While enterprise resource planning (ERP) may provide the tools to manage transaction processing and financial reporting, it lacks the forward-looking visibility needed to manage costs, support business unit decisions, or plan, budget, and forecast spending properly. For all its functionality, ERP does not address the collaborative aspects of procurement between buyers and suppliers so critical to achieving success. When ERP is coupled with spend management, companies can consolidate and analyze information from multiple systems in a single place. Spend management accelerates and expands the value of ERP by allowing users to create a closed loop for continuous and sustained improvements in cost savings.

Money spent on goods or services for direct inputs (raw goods and materials used in the manufacturing process), indirect material (office supplies and other expenses that do not go into a finished product), or services (temporary and contract labor, print services, etc.), a company needs a mechanism by which they are not only able to save money but control costs. Spend management is meant to represent a holistic view of the activities involved in the "source-to-pay" process. This process includes spend analysis, sourcing, procurement, receiving, payment settlement and management of accounts payable and general ledger accounts.

When revenue is harder to come by, companies often turn to cost cutting initiatives. Cost cutting will increase net income. An increase in net income leads to a greater earnings per share and ultimately a higher market value (higher market capitalization).Because cost cutting affects a company's bottom line directly, certain types of cost cutting can be the quickest way companies can increase their market value. The typical consensus is that the revenue to cost ratio is about 3 to 1; for instance, increasing revenue by $300 has about the same effect as cutting costs by $100. This is why, in hard times, companies typically turn to cost cutting measures such as layoffs and product quality reductions. However, most analysts agree that this short term tactic creates little long term value, nor any long term sustainable savings. This is why spend management has become a key long term strategy for companies seeking to maintain long term and sustainable value.

Spend management is a subset of total cost management, which takes into consideration financial management aspects such as tax/VAT, exchange rates, the impact of demand (i.e. sales), manufacturing, and other factors. When considered from a holistic viewpoint, spend management can start to feed into supply management, as it also affects how assets (capital and otherwise) and inventory are procured and managed. Spend management starts to inform a company of total cost of ownership, and is often used to understand the total cost of items such as assets (from their acquisition, to their use and depreciation, and finally to the assets' retirement). In the end, however, spend management is about creating long-term and sustainable savings. True spend management is considered by many to be an ongoing cyclical process.

Spend management systems'

Most recently, companies have been utilizing new tools such as e-sourcing (for bidding and reverse auction), e-procurement (to control and monitor purchasing activities and contracts), and e-spend analytics (to gain insight into how much money is being spent on what types of services or products). These tools promise to not only automate paper intensive and manual processes, but also to help monitor and control spending activity and to create an integrated process in which each activity feeds into another.

On-demand, web-based spend solutions help customers access, organize and analyze spend data on both goods and services. After They give companies a more complete, clearer understanding of their spending along with various levels of detail. This information enables them to identify immediate savings opportunities, drive compliance, manage spending and develop adn execute sourcing strategies. Most large organization have spend data residing in multiple ERP and other systems spread in diverse geographical locations and in other systems such as A/P and GL modules. To provide a comprehensive and complete spend intelligence solution, these browser-based spend solutions must be able to access spend data files from multiple sources and not be limited by any integration restrictions.

Cambridge Journals
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Manufacturing.gov
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