From the August 2023 print edition
The resiliency of Canada’s supply chains has been tested in recent years by everything from the COVID-19 pandemic to the Ukraine war, to the ensuing economic uncertainty of these events.
Due to these and other factors, it’s more important than ever to ensure that your organization manages its spend as effectively as possible.
Spend management involves governing and continually improving an organization’s spending. Technology is playing a critical role in that process.
Regarding technology, the last few decades have seen organizations focus mostly on process improvement, says Chris Sawchuk, principal and global advisory practice leaders at The Hackett Group. Tech has been replacing human labour for some time and, for example, 20 years ago human labour was by-and-large responsible for spend analysis. Today, automated tools are taking over certain tasks. These tools allow organizations to increase visibility into spend behaviour, with continual improvement.
“Technology has been having an impact on what I would call process-oriented type of work,” says Sawchuk. “Activities like transactions, there’s a lot of ways that technology has been taking on that work. If we look at the direct-to-pay process, that transactional set of activities, we’ve been pushing that into e-procurement tools, and it just continues to get better.”
The right tech
Adopting the right technology is critical to optimizing an organization’s spend management, says Maria Greaves-Cacevski, senior category sourcing lead at Chemtrade Logistics. That technology is important not only to doing business now, but to predicting trends and market variability going forward, she notes.
“We need to be able to see what we did historically, and we also need to try and see where the variance is leading to in the future,” Greaves-Cacevski says.
Given today’s abundance of technology, finding the right fit is more important than ever. Regarding a spend management strategy, supply chain professionals must choose technology to deal with those fluctuations – automation means less risk of something getting lost in the process.
“Automating the process also helps for you to streamline so that your workers are working more efficiently,” she says. “They know exactly what tasks they’re going to be working on, how many head count or how many inventories they need, what’s the time to fulfill, and then what’s the expected output from that.”
A challenge that Greaves-Cacevski sees in managing spend involves forecasting. Quality issues and incorrect inventory can arise if you’re demand is not accurate or you’re not selling to the market. Increased costs from carrying inventory that doesn’t move can lead to waste and writing off.
The right technology gives organizations flexibility to react to unprecedented or unplanned changes. A lack of visibility means an organization can’t react quickly or change direction when needed.
Yet it’s important to ensure that whatever technologies an organization uses are able to connect with one another, Greaves-Cacevski notes. Having different technologies for different functions can result in an organization becoming inflexible or immobile, since systems aren’t reading each other. Having systems that can talk to one another helps both boost visibility and remove silos within an organization. As well, unifying processes under one management tool can reduce the risk of human error.
“It’s critical that when you’re looking at a technology solution for your spend management, you start with what your goal is from that software, and how many of your stakeholders are involved in that process and making sure you have understanding and alignment between each of those cross-functional teams,” she says. “That spend management touches all of their teams, and it rolls that information into one centralized unit.”
A best-in-class spend management system will incorporate finance, HR, sales, procurement, and other departments into a centralized system, Greaves-Cacevski notes.
A well-functioning supplier relationship management process can also help organizations to manage their spend, she says. There needs to be agreement between suppliers and an organization’s service-level expectations, its KPIs, and so on. Post-pandemic, many organizations are looking to reduce the number of suppliers they use while focusing on partnership agreements.
“If they know that there’s going to be price increases coming down the pipeline and you’re a partner, they will forewarn you of that and then advise you whether to pre-buy or pre-load at a certain price point to offset how much cost it is,” she says.
Another spend management tactic is to ensure that employees are properly trained to negotiate price with suppliers, she says. When suppliers say they’re increasing prices, it’s tough to say “no” outright – especially when you need their product. Ensuring that input from a company’s operational-tactical level filters up to the strategic level can help, as the operational team is often closer to what’s happening on the ground.
“A lot of organizations are changing some processes internally to give that voice of the employee more of an emphasis than before,” Greaves-Cacevski says. “Removing those levels of bureaucracy allows us to get a better price faster, because you’re empowering your team at the ground level to negotiate and execute some of those deals firsthand.”
Technology is encroaching even into strategic processes like negotiations, notes Sawchuk, of The Hackett Group. Tools exist that allow for autonomous negotiations, for example. Organizations develop rules for a bot to negotiate with the supplier on that organization’s behalf, he says. Supply chains must get comfortable with concepts like bot-to-bot negotiations.
As cutting-edge technologies like artificial intelligence are used more widely, certain tasks or types of work may be eliminated, says Sawchuk. Yet that process will lead to accelerating what people are capable of – a process of augmenting human capabilities, at least initially.
Sawchuk likens the process to the Marvel comic film Iron Man, in which a high-tech suit gives the main character, Tony Stark, super-human powers such as incredible strength and the ability to fly, among others.
“He was super smart, but when he put on that Iron Man suit, it allowed him to be smarter,” Sawchuk says.
“It was like having a supercomputer with him. In many ways it augmented his human capabilities. I think this augmentation of human capabilities with artificial intelligence is really where we’re headed.”