The very idea of “spend management” should appeal to any finance executive—particularly at a time when many companies face flat revenues. For many, though, the term is an oxymoron, as corporate spending has been anything but manageable.
Now an emerging class of enterprise spend management (ESM) software claims to give organizations more visibility and control over their spending while reducing costs through improved sourcing and procurement. Early adopters are enthusiastic about the ability of ESM to help manage expenses,organize supplier contracts, and generate better deals from key suppliers.
Despite the initial excitement, finance and procurement managers and other experts caution that this is an evolving market, with many vendors offering relatively untested products. Implementations can be complex—particularly for large companies—and organizations need to thoroughly research the software and the companies that sell it before making what could be a major investment. Most companies won’t reveal exactly what they paid for ESM products, but some acknowledge that comprehensive systems cost millions of dollars. Experts also note that the technology provides only part of the solution to runaway spending; the software must be accompanied by process improvements and accurate data.
Few question that there’s a need for ESM. “It surprises me how much companies really don’t know about what they’re spending money on,” says Christa Degnan, supply-chain research director at Aberdeen Group Inc. in Boston. “They’ve never had granular detail on who they’re spending with, how much, and why they’re spending.” Pierre Mitchell, vice president of research at AMR Research in Boston, predicts that ESM will evolve from product niche to corporate discipline. “If you don’t determine how much you’re spending by supplier, commodity, and business unit, you’re running blind,” he says. “You have no control over your spending.”
ESM addresses such functions as spend analysis, electronic sourcing and procurement, and contract management. Information about expenditures is captured in a central place, where it can be used to a company’s maximum benefit. ESM is designed to provide greater understanding of what the organization is spending—on commodity goods and services, maintenance fees, materials, travel—using analytics to gauge spending by cost, type of commodity, and vendor. Companies can view in the aggregate contracts that have been negotiated by different departments.
Ariba Inc., which coined the term enterprise spend management, is considered by many to be the market leader. Ariba was also among the pioneers of E-procurement, a technology that looks conspicuously like ESM, although analysts say there is a genuine distinction, with ESM uniting procurement and several related functions. The ESM market is attracting the attention of such enterprise software providers as SAP, PeopleSoft, and Oracle at the high end, along with a number of smaller companies, some of which, such as Ketera Technologies, offer ESM capabilities as a Web-based service. Many smaller companies tend to specialize in specific spend-management categories, such as contract workers, telecom expenses, or travel.
Companies deploying ESM say they’re seeing such benefits as reduced spending and more-efficient procurement, and many say the products are more than paying for themselves. American Express Co. is in the third year of an ESM project that has resulted in hundreds of millions of dollars in savings, says Gary Crittenden, executive vice president and CFO. The company is using a combination of Ariba’s ESM applications, a homegrown E-procurement program, and a spend-analytics tool from Zeborg Inc. to better manage billions of dollars of spending on indirect goods and services each year.