Accounting Best Practices, Fifth Edition

3–48. Install a Low-Cost Spend Management System

Spend management systems look like a great way to save money. Using these systems, companies can analyze their expenditures in a number of ways—by commodity, supplier, business unit, and so on. They then summarize this information for centralized procurement negotiations with suppliers, thereby reducing costs. Spend management suppliers, such as Ariba, Emptoris, and Ketera Technologies, add contract management capabilities and even set up electronic supplier catalogs, so that users can conduct on-line ordering with a predefined set of suppliers. They also impose better controls over spending, since their systems require access passwords, approval cycles, contract compliance alerts, and supplier performance measurements.

The problem is that these systems are extremely expensive to install and maintain—costs start at $1 million and rapidly head north from there. So, what can a smaller business do to emulate a spend management system? Here are some suggestions:

• Identify unauthorized purchases with exception reports. The reason for centralizing procurement contracts is to negotiate lower prices in exchange for higher purchasing volumes, so anyone purchasing from an unauthorized supplier is reducing a company’s ability to reduce its costs. To identify these people, create a table of approved suppliers and match it against the vendor ledger for each period, yielding a report that lists how much was spent with various unauthorized suppliers. ...