William Newman is the author of the forthcoming title “Understanding SAP BusinessObjects Enterprise Performance Management (EPM)” due to be released by SAP Press (www.sap-press) in June, 2010. This article appears as an abstract from that book focusing on supply chain effectiveness methods and approaches.
With any organization, the ability to focus on mitigating risks from the value chain and to give sound financial governance over the disbursements of capital and other resources produce bottom-line results. Executives undergo business planning rounds to create the proper level of cash flow to manage their enterprises, and this need has only increased in the post-crisis economy.
Direct costs and the risk mitigation associated with managing these costs often falls to various organizations associated with contracting value chain members. These direct costs are spread across the value chain in exchange for goods, services, intellectual property, assets and materiel during product realization and service delivery. As a part of company spend, direct costs must also be rationalized within financial tolerances and budgeting processes to reduce financial risk exposure.
In organizations both large and small, the procurement function is often the watchdog of company spend, particularly direct costs incurred in the value chain. However, more than 25% of all organizations do not have a program to manage enterprise spend, and nearly half of those that have such programs are not able to have clear visibility to all categories of enterprise spend. These situations can create confusion in the supply chain, where the organization can seem to have multiple decision-makers and points of view. In addition, confusion may exist internally and different parts of the organization can have different and even competing objectives in the face of finite working capital and assets.
Organizations often reduce the number of vendors by some arbitrary factor, nominally 10% to 20%, to “reduce the complexity” of their supply chain. A December, 2005 survey of purchasing managers conducted by the Institute of Supply Management illustrated this trend before any initiative to intelligently rationalize the supply chain was made. However with the advent of next generation spend analytic tools, these efforts can be more strategic and targeted, resulting in a normal distribution of adjustments that may even include adding suppliers in weak performing or “soft” areas of the value chain.
The SAP BusinessObjects Spend Performance Management solution is part of the overall Enterprise Performance Management (EPM) suite by SAP BusinessObjects. EPM is a field of management that combines the intent and direction of an organization with the business of operations in a way which can be predicted, monitored and guided. Regardless of an organization’s industry or position inside an industry segment, the sound practice of EPM to drive the agenda of a company or association falls under the “blocking and tackling” of management activities for executives, operations directors, and members of an organization management team.
A more holistic approach to operations management using the disciplines of EPM provides several competitive advantages to the organization and its executive team. Visibility increases dramatically across key performance areas of the organization, allowing for a proactive approach to management. For example, purchasing executives could decide to pursue various key performance indicators (KPIs) and supplier rationalization activities linked to other SAP BusinessObjects EPM solutions.
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