction and misalignment common between various functions often results from stakeholders not having a basic understanding of terms that seem similar but yet can be very different. This problem is exacerbated when the stakes are high and you start getting measured and benchmarked on these metrics. To prevent this, procurement needs to be “business multilingual” and understand the variations of terminology so that it can best speak these languages and help the organization make the best decisions to create value.

This is what we’ll address in this analysis, with a focus on procurement and finance within the enterprise. Clearly defined terminology is the foundation from which higher-level concepts, performance metrics and benchmarks can be consistently understood — and improved.

3 Ways For Procurement to Prove Its Value (Other Than Cost Savings!)

Spend Matters welcomes this guest post from Dustin Cochran, director of member development at Corporate United.

Most organizations are focused on three strategic pillars: increasing revenue, operational efficiency and retaining talent. I would say that procurement is already aligned to these pillars. Where they tend to be less aligned is with the strategy of internal departments. However, what I think that procurement professionals should focus on is better promoting how they align with these areas.

3 Insights for Procurement from aPriori’s Cost Insight Conference

Spending the last 24 hours surrounded by design and cost engineers has taught me quite a bit about operations beyond procurement and supply chain management. Those in the buying and sourcing profession often spend a lot of time thinking about cost, and they sometimes get a bad rap for it. But based on my discussions with attendees, it’s clear to me that procurement is far from the only organizational unit worried about helping revenue get to the bottom line.

Yet procurement struggles with its image: it’s slow, it’s a roadblock to progress, it’s not knowledgeable enough to be valuable in new product development. The practitioners in attendance at Cost Insight, however, have worked doggedly to change perceptions such as these at their firms — to great success, in many cases. Here are three insights for procurement I’ve gleaned from various sessions.

Why Product Cost Management is (Finally) Gaining Acceptance with Global Manufacturers

The background music at this morning’s introductory session to aPriori’s Cost Insight conference said it all: “Never get fooled again.”

Manufacturers big and small waste time and money iterating on product designs, and the gap between “should cost” models and real total cost of ownership (TCO) is known to many procurement groups. But a growing openness to product cost management processes and tools, aPriori says, should end this confusion once and for all.

That’s not just the provider’s narrative either. With 65 companies in attendance this year at Cost Insight, the desire for better platforms for new product development, cost management and supplier collaboration is clear.

The Zen of Spend

zen

As an old Zen Buddhist riddle goes, “If you seek it, you can not find it.” To paraphrase, you'll be miserable if you seek happiness only through specific outcomes rather than attaining happiness merely as a byproduct of living life fully. The same concept applies to cost savings. Procurement groups that only focus on finding purchased cost savings as their raison d’être will not be happy, nor will the stakeholders who own the spending where savings are generated.

Procurement Waste: Why it Matters in Light of Brexit

Procurement organizations are reportedly wasting billions each year due to inefficient practices. U.K. companies, specifically, are losing $79.5 billion a year, according to research from blur Group, a cloud software and managed services solution provider. That’s nearly $218 million wasted each day due to what blur Group called procurement fraud, unmanaged contracts, maverick spending and inefficient internal management and delivery processes.

Time to Manage Your Tail Spend With the Right Mix of Experience and Technology

Spend Matters welcomes this guest post from Amol Jagdale, of GEP.

Fortune 500 organizations typically have a good level of control over most of their spend. The focus is always on strategic spend to maximize savings, but with changing dynamics, procurement organizations are under immense pressure to look for new avenues to deliver value and incremental savings. One area in which they can certainly get hard savings and benefits is “tail spend.”

Sponsored Article

Does Your Internal Procurement Team Really Need to Manage Tail Spend Purchases?

Simfoni

Spend Matters welcomes this sponsored article from Simfoni. 

Although each individual tail spend purchase category or supplier may seem relatively small and insignificant, when taken as a whole, the combined tail spend purchases of an organization often equal the amount spent with the company’s biggest supplier, or at least one of the top suppliers. For this reason, it is important that tail spend purchases are properly managed to avoid unnecessary costs, wasted man-hours and non-compliance with internal purchasing rules and standards.

OEM Distributor Finance: The Next Frontier

distributor

Trade Financing Matters sees great potential for cloud-based e-commerce platforms to leverage a seller-centric version of distributor finance in OEM dealer/vendor/distributor structures. In this arrangement, the OEM functions as the “middle party” working with its dealer/vendor/distributor network and its network of end buyers (or accounts) to manage invoicing, matching, price validation, dispute management, credit and collections, payments to its dealers and collecting receivables from national account customers.

Listen up! Your Travel Data is Trying to Tell You Something

Spend Matters welcomes this guest post from James Filsinger, president and CEO of Yapta.

You don’t have to be a travel expert to know that hotel and airfare prices have a frequency all their own, constantly shifting up and down. The price you paid today could be dramatically cheaper tomorrow — or grossly more expensive in a week. But what can you learn by tuning into all this noise around travel pricing? You may be surprised at what these price fluctuations can reveal — or by the questions that can surface.

Companies Continue to Focus on Cost Reduction for Business Growth, Deloitte Survey Shows

cost reduction

Companies are increasingly using cost reductions to fund growth initiatives, according to Deloitte’s 2016 Cost Survey Report, a biennial survey looking at cost management and cost improvement trends among U.S.-based Fortune 1000 companies. Of the 210 senior executives surveyed for this year’s report, 57% identified gaining a competitive advantage over competitors and 43% pointed to investment in growth areas as the top drivers of cost reduction.