5 steps to Services Spend Management

5 Five Steps to Services Spend Management Success April 2004 Table of Contents SERVICES SPEND MANAGEMENT – EXECUTIVE SUMMARY 3 SERVICES SPEND MANAGEMENT – A GROWING BUSINESS CHALLENGE 5 Services Spend – The Organizational Unknown 6 Limited Tools, Knowledge, and Processes to Manage Services Spend 7 IT is Overloaded, Spend Management Can Help 8 The Evolving Landscape – Entering a New Era of Services Procurement 9 SERVICES SPEND MANAGEMENT – A FIVE-STEP GUIDE TO SUCCESS 9 Step 1: Define a Coherent Services Spend Management Strategy 10 Step 2: Align Your Organizational Structure and Procurement Process 11 Step 3: Select a Flexible Solution 12 Step 4: Engage Existing Systems 13 Step 5: Connect and Collaborate with Suppliers 14 Capturing all five elements of a successful Services Spend Management plan 14 ARIBA CATEGORY PROCUREMENT – THE COMPLETE SERVICES SPEND MANAGEMENT APPROACH 15 Depth and Breadth of Application Capability 15 Enabling Services 16 Capturing and Realizing Savings with Ariba Category Procurement: A Case Example 17 CONCLUSION 18 SERVICES SPEND MANAGEMENT – EXECUTIVE SUMMARY irst generation Spend Management tools and methods often focused on approaches to help F organizations reduce costs and improve purchasing efficiency. In the majority of cases, these tools targeted individual pain points to cut expenditures, while improving business processes within the procurement function. It is not surprising that in the course of implementing these solutions, many companies relied on point technologies and methodologies to solve specific challenges, realizing savings in the process, but potentially leaving even greater sums on the table. he next frontier and opportunity for procurement organizations will take a more holistic T approach to tackling Spend Management, driving the best practices and mandate of the procurement organization all the way to the frontlines of the enterprise. While this frontlines approach is also focused insofar as it targets specific categories to drive results, it takes a broader view of the Spend Management opportunity, challenging organizations to redefine how they manage the entire lifecycle of strategic goods and services they procure across a range of users and functions. To capture the riches of this new frontier, organizations will need to have end-to-end Spend Management process knowledge and capability combined with deep category knowledge and flexibility across a common platform to unite and empower users. ore effective management of services spend is a great example of a next generation frontlines M procurement opportunity. But what exactly is services spend and why does it present such a large opportunity? Simply put, services spend is the money companies spend with vendors providing services across all aspects of their business. Services spend can include basic areas such as janitorial services and window washing all the way through to more complex ones, including the management of outsourced help desks and procurement of highly skilled technical labor. Regardless of category, more effective Services Spend Management represents a tremendous opportunity. Just look at the numbers. esearch suggests that services spend can R comprise as much as 80% of all spend in industries such as financial services and up to 50% of non-production spend in some manufacturing organizations. At the same time, 60% of services spend is managed outside of procurement, and maverick spending levels for services procurement is often 40% higher than for indirect goods, according to CAPS. Figure 1 highlights some of the additional trends in services procurement. Making the challenge even more appealing are the potential savings organizations can gain from more aggressively sourcing services contracts. Based on our market experience, Ariba estimates that typical sourcing savings for services categories are 10% higher than for indirect goods. With numbers like this, it is time companies put effective Services Spend Management at the top of their procurement objectives. 3 Five Steps to Services Spend Management Success ut, for virtually all organizations, services spend is a huge challenge. It is not only a growing B area for companies, but a set of categories spiraling out of control, with little centralized management and oversight—and historically one with few technologies to capture information and manage processes. As a result, the majority of organizations manage services spend through traditional paper-based processes in a non-uniform way. This encourages maverick purchasing at all levels of the organization. Compounding the challenge are the characteristics of services supply bases, which are fragmented by nature, and whose performance is managed in a decentralized manner resulting in non-sourced pricing, unchecked vendor performance tracking, and unrealized demand management. ortunately, there are a number of factors driving organizations to take a new look at ways to F improve how they manage services spend. It is an old procurement adage that you cannot manage what you don’t know—or don’t have visibility into. Fortunately, increasing numbers of enterprises are taking advantage of significant advances in spend visibility techniques and analysis, gaining new insight into their services spend history and habits. This provides a greater opportunity than ever before to identify the most advantageous categories to target and manage. At the same time, as outsourcing increases and the management of SKUs and line items gives way to managing services and service levels, procurement organizations will gain new insights and visibility into opportunities as they arise and become part of an organizational strategy. o truly take advantages of these opportunities, procurement organizations should take T a number of key steps to enhance their capabilities to manage services spend. Later in this paper, we will highlight these steps in more detail, but to begin, all organizations must develop an upfront strategy to tackle services spend across categories. They must also create the right organizational structure and process, and deploy the right solution to manage category requirements across services spend categories. And last, they must leverage existing systems and connect and collaborate with suppliers on an ongoing basis. Connect and collaborate with Suppliers Engage existing Systems Select a Flexible Solution Align your organizational Structure Define a coherent and process Strategy Five Steps to Services Spend Management Success 4 or organizations that can implement these steps effectively, the future of Services Spend F Management is looking brighter everyday.