Is Your Supplier's Price Really Right?

By Baselinemag  |  Posted 2006-01-14 Print this article Print

Spend management and analysis software can show where the money's going, and provides the electronic tools to bargain with suppliers.

Any business knows what it pays suppliers—just tally up the invoices. But are there sweeter deals to be had?

Spend management and analysis software can show where the money's going, and provides electronic tools to bargain with suppliers.

Until a year ago Cendant, the $20 billion conglomerate whose businesses include car rental firm Avis, hotels, and travel-reservation and real estate services, wasn't using electronic procurement tools to hunt for the best possible deals across divisions. Take office supplies. In an 87,000-person corporation, the cost of pens and staplers adds up: Cendant was spending roughly $20 million a year among four major office supplies vendors.

John Zagata, director of e-procurement in Cendant's central business services group, says his team realized the company could save money by consolidating purchases and using software to automate supplier negotiations. But some Cendant business units resisted change, because they had established agreements with suppliers.

To win over the holdouts, in June 2005 Cendant's procurement team held a live, Web-based auction for office supplies—using hosted services from Ariba—during the company's annual summit for 200 financial executives in New Jersey. The winning bidder of the half-day event (which Zagata did not want to identify) came in at around $15 million, or 25% less than Cendant's previous expenditure. "That auction was a phenomenal marketing tool internally," Zagata says. "We proved it worked."

Since then, Cendant has looked for other ways to trim its $1 billion in spending on goods and services. The company has run about 20 additional auctions, for everything from business cards to car seats and auto glass to linens. Average discounts, Zagata says, have been 20%, mainly because those product categories had not recently been put up for competitive bidding.

Cendant last fall announced plans to split into four independent companies in 2006, and Zagata says each of the spin-offs will most likely continue an online buying program. "We really did achieve our goals of enabling this throughout the company," he says.

Spend management and analysis tools provide an array of features to automate and streamline corporate purchasing, including hosting online auctions for suppliers, soliciting bids for new business, managing supplier contracts and ensuring that employees buy only from suppliers that have negotiated discounted deals with the company.

Vendors in this market—which AMR Research estimates was $2.2 billion in 2005—include specialists like Ariba, a nine-year-old company that has carved out a top spot in the category, as well as bigger players like SAP and Oracle, which promise to link procurement activities with the rest of a company's business data.

For many companies, the first step is using software to get a handle on where dollars are walking out the door.

Owens Corning, a manufacturer of fiberglass, insulation and other building materials, two years ago started a project to view total spending across its entire enterprise. The company needs to sort through 1 million individual transactions per year, amounting to about $5 billion in annual spending, and information on almost 25,000 suppliers. Says John Hutchinson, Owens Corning's global sourcing leader: "That's hard to analyze in Excel."

The company pulls financial data from its SAP enterprise resource planning system and other sources, such as American Express spending accounts, and loads it into Emptoris' ExpenseMap spend analysis program. Using that application, business analysts can examine the data in 27 different ways; for example, by vendor for each cost center.

Next page: Gaining Leverage in Negotiations.


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