A chief procurement officer looking to maximize the organization’s cost reduction needs to ask a pointed question: How much do employees company-wide spend on T&E (travel and entertainment) and other internal expenses, and how much can be trimmed?
One speaker at this week’s Ninth Annual Chief Procurement Officer Summit, presented in Boston by Aberdeen Group, did just that. Now his procurement team is on track to cut non-personnel expenses by $5 billion over four years.
The speaker, Richard Porcaro, is executive director and head of procurement at UBS, the global Swiss bank that employs tens of thousands. Porcaro said the company was given a mandate by senior management to reduce expenses by 4 billion Swiss francs (around $4.4 billion) from 2012 to 2015. To achieve this, his group developed software called myCost, which includes an off-the-shelf enterprise resource planning system module and an analytical module, along with proprietary algorithms to highlight and direct data.
“We wanted transparency in individual employee expenses,” he said. The software lets managers and department heads see their costs and those of everyone reporting to them. “At the end of the day, reporting let us slay the T&E beast.”
The goal is not to put employees on the spot regarding expenses. Porcaro acknowledged that some T&Es have raised questions, though nothing has merited an audit — at least not yet.
Among the features of myCost is the ability to set spending thresholds. When exceeded, the system at UBS alerts the employee and, presumably, the employee’s manager.
The UBS procurement team added revenue data to expense results from divisional, organizational, and branch levels. What this means, Porcaro explained, is that T&E expenses can be compared to revenue levels.
“A high T&E should equate to a spike in revenue” for an operating center, he noted. If, on the other hand, “a number of branches are bringing in approximately the same revenue, why are some spending more on T&E?”
UBS’s software also lists “spend revelations,” aggregate expenses that raise questions.
One situation that Porcaro and his team discovered was that market data expenses were unusually high in the banking company’s IT departments. Market data refers to licenses used by personnel to import data that are necessary to the firm’s operations. All of these downloads were sold as full licenses when the departments mostly needed partial licenses.
By switching expenditures to partial licenses, spending was reduced by 75 percent, Porcaro noted.
The myCost software evolved into a common, unified source of reporting for UBS on both regional and global scales and across all of its business units, Porcaro said. Nevertheless, it took time for stakeholders to align themselves with the system and its goals. Once the system was accepted, though, Porcaro said employees and managers routinely access it to track expenses and see where their departments stand in meeting spending goals.
The global size and spend of UBS, of course, mean cost reductions will be significant. But the lesson from Porcaro’s presentation is that most companies can develop, on their own, similar and relatively low-cost software that permits them to track expenditures and achieve transparency and savings in non-conventional spend areas.