Investing in eProcurement – Where Do The Real Benefits Come From?

Today, our final extract from a new briefing paper, sponsored by Coupa, spend management software leaders. It's titled "Should Mid-Market Organisations Invest in eProcurement Systems? – The Key Questions Answered".

It is targeted at what we have called "mid-market" organisations. Broadly, that means with annual revenues from perhaps a couple of hundred £ million up to perhaps a £ billion or so. Having said that, we'd like to think it would be interesting for any organisation thinking of investing in purchase to pay technology for the first time, or indeed looking to replace / upgrade / add to their current transactional purchasing systems.

It takes the form of a Q&A between me and an imaginary CFO from a typical organisation in that position. It answers questions about technology, but more so looks at the business issues and benefits to be considered if you are considering investment in this area. It is available to download now, free on registration.

Today, an excerpt that gets to the heart of why P2P brings real benefits. Do download the paper, free on registration.

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So we can control expenditure better - but how does that generate real savings?

The first point is that some expenditure just disappears altogether once good controls are in place. The experience of Coupa, a leading provider of spend management technology, is that firms generally save 2% to 3% of their total third-party costs, purely in terms of this spend avoidance once the right processes and systems are in place, and spend is visible, understood and properly approved. Staff do question their own spend more critically when they know the process is being managed.

The next wave of savings comes from understanding just what it is that you are spending. Once orders flow through the system, you can start analysing spend, in terms of what is being bought, who is buying it, and which suppliers are being used. Then you can target key spend areas and look for savings and other value benefits.

That might come from combining requirements so you can buy more from a smaller number of suppliers and negotiate discounts. Or it may be that you can harmonise and standardise specifications - stop buying so many different types of laptop, or having different service levels for cleaning in every different office, for instance. Eventually, the most sophisticated firms will use full “strategic sourcing” - looking at all aspects around how the supply market can best meet their needs in an optimal manner.

This process of getting spend properly “under management” (as we say) can bring major cost savings. We will often see 5% - 10% in a spend area just from the initial stages of aggregating and consolidating requirements, and much more in some cases when issues such as specifications are also considered.

The other area of savings comes from reduced process costs. In our experience, not many organisations understand quite how much they spend in the buying process. They might have a grip on the cost of accounts payable, but how much time is spent by users finding suppliers and placing orders? Or the time wasted chasing around the organisation when an invoice arrives and no-one is quite sure who ordered the goods it refers to! These hidden costs can be significant.

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