The value of visibility
For many companies, visibility provides the missing piece needed to develop a spend management strategy. In the current economic environment, it is especially critical that enterprises have visibility across their expenditures and their contracts. This gives them the ability to proactively monitor compliance with those contracts. It also allows them to capitalize on the negotiated contract terms, which might include terms and conditions that could reduce the price they currently are paying for a product, commodity, or service.
That was the case for a 350-year-old conglomerate in Europe with operations in more than 40 countries. The company faced severe challenges to the profitability of its businesses, including increasing global competition, the emergence of private labels, rising raw material prices, and stagnating market development. The company's competitors, meanwhile, were bringing in new suppliers from low-cost areas.
By implementing an enterprisewide spend management strategy, the conglomerate was able to identify and address the significant overlap that existed across its sourcing groups and develop a strategy that leveraged its size and scale. The artificial intelligencebased spend-analysis solution the company implemented exploited the benefits of scale and facilitated the optimization of resources and knowledge across the many segments of the organization, providing:
Harmonized information in a common sourcing hierarchy;
Centralized data capture at the transactional level;
Consistent data extraction, classification, and analysis; and
Sustainable, routine spend visibility and analysis.
The company subsequently was able to narrow its supplier base from well over 1,000 to just 0.4 percent of the original number. It also achieved savings by identifying and contracting with the most cost-efficient suppliers globally. Bottom line? The implementation of a successful spend management strategy ultimately contributed 68 percent of the overall savings in a cost management initiative across several business units, resulting in an increase in overall EBITDA (earnings before interest, taxes, depreciation, and amortization) exceeding 16 percent.