The Hindu Business Line : `Spend management spells big savings'

AS enterprises and Government agencies and departments strive to squeeze out their budgets to ensure better return on investments and save on overall costs, `Spend Management' is in the spotlight.Ravi Kumaraswami, Group Director, Ariba India, says, "Ariba and Freemarkets have partnered with many large Indian enterprises such as the Tata Group and Dabur. We are in parleys with several State Governments who are gradually moving towards this new trend." Excerpts from a chat with eWorld:

How is spend management applicable in Governments?

Spend management helps both enterprises and Governments to manage their purchasing functions efficiently and gain a competitive edge with improved bottom line results.

This helps enhance the sourcing and procurement strategy. Given the complex and diverse framework of the Government, managing spend and sustaining productivity becomes challenging vis-à-vis the private sector.

Unlike companies that can choose suppliers for any reason, the government has to level the playing field among competitors by awarding contracts to the lowest bidder meeting the specifications.

`Spend Management' plays a critical role in helping the Government or enterprise take faster purchasing decisions with greater visibility. It increases transparency within the system.

How does spend management help an organisation? Can one quantify its benefits?

Spend Management solutions help companies to combine their analysis, sourcing, contracting, procurement, and reconciliation processes into a single, cohesive system.

It can be backed with several success stories that reflect substantial bottom line savings and increase in revenues within enterprises and the Government.

According to industry estimates, South Asian economies can save between $3 and $10 billion through spend management.

They can reduce their fiscal deficits by 15-16 per cent, according to the International Association of e-Government Professional in participation with the US-ASEAN Business Council.

Based on this assessment, the savings across segments is big, given the large budgets for procurement.

A snapshot on how spend management could help slash costs shows that the range is wide. For instance, in general goods and consumables, the savings range between 5 and 25 per cent, services (10 and 30 per cent), motorised equipment (10 and 30 per cent), IT hardware and peripherals (15 and 30 per cent), food, clothing and healthcare (10 and 15 per cent) and office management (15 and 35 per cent).

Has spend management changed the way functions of Government are handled?

With Spend Management, governments globally have not only saved costs but also increased operational efficiency dramatically.

The savings it generates in the sourcing and procurement areas, in turn, helps the government to invest in other productive areas for improved and tangible returns.

For instance, UnionBanCal Corporation, a commercial bank holding company, with Union Bank of California, sought an innovative way to help employees procure goods and services more efficiently.

It designed MyStore, an eProcurement application that is available to all 8,700 employees at UBOC's 273 locations throughout California, Washington, Oregon, Texas, New York, and the Pacific Rim.

Another example is the Department of Public Instruction, Government of California.

With the use of effective Spend Management practices, the department was able to shorten the processing time for purchase orders and contracts.

This has not just cut down fax costs, paper and postage since most transactions are handled via e-mail but has led to a faster turnaround time with all catalogue purchase orders going directly from the requestor to the vendor once approved by the superior.

How does spend management help in good governance?

Governments, today, need to modernise systems and processes. Spend management marks an evolution in e-governance initiatives with the Government adopting a Government-to-Business (G2B) approach alongside focusing on citizen-led services.

Spend Management is a new approach to the traditional area of purchasing. It allows e-transaction between government agencies and private businesses and actually brings more accountability, transparency and fairness to all government business transactions. This is beyond just managing costs and more about driving good governance.

On Governments e-enabling their sourcing requirements...

In a typical large PSU and Government, procurement runs into hundreds of crores of rupees and complexity is inherent in the procurement process.

We believe there is a need for the Government to move beyond sourcing initiatives that are either project-led or specific to a particular material requirement. It would be critical for the Government to adopt a holistic approach and implement Spend Management as an integral part of its purchasing functions.

Will e-procurement become mainline for Government requirements?

The traditional bureaucratic paradigm in the Government is gradually moving towards a competitive, knowledge-based approach, such as flexibility, network organisation, innovative entrepreneurship, organisation learning, speed-up in service delivery and a customer-driven strategy.

Several initiatives have been undertaken by State Governments recently towards the adoption of e-procurement solutions. It is still at a nascent stage with citizen-led services being the primary focus area. However, it is likely to emerge as one of the most critical priorities for the Government.

How big is the market globally, and with specific reference to the Indian market?

Governments worldwide have realised that transformation comes not from moving services online, but from redesigning the processes to put the citizen at the centre and integrating services to simplify interaction, reduce costs and improve service.

At the next level of this infrastructure, the government is cutting down costs and creating inter-departmental transparencies.

According to industry estimates, Governments globally are aiming to manage 100 per cent of their procurement electronically and cut lead times by 50-60 per cent.

This holds great potential in the India Government scenario, given the need to have greater transparency, wider geographical reach and lesser time of transaction and better pricing.

A high-level assessment on the spending by an Indian State reveals that a typical State with spend of Rs 4,000 crore could save Rs 440 to Rs 520 crore.

vrishi@thehindu.co.in

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