How To Do Spend Management The Right Way
Fact: running a business requires spending money. There are all types of expenses a company accrues, from start-up expenses to sourcing business assets to improvement costs, and while expenditures may vary depending on the type of business, monitoring these expenses is crucial to a company’s success.
That’s where spend management comes in.
What is spend management?
Spend management is a continuous process of controlling and improving the way a company spends money and typically includes strategic procurement activities such as supplier management, category management, inventory management, and product development.
Ideally, an effective expense management strategy includes a comprehensive spend analysis and helps companies maintain control of their purchases, optimizes supplier relationships, and maximizes the ROI of every dollar they spend.
While spend management is often executed by procurement, it impacts many internal and external stakeholders of a business who are also concerned with budgeting and planning future profitability.
Why is spend management important?
Investing in a spend management solution can mean the difference between a failing and thriving company. Spend management helps you pinpoint where exactly you’re losing money and where you can optimize spending habits, reduce risks, and streamline cash flow.
Many of us already have some sort of spend management in place with our personal finances. Take for example the average household – there are groceries to buy, bills to pay, kids to support – i.e. a lot of expenses. By frequently checking credit card statement and analyzing your household’s spend data, you can identify trends and keep track of how much and when money is going out. This allows you to budget accordingly and ensure that there are sufficient funds available at the correct times. Simply put, personal spend management allows you to live.
The same goes for companies. They need spend management to stay in business and improve an organization’s bottom line. Effective spend management will leverage real-time analytics and insights to drive better decisions, create value, and cut costs.
How spend management improves procurement
Because spend management helps control procurement-related costs, it makes sense that an efficient spend management solution improves the overall procurement process. Here are some benefits, from a purchasing standpoint, a company might realize by investing in a spend management strategy.
1. Better sourcing opportunities
By mapping out all the costs involved in the supply chain process, you can identify which suppliers are yielding the most value and which ones are not. Supply chain management becomes more efficient because you have a clearer picture of the vendors who are the most cost-effective.
2. Increased process efficiency
Spend management software eliminates manual processes that take up valuable time and money and optimizes procure-to-pay processes like strategic sourcing and contract management.
3. More spend visibility
Spend management systems provide accurate and timely data that lead to more insightful decisions around procurement. Spend analytics support forecasting efforts that reduce maverick spend and capitalize on savings opportunities.
4. Better risk management
An end-to-end spend management solution provides the means to assess the market, identify risk factors, and develop plans for navigating around them before they occur and well into the future.
The impact of bad spend management
Managing spend is no walk in the park, and poor spend management is often time-consuming and leads to low spend visibility, poor spend compliance, higher transaction costs, and disrupts the overall functionality of an organization.
The negative consequences of bad spend management are not limited to those within the procurement department. A company’s most critical stakeholders, from customers to suppliers to employees to shareholders, will see the downsides of a weak spend management strategy.
Tactics to improve your spend management process
If your finance team is struggling with spend management, there are steps you can take to manage and optimize company spend.
1. Identify expenses and company spending
The first step is to identify the sources of expenditure, which encompasses both direct and indirect spend. It involves collecting purchase orders, goods receipts, supplier invoices, and supplier payment data. There is no room for error here and it can be an extremely tedious task. That’s why investing in spend management software that records expenses digitally is a good idea.
2. Centralize expense data
Once you have all your expense sources, you must gather this information in a central database. Automation can help maintain records of spend or you can put all your expense data in a digital spreadsheet. Either way, make sure you assign this task to a responsible individual.
3. Verify data
The data that’s collected and stored must be cleansed. This entails steps such as removing duplicates, correcting any spelling mistakes, and ensuring that all spend data is recorded in a single currency. Cleansing and verifying your database validates that the data you’re using to make key company decisions is as accurate as possible.
4. Create spend categories
Expenses come in all shapes and forms. It’s necessary to create top-level spend categories that align with your company’s objectives. Examples could be advertising expenses, supplier contracts, employee salaries, and so on. Compartmentalizing helps with better understanding all the spend information you’ve gathered.
5. Analyze spend data
Now it’s time to conduct a detailed spend analysis that will give you real-time visibility into your company’s purchasing history, spending patterns, and will provide insight into supplier benchmarking and cost opportunities. This is also how you can quantify cost savings and differences in terms of percentages and aggregates/averages.
6. Define a strategy
Based on the data you’ve collected, streamlined, and analyzed, you can form a spend management strategy. This will most likely involve implementing changes that affect all stakeholders, so make sure they’re involved in the decision-making and implementation process.
7. Forecast and planning
When you obtain accurate and reliable data through a spend management platform, you can identify savings and cost reduction initiatives and estimate the impact it will have on your bottom line. Data forecasting helps you prepare for the future, improve supplier relationships, and provides the insights needed to adapt to changes in supply and demand.
Actionable insights with spend management software
Spend management is good, but intelligent spend management is better. How do you make sure your company’s spend management is intelligent? You employ a spend management software solution that is enabled by technologies that turn spend data into actionable insights.
Spend management software automates time-consuming tasks and allows you to manage budgets more accurately thanks to real-time visibility into cash flow. If you want the optimize the procurement process from source-to-pay, you need the right technology to tie it all together.
Streamline your spend management
As you’ve probably come to realize by now, implementing a spend management strategy, let alone an efficient one, takes work. Corcentric makes it easy with its end-to-end spend management solution.
Corcentric is the only provider capable of addressing spend management holistically. Our team of tech-enabled spend management experts support organizations in driving their business outcomes and making procurement a valued asset.
As a one-stop shop for spend management, Corcentric offers:
- Sourcing Expertise: spend analysis, category management, execution support and more
- Advisory Services: support in areas like technology selection and staffing and recruiting
- Technology: world-class solutions that free Finance and AP from the burden of paper-bound processes
- Managed Services: long-term, hands-on support to ensure supplier relationships remain valuable and processes stay efficient
Let us help you realize the power of a fully strategic Procurement function.