There’s no secret to good purchasing: find out what you are buying, centralize procurement, and reduce the number of suppliers and of the different items you buy. Why then are so many companies unhappy with their efforts to improve the process?
According to many purchasing managers, the problem is that they don’t have the information they need to make appropriate changes. Thanks to enterprise-resource-planning (ERP) software, financial managers can track flows of money from one end of a company to the other. By contrast, purchasing executives historically haven’t been able to see who is buying what from whom. In recent years, however, a number of software vendors have begun to offer products that help get at the hard-to-reach corners of purchasing.
To study these issues, we not only examined the vendors and their software but also spoke to users.1 While few if any new technologies can ever provide a quick fix, this type of software, when paired with the right business changes, does help companies to understand their total purchasing outlays and to save money.
Two areas of purchasing have proved particularly resistant to improvement: spending analysis (getting a handle on everything a company purchases) and demand management...