Expense Management: Better Ways to Buy

Sometimes costs don't need to be cut so much as captured, quantified, and reconsidered.

Along with the technology, the company instituted a new credit-card policy. The online booking system accepts only the corporate credit card, and Pentair auto-pays all approved charges made with it. If a traveler books outside the system, he has to pay those charges himself and wait to be reimbursed.

The system generates plenty of data to help Pentair better enforce compliance and manage budgets, and the finance department can run reports by the approving manager, expense type, or department — a process that used to take three days or more but now requires only a couple of hours.

As is the case with much of the technology now reshaping corporate purchasing, Pentair subscribes to rather than owns the software it uses. For a one-time setup fee of $20,000 plus $28,000 in internal IT costs (also one-time), the company can accommodate the 3,000 employees who travel each year. This year alone it has already reaped $100,000 in preferred-provider discounts and savings on travel agent fees, while increased use of the corporate credit card is expected to boost the rebate by the card issuer by about 20 percent.

Pentair also expects to save on process efficiencies, but that payback will take longer due to the expense of training finance staff and rank-and-file employees on the new system. Aberdeen reports that automating expense reports halves the filing time for travelers and cuts processing costs from an average of $30 to $19 per report.

Beyond T&E

For many companies, however, taming T&E is not enough. They’re looking to keep better tabs on other expenses through “spend management,” a broad category that includes everything from T&E packages to spend analysis, E-sourcing, E-procurement, E-invoicing, and supplier relationship management (SRM) software and services. As with the system described above, virtually all of these capabilities are available as Web-based services priced by some unit of usage, often a per-user per-month basis. Forrester Research says the overall category averaged 14 percent annual growth between 2003 and 2008, easily outpacing the overall software market.

Spend-analysis software, in particular, has taken off in recent years. It helps a business determine exactly what it’s buying and from what company. A global enterprise with a multitude of divisions may have dozens of suppliers for the same product, or have different divisions that unknowingly use the same supplier (one division classifies it as “IBM,” for example, while another uses “International Business Machines”). In many cases companies miss out on the volume discounts they could get by consolidating and centralizing purchasing.

There are two ways to tackle spend analysis. For $50,000 to $100,000, a horde of consultants will sift through invoices, purchase orders, and contracts and produce a report, most likely on one facet of the business. Or, for $100,000 to $500,000, you can tap software that will do it for all aspects of the business all the time.

Diebold, which makes automated teller machines and other security systems, opted for the latter. Vice president and chief procurement officer Linda Parcher says the company’s spend-analysis tool helps guide a continuous range of global purchasing decisions. “We’re constantly using the software to [determine] what our current spend is, and leveraging that in negotiations when we need to add products,” says Parcher. “We look at the current supplier-spend stratification to make sure we don’t have too much spend with one supplier.”

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