Global shift to real value and not promises

Business has seen a dramatic shift from a focus on growth, without consideration for profits and revenue, to an environment where potential savings are highlighted and striven for. Following on from this result of the bursting of the dot-com bubble era, supplier management is now receiving major attention.

"Until now, in most sectors the procurement department has not been seen as strategic to the organisation," says Bruce Jones, manager of sales support at SAS Institute, the market leader in providing a new generation of business intelligence software and services that create true enterprise intelligence.

"Companies now, however, are recognising the importance of procurement - and the significant cost savings to be made in this area."

Many companies are implementing procurement, or e-procurement, systems that concentrate on the repetitive procurement cycle: order, accept delivery, receive invoice and pay.

"These systems, however, are operational, and do not produce true business intelligence that can translate into real cost savings," says Jones. "It is rare that efficiencies in this process ever result in cost savings of goods bought of more than 1%.

"If business intelligence solutions, however, are applied to monitor, track and analyse the entire supplier relationship, companies can make significant savings of between 5% and 15% of the goods that are purchased."

One of the major areas for potential savings is optimisation of the number of suppliers. As a first step in this process, company data must be cleansed, de-duplicated and standardised.

"In the majority of companies, purchasing is done via a variety of different systems including the general ledger, procurement cards and petty cash," says Jones. "The first job of any business intelligence tool therefore is to normalise the data so companies can compare apples with apples."

Data cleansing can result in the intelligence that many different departments are actually using the same suppliers. Having not realised this, they have not leveraged this information to negotiate bulk discounts.

Analytic solutions can work through this internal data, enhancing it with Third-party content providers. This analysis can identify previously unknown parent-child relationships between suppliers, further helping to negotiate better contracts with suppliers.

"In many cases, companies realise that in fact they are dealing not with 500 different suppliers, but only 200 as revealed through cleaning and de-duplicating data - and through parent-child relationships, in reality they are dealing with far fewer," says Jones.

He points out that it is easier to reduce costs than to increase revenue to achieve the same profit.

"To achieve a certain profit, expenses need to decrease far less than income needs to increase," he says. "This realisation is spurring CEOs to look more closely at the procurement department and see where cost savings can be achieved. There is a re-focus on profit, and cash is once again king."

As Alan Greenspan noted, referring to the Enron debacle, it is easier to find value in machines and factories than in promises.

"There is a world shift to delivering real value, and not promises," says Jones.