Tackling the Real World Complexities of Spend Management for Organizations Living in Change

No two organizations procure and pay for the goods and services they need in exactly the same way. Yet few solution providers today offer the functional depth, flexible implementation support and domain expertise needed to address the complex spend management requirements of organizations living in change. Some solutions address broad, generic challenges with a pretty screen, but with little sophistication, depth or configurability. Others provide the bare-bones experience, meeting the minimum of functionality requirements albeit for a low cost, but with little evidence of proven results.

It is clear that there is no one-size-fits-all spend management strategy, and for organizations facing real world spend management complexities, these generic offerings fall short.

Spend management in practice varies considerably from business to business, depending on factors such as the maturity of the procurement or finance function, the fluctuating structure of the supply base and changes in business strategy that affect operational decision-making. Solution providers that hope to successfully serve these organizations must therefore be capable of adapting to constantly changing business scenarios and evolving to meet the unique needs demanded of complex spend management challenges.

To identify the select few providers that can meet and exceed this standard, it helps to first break down exactly what makes these procurement and finance challenges unique, as well as the specific complexities and requirements that professionals should expect from their solution providers to deliver verifiable bottom-line value.

Complex Characteristics 

Organizations operating in services-based industries such as financial services, law, retail and the public sector, for example, have unique characteristics that can affect solution provider fit.

Often they have a high number of employees who are spread across many global locations and also working “in the field,” which results in varying approaches to procurement support. There are three models for spend management: A decentralized model, where each organization, functional or geographic unit is responsible for its own purchases; a centralized model, where all procurement and invoice processing goes through a single, central team; and a center-led model, which is the best of both worlds. Conversely, finance operations typically look to standardize and centralize their AP operations to support greater efficiencies on downstream processes.

In addition, the spend profile of these complex organizations looks quite different from company to company. Some have major challenges in managing strategic spend with key suppliers, while others have dozens of thorny issues to tackle in their tail spend that add up to big issues. Along with this, they must weigh the pros and cons of working with global versus local suppliers against factors such as the volume, value and criticality of goods and services being bought. And this extends beyond just procurement.

Organizations deal with hundreds, even thousands, of suppliers across many purchase categories: ongoing, periodic, and one-time services; high volume/low value and low volume/high value suppliers; global corporations and small local companies with sophisticated IT capabilities and companies with very little. Where one company is fully prepared to communicate on a “system-to-system” basis, many others operate exclusively by phone, mail and email. Where one company does hundreds of transactions every month, others do business with you occasionally. Where some suppliers change products and prices infrequently, others change constantly.

Finally, service-based organizations operate within an intricate IT infrastructure. Due to numerous reorganizations and mergers, there are often multiple back-end systems with disparate processes and islands of information. This is compounded by ongoing process transformation efforts, which frequently add in new enterprise technologies, process changes and guiding operational practices on top of the core systems, creating additional configuration complexity.

Resulting Complex Challenges

A company’s overall business structure can create multiple complexities. The organization may be global in scale but will have offices of varying size and concentration in certain regions, each with different resources and needs. Multiple operational cultures with their own history, executive leadership or market focus can clash, making process management difficult, spend management included.

Global reach can create significant complexity for operational functions such as procurement and finance to sort through. There are varying languages used by employees across different countries and regions to consider, multiple currencies for transactions that need to be consolidated into easily readable financial information, and different tax methods and regulatory requirements that must be adhered to at the local level, to name a few.

What’s more, whether procurement takes a centralized or decentralized approach to managing spend across a global enterprise, each location will have varying level of procurement maturity, meaning the approach to spend management necessarily will differ across business units. The result is that the organization ends up with numerous separate supplier bases, causing:

• Purchases spread across too many different suppliers for the same goods and services.
• Multiple units buying from the same supplier — with no volume consolidation.
• Spend categories managed inefficiently (i.e. certain spend categories lend themselves to central sourcing and supplier management, while others are best handled locally).

Unique Requirements 

Combined, these defining characteristics and resulting complexities create a set of unique requirements that solution providers must meet to deliver true value. Not all, however, have the breadth, depth, flexibility, domain experience and track record of success required to support a truly effective approach.

To identify such a provider, consider how the unique characteristics and challenges above shape technology selection requirements.

First, the solution provider must be able coordinate multi-site, multi-business unit requirements. This means the provider must support the right balance of consistent organization-wide policies and processes while also retaining the appropriate levels of local autonomy when it comes to daily operations. By doing so, the organization can most effectively leverage its full buying power without losing the advantages of local sources where they best fit the need.

The provider must also be able to provide end-to-end spend visibility, along with the necessary flexibility to handle many different purchasing environments. Creating the right combination of centralized, decentralized and virtual business functions is key here. Flexible data collection management and reporting are also a must, since industry- and region-specific regulations will vary for each location.

Finally, the ideal solution provider should address IT, business and process flexibility and configuration requirements. Effective change management, scaled gradually, requires the provider to offer tailored functionality as needed while the organization responds to market changes, mergers and acquisitions, and restructuring that may occur over time, as well as address the complexities of global deployment mentioned above.

Unique Requirements Need Unique Solutions

A spend management solution built specifically for complex organizations living in change must be ready for any situation. To help organizations confront these challenges, the right solution must be largely self-managing and intelligent, as well as easy to use, customize and scale.

What does that look like in practice? Check out Part 2 of this series, in which we explore the specific software capabilities customers should look for when evaluating solution providers, including key considerations that differentiate generic spend management solutions from those flexible enough to meet complex procurement and finance requirements.