28/10/2010
NEW YORK—Companies struggling in the financial downturn can learn from one expert who began a laser-like focus on reining in spending years ago. Leslie Gath, senior director of global spend management for San Jose, Calif.-based Cisco Systems Inc., shared Cisco’s approach to leveraging analytics to guide executive decision-making, set performance goals and drive down costs at the Oct. 21 Transformational Cost Management conference, presented by The Conference Board.

A Little Background

Gath began working at Cisco 15 years ago when the company had only 500 employees. Today, Cisco has about 67,000 employees working in 300 locations in 70 countries. Cisco spends $16 billion annually in indirect goods and services, and of that figure, Gath said she has about $5 billion to $6 billion of “influenceable spend.”

In the past, Cisco had an indirect procurement system built to operate quickly, primarily focused on reactive support, and a siloed approach made business functions empowered to “buy” for themselves, she said. There were fragmented local organizations; local systems, tools, processes and relationships; and buyer and supplier fragmentation, not to mention technologies with limited integration, she said.

Cisco used benchmarking to give management a fact-based analysis against competitors and to provide a baseline for future improvements. Gath and her team used the Hackett Group’s definition of world-class spend management from the firm’s 2005 study “Defining World Class Sourcing” and found that Cisco wasn’t best in class when it came to spending.

Gath and her team then identified best practices and tools to effectively change spending habits over the portion of company budget within her purview. “It’s true, we definitely weren’t best in class,” Gath said. “But we’re getting there.”

Move to Centralized Spend Management

The first step was to move toward a centralized strategic spend management program, or an “end-to-end … system supporting analysis of spend, sourcing, contracting, procurement and supplier management,” according to Gath. The idea, she said, was “to accelerate speed-to-savings, hold gains, and capture data and knowledge needed to deliver sustained value to Cisco.”

Key components include:

• Visibility into enterprise-wide spend data.
• Identifying opportunities to create value within the spend management process.
• Standard, global processes for sourcing, contracting and supplier management.
• Driving compliance around contractual commitments and vendor management practices.
• Using consistent mechanisms to capture and share strategic spend management knowledge.
• Allowing business functions to be strategic in an empowered culture such as Cisco’s.
• Helping Cisco leverage its buying power as one voice vs. separate voices.

Cisco also studied spend management data from Aberdeen Group, which compiled information from more than 350 companies including Hewlett-Packard, BP, Chevron, USPS, Procter & Gamble, United Technologies, National City Bank, Tyco and Merck, Gath said.

Next Up: Cultural Challenges

Implementing strategic spend management wasn’t without cultural challenges, including integrating HR, marketing, legal, sales, facilities, IT, finance, Scientific Atlanta, manufacturing, and engineering, Gath said.

“This is nothing for the faint of heart in an empowered culture like Cisco’s,” Gath said.

To guide strategy, set and drive policy and procedure, support best practices and remove barriers to adoption, Gath collaborates with business functions by using a mix of executive sponsors—including the company’s COO and CFO—and finance sponsors, as well as a sourcing council that meets quarterly and sourcing ambassadors.

Savings Are Real

For the past three years, Gath and her team have compiled a growing list of metrics. They currently are tracking nearly 20 measurements, including percentage compliance to registration policy, percentage of spend data accuracy, percentage spend with top 20 percent of strategic and preferred suppliers, and dollar value each of identified, implemented and booked savings, she said.

For each new dollar of spend brought under management, “we can achieve a 5 to 20 percent cost savings,” Gath said. The company has made spend management “a core financial process,” and the program has paved the way for many finance career opportunities on Gath’s strategic sourcing team of about 50 employees. Gath said the program could reap a cumulative realized savings of more than $500 million by FY 2010.

Gath offered the following tips for strategic spend management success:

• Set strategy with baseline data and benchmarking.
• Governance structure and executive support are critical .
• Ongoing benchmarking ensures that your strategy is viable and that best-in-class status is attainable.
• Don’t forget that it’s a multi-year journey. “Stay the course,” Gath advised. “It’s a three- to five-year journey to see this thing to fruition.”

Pamela Babcock is a freelance writer based in the New York City area.