Spend management is administering how to use your money effectively to get products and services. It involves procurement, e-procurement, outsourcing and supply management. ERP is Enterprise resource planning it is software that manages business process management through technology. This software is responsible for services such as human resources, technology, and services. Therefore spend management relies mostly on human logic while ERP relies heavily on automated computer technology.
Spend management is often termed as spend analysis. Although the latter is an integral part of the former that involves classifying, collecting, analyzing expenditure and data in addition to cleansing data, it is done for the purposes of reducing procurement. In retrospect, ERP involves product and production planning, materials management, inventory, sales and marketing, finance, manufacturing and payment and shipping which are mediated by software in real time. In addition to this, the software also manages communication with clients and stakeholders. The ERP software also manages issues such as invoices, orders, payroll and business commitments. In essence, ERP allows indirect spending by companies while the alternative ideally wants to control this unwarranted spending.
The ERP system was integrated into most businesses in the 90’s. Although it has provided a booming business for the vendors who sell it, it has gradually been providing a leeway for unnecessary resources and products that most companies don’t necessarily need. In order to boost their sales, the ERP dealers have succeeded in trying to persuade their customers in purchasing products such as basic services and office supplies by subtly trying to integrate them into the software system.
In view of this many companies don’t often know what is happening to their finances due to the indirect spending of the ERP system. In order to manage their companies well, most organizations want to carry out the critical spend analysis system. However, the two systems can never go hand in hand.
Reasons why spend management and ERP cannot collaborate:
1. The need for constant upgrading:
When you acquire software for any system you must be prepared to upgrade it as it evolves. This is exactly the case with an ERP. The software has constantly evolved since the early 90’s when it was introduced.Therefore, as a business owner when you purchase the ERP software you must be prepared to upgrade it as the need arises if you want it to run efficiently.
However, as we all know to upgrade the software will always add additional costs to the business. Therefore, in addition to the indirect spending that the software allows, you will have to put up with the additional cost of constantly upgrading it. Although spend analysis techniques, also evolve constantly it is much cheaper to acquire and earn them rather than the cumbersome process of constantly upgrading software. ERP Is now moving at such a fast rate such that in the future your smartphone or computer will be able to pick something you would like online, order for you and even purchase it even without your knowledge. This is clearly the indirect spending that spends analysis will never allow.
The SaaS, are business tools that cater for technology innovation. These business tools are being constantly upgraded to compete with the evolving business market. SaaS solutions don’t conform to the ERP solutions of complete automation of the business process.Therefore, spend management is essentially better in strategic planning. Although the process integrates some elements of ERP it is not so restricting because it is controlled by logic. This means that business will make better spending choices.
2. ERP Restricts economic spending
ERP is automated. Thus it does not consider the logical spending and procurement sequence that spend management is likely to look into before purchasing any materials or resources. Spend management incorporates elements such as Custom Relationship Management or CRM and Human Capital Management or HCM.
This ensures that there is a sequential and necessary order of buying and spending in any business. However, ERP doesn’t specifically look into these elements as it looks into the area of best practices. Therefore, if a business needs to purchase wood for shade, ERP will not look into some specific needs of this business or how the shade will be utilized. It only considers a customized solution to the purchase of materials and building the shade.
On the other hand, spend management will look into the sequential and timely purchase of the materials plus the size of the materials and how they will be utilized. Eventually, this will be instrumental in managing the flow of the raw materials and how they will be utilized. This will effectively cut back on spending especially if the building department decides to take another route in completing the shade to allow you to utilize the budget that you may want to cut back to cater for a smaller shade.
Therefore ERP may lead you to purchase a large haul of materials which you may not necessarily need. This promotes overspending and wastage of materials.
3. Restricts employee participation:
The ERP software dictates that qualified professional experts operate it. The software makes it hard for unqualified staff to operate it. This means that in some companies such as manufacturing industries, a large number of the workforce will be cut off of operating the crucial software. Considering that it virtually operates and manages all systems of the company, it will be very unfair to cut off a large part of the workforce.
This means that the qualified personnel may not necessarily know what the welder or carpenter on the ground needs. The expert might have a rough idea of what is needed through the inventory but the intricate details of the tools should be left to the affected worker. Therefore if the professional is left to purchase or order the necessary materials needed, the ERP will take over.
This will most likely lead to overspending or lack of some important oversight in terms of logistics in the company.Indirect buying and overspending are likely to be rampant in this scenario because the expert doesn’t necessarily know the flow of materials in some departments. Therefore, in order for companies to proceed to the future, there is a need for spend management to take over although some beneficial ERP elements will need to be needed.
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