Enterprises often focus too narrowly on cost savings and lose sight of critical measures like improving bottom lineimpact, reducing Total Cost of Ownership (TCO), improving customer satisfaction and achieving global cost competitiveness.
This article highlights how CFOs and CPOs can achieve these outcomes by:
·Setting cost-savings and spend under management (SUM) objectives
·Managing the spend portfolio effectively
·Setting organizational and policy frameworks
·Partnering with third-party service providers to achieve desired results
Managing 100% of Spend, 100% of the Time
A first step for finance executives looking to achieve
organization wide best in-class business results is to
ensure that sourcing and procurement influences and
impacts 100% of addressable spend, 100% of the time.
According to industry research, enterprises have been
able to achieve a 5% to 20% cost out savings for each
new dollar of spend brought under management. This can
result in millions or even tens of millions in cost savings
that can be either reinvested or dropped to the bottom line.
Aim High on Enterprise Objectives
Organizations should adopt a holistic approach to Source to Pay. This helps set robust savings targets, timelines and strategies for increasing SUM by the procurement organization, business units and individual P&L’s and provides theCFO organization visibility into:
·Which spend categories have been addressed and sourced successfully
·Best-in-class performance levels by spend categories
·Clear visibility into non-pricing levers for savings in the S2P processe
·Timelines and complexity associated with bringing various spend categories under management by a S2P organization
·Savings target and spend reduction to the executive boardroom
·Tying cost-savings objectives to top-line financial measures such as operating profit, earnings per share and working capital requirements
Setting cost savings and SUM goals at an enterprise level brings in:
·30-40% greater addressable spend visibility
·20-40% less maverick spending
·5-0% reductions in working capital requirements
·Incremental ROI on existing Technology investments
·Consistent process execution approaching Six Sigma performance
A Spend Portfolio Management Approach to Savings and Spend Reduction
The spend portfolio is a critical methodology for enterprises, business units, P&L and source to pay leaders who areimplementing S2P business transformations, robust savings targets and spend reduction initiatives.
·Defines and details actual spend of the Business Units (BU), P&L’s and the overall enterprise
·Parses enterprise objectives for cost savings, SUM, and so forth, by business unit and P&L
·Explicitly links cost-savings targets directly to top-line corporate financial objectives such as operating profit, earnings per share and working capital requirements
·Details what, when, how and by whom cost savings will be pursued
·Forecasts savings for the CFO by BU and P&L’s
·Helps define a suitable procurement technology roadmap for pricing and non pricing levers opportunities
·Defines how savings will be identified, validated, implemented, reported and distributed back to the P&L and BUs
Self-funding and P&L positive Savings Initiatives – a Must
For finance and procurement executives looking to put their companies on a path to enhanced S2P performance, there are two possible routes. The first option is to invest in acquiring people and technology, integrating best practices, implementing performance metrics and establishing clear savings targets through a detailed spend analysis.
The alternative is to partner with a third-party service organization that is experienced in all of these areas and can begin delivering savings in the shortest possible time frame and increasing velocity. Many S2P organizations do both, investing in their direct and indirect or core spend categories and leverage service providers as partners to manageindirect spend categories that are not core to their business success. This approach will get an organization closer to managing 100% of the spend 100% of the time.
Genpact recommends organizations adopt a holistic approach to maximize business value from their Source to pay (S2P) function. Genpact partners with Procurement and Finance executives to create bottom line impact from Sourceto Pay by setting robust savings targets and spend under management objectives, helping them manage the spend portfolio effectively and establishing organizational and policy frameworks.
To know how Genpact can help you realize best in class Source to Pay performance, please write to