Addressing the ‘first mile’ of the spend management process [PRO]

budget to pay Adobe Stock

In a previous post, I introduced the concept of “plan to pay,” an extension of the traditional source-to-pay process (S2P). But plan-to-pay workflows are generally implemented via supply planning for direct materials in the supply chain, but aren’t well-implemented for indirect spend management. In fact, it starts even more upstream from the typical “upstream” sourcing intake process. To extend the bad metaphor, it’s sort of like the originating spend pools high up on “stakeholder mountain” that feed the S2P value stream. It starts with the business planning process and the financial planning process (e.g., budgeting within finance-led FP&A processes) and then linking that into supplier spend planning via category planning, project planning, etc.

But this isn’t easy to implement! In the previous article, I gave the simple example of trying to take a spend cube (i.e., line items of PO/invoice spend history by cost center, category and supplier) and project it forward. If you have decent PO management and contract modeling, you might have some forward-looking visibility into future spend (like contract renewals and blanket PO’s), but for the rest, the best you will likely do is a budget reflected in your cost centers that are checked in the P2P process.

The trick here is to predict and plan the diverse mix of spend that will unfold within those budgets, and the extent that procurement can help the business drive more value from that spend upfront in the process. This is where real spend influence lies to help stakeholders support their business outcomes with limited budgets.

If procurement doesn’t manage this process formally with finance in the business, all sorts of dysfunctional behaviors and misalignments will result:

  • Budgeting is disconnected from supplier spend planning in category management, commercial/contract management, and supplier management.
  • The budgeting process is disconnected from P2P and creates unhappiness with the business when procurement inserts itself into the process (when the stakeholders thought that having available budget is good enough). These spend thresholds for procurement involvement are also usually very high because procurement doesn’t want to hold up the process when the requirement comes in so late in the game (which is why earlier involvement in spend planning is critical to touch more spend and to better effect).
  • Procurement gets relegated to a discussion of price rather than discussing spend and business outcomes.
  • Savings tracking becomes an after-the-fact exercise rather than being planned for upfront (including procurement’s own target-setting process for savings and other value improvements).
  • A dysfunctional use-it-or-lose-it budgeting process. Solving this with a zero-based budgeting (ZBB) process is one way to solve it, but it’s highly inefficient.

Doing spend management properly means starting it off right and basically treating it like the mirror image of the sales funnel. This “spend funnel” starts proactively during business planning and then flows through category planning, budget setting (with savings pre-baked into the budgets), sourcing/contracting, and then P2P for execution.

Unfortunately, the data in this funnel is fragmented across numerous systems, and we’ve been hoping that an S2P suite provider (or possibly an analytics-centric solution from a services provider or an FP&A-centric tech provider) might be able to help procurement proverbially swim upstream and perform this “spend planning.” In fact, back in 2014, we hoped for this:

A system that could “translate between the G/L views of pro forma financial planning over to both planned supplier spending (e.g., an upcoming contract renewal) and to the operational planning processes that the budget owners will have to execute against (e.g., project planning-vs-execution, supply planning-vs-execution, etc.). It requires strong analytics to not only map between the GL taxonomy, the category taxonomy and the contract portfolio, but now also tying into planning data (e.g., versioned scenario plans and rolling budget revisions). This modeling is nontrivial, and you will need to integrate your previous historic spent data snapshots into a forward-looking, time-phased, planning data model that exists within FP&A applications.”

And then we waited … and waited. And finally, a few months ago, we heard from GEP on a solution that they’ve been working on that addresses this exact area. GEP calls it a “Budget to Pay” solution, and it is, in essence, an extension of its core S2P suite that addresses most of what I’ve discussed in this broader plan-to-pay area.

We participated in multiple demonstrations and discussed some of the findings from GEP’s initial customer implementations. We’re waiting to get more feedback directly from its early customers, but the results so far seem impressive. GEP plans to formally release this solution in the near future, but in this Spend Matters PRO analysis, we’ll share some of our insights on the detailed problem statements and how the solution adds value (which is more than just technology).

For full access to this PRO content: