Leveraging Software to Rein in Costs

Companies should implement software that can manage, track and report on the various stages of production

Dale Schmidt
Dale Schmidt

These days, cost management is easier and more efficient than ever with the development of an array of software products that can track and manage virtually every aspect of procurement and back-end operations. Using these solutions, companies can see how every dollar is spent and find the best places to tighten up, essentially helping these products pay for themselves several times over. To ensure you can see a return on your investment, market research firm IBISWorld analyzed the pricing trends in the top categories of software that companies can use to manage outlays, including expense management software, procurement software, supply chain management software, inventory management software and contract management software.

Expense Management Software

When it comes to tracking and cutting spending, expense management software is king. In addition, this software helps streamline processes, and save time by automating payment requests, expense reports and time sheets. Compared to traditional expense management services, leveraging software enables improved transparency and expense reporting, which shows buyers where spending needs tightening and even helps prevent overruns from the outset. Expense management software must be customized for and integrated into a buyer’s financial system, though, so costs associated with the intensive time and labor required should be evaluated.

The market for expense management software displays a high level of year-to-year stability. According to IBISWorld, the average price fell at an annualized rate of 0.2 percent in the three years up to 2015 and is expected to continue at the same rate in the three years up to 2018. These trends are largely due to vendors’ stable supply chains and financial health. Fortunately for buyers, market leaders have yet to emerge, so a large number of vendors are competing against one another for market share. To stay competitive, vendors must deliver higher quality at a lower price than their competitors, a situation that significantly benefits buyers.

Procurement Software

Procurement software is designed to assist procurement professionals in most aspects of their job. One of its prime uses is to automate repetitive tasks, such as request-for-proposal drafting, bid organization, vendor follow-up and more. Automation of the procurement process saves time and frees up procurement professionals to work on more strategic projects. Using procurement software helps companies secure better deals from higher quality vendors and avoid problematic deals by organizing and managing vendor selection.

Buyers require extensive customization of their procurement software and software vendors offer a variety of customization options. Due to vast differences in the offerings, buyers may struggle to accurately compare competing offers against one another, which slightly hampers buying power. But they retain some leverage from the recent introduction of free procurement software. Free options have significantly fewer features than their paid competition, but they still provide buyers a substitute to leverage in negotiations.

Supply Chain Management Software

Companies use supply chain management software to oversee their entire production process. This software operates at a higher level than the other software products discussed and often overlaps with them in functionality. Similar to procurement software, supply chain management software includes purchase order generation and supplier management functionality, but it also includes inventory management, warehouse management and demand processing functionality. This comprehensive solution helps users align their production processes to best meet customer demand while preventing costly overruns.

Open-source software, which is software with source code released to the public for free or nominal cost, made major inroads into the supply chain management software market. As open-source software continues to mature, buyers can increasingly use it as leverage in negotiations. Largely due to the prevalence of open-source offerings, IBISWorld forecasts that the average price of supply chain management software will fall at an annualized rate of 1.2 percent during the next three years. However, large buyers with complex supply chains will most often be best served by the handful of large vendors that dominate the enterprise market.

Inventory Management Software

Inventory management software offers more focused and sophisticated tracking of product and input inventory than supply chain management software. Companies lose money when holding too much inventory due to lost revenue and storage costs. Companies can also miss out on revenue when holding too little inventory, because they are not able to meet demand and bring in the associated revenue while supply is being refreshed. In addition to minimizing supply surpluses or shortages, inventory management software can help reduce costs by preventing shortages of parts. It can be programmed to automatically reorder a part when replacement supplies reach a specified threshold and track thousands of different parts so nothing goes unnoticed.

Buyers of inventory management software have few purchasing options due to the lack of effective substitute goods, and the large market shares commanded by IBM, Microsoft and Oracle. These companies’ market position and high brand recognition allow them to sidestep price competition, which ultimately hurts buyers. Fortunately, new vendors are coming to the market, a trend that will give buyers more options and help push prices down in the next three years.

Contract Management Software

It is not uncommon for companies to enter into a complex web of contracts with their suppliers, customers and other business partners. Contract management software can help author, store, organize and analyze these various contracts. It helps companies cut costs by preventing contract overlaps, overruns and penalties, as well as more quickly and effectively realize revenue from contracts with their buyers.

Contract management software requires little to no customization, allowing buyers to easily compare competing products because there are few hidden costs. The market is also highly fragmented with no vendor dominating the market. As a result, competition among the market’s 400 vendors is high, granting buyers substantial leverage in negotiations. Although IBISWorld says prices are expected to rise slowly during the next three years, it is at a modest annualized rate of 0.7 percent, affording buyers some time to make a decision.

Software Results in Better Insight, Tracking and Cost Savings

These software products provide a great deal of insight into a company’s operations, tracking and reporting on activity from the initial customer order through the final delivery of product or service. Oversight and tracking do not cut costs on their own; however, they are tools a company can use to determine where cost overruns occur and where efficiencies can be gained. Further, once policies, processes or suppliers are altered to realize cost savings, these software products can help ensure that these changes stay in place.

Companies looking to improve the efficiency of their operations should, therefore, look to implement software that can manage, track and report on the various stages of production. By leveraging the knowledge of the trends discussed above, companies can negotiate fair deals and maximize the return on their investment in this software.

Dale Schmidt is a lead procurement research analyst at IBISWorld, which specializes in market research that encompasses price trends, major suppliers, supply chain risks and more. Schmidt holds a degree in economics from Northwestern University. The research featured in this article can be found at http://www.ibisworld.com/procurement.

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