Spend Management

What is Spend Management?

Organizations spend money on different things. Expenses are incurred across all departments, ranging from capital expenditure to revenue expenses. While the exact nature of expenditure generally varies depending upon the kind of business, it’s important for companies to monitor spend to set itself up for success.

What is Spend Management?

Spend management is the continuous process of collecting, controlling, managing, maintaining, and classifying an organization’s spend data, with the ultimate goal of improving procurement efficiency, reducing procurement costs, and streamlining workflows while maintaining compliance. 

A robust spend management strategy often requires companies to conduct a thorough spend analysis to better understand procurement spend and determine areas that require improvement. Procurement departments are responsible for spend management, though several other internal and external stakeholders also play a role in this process. 

The Importance of Spend Management

Companies that do not focus on spend management often end up suffering losses. They are unable to figure out exactly where they’re losing money, which ultimately means greater spending and higher inefficiencies in the process. Spend management helps companies improve their bottom line, while creating value and cutting costs. 

This value often comes from automating manual and error-prone business processes, which boosts efficiency. With spend management, companies know exactly what they’re buying, who they’re buying from, and how much they’re paying. This also improves cross-functional collaboration between different teams, and also significantly improves productivity as a whole, freeing up resources and time that can be spent on more business-critical activities. 

It’s important to understand that a valuable spend management engagement is not possible without conducting a detailed spend analysis. Spend management takes a more holistic view of organizational spend, with the focus on creating a roadmap that maximizes efficiency and savings for a company. 

This involves assessing the company’s current state, reviewing the mission statement or objectives for the future, checking KPIs, timelines, and any other metrics as deemed necessary. 

The Benefits of Spend Management for Procurement Departments

Spend management significantly improves the procurement process, resulting in major benefits that justify a company’s investment into building a strong spend management engagement.

Better Visibility into Spend

Deploying a comprehensive spend management system allows organizations to make better decisions as they offer greater visibility into overall spend. The analytical data also improves forecasting accuracy, helping businesses clamp down on maverick spending and maximizing savings.

Improved Sourcing

Spend management requires companies to map out all associated costs in their supply chain. This helps them identify vendors that offer greater value as well as those which are costly. With better insights into vendor performance, companies can make improved sourcing decisions.

Risk Mitigation

A comprehensive spend management strategy allows businesses to identify major risk factors and plan for them in advance. This helps mitigate procurement risks and prevents them from affecting business performance.

Better, More Efficient Procurement Performance

Spend management solutions allow businesses to automate key processes in the procurement department that take up more time and are repetitive in nature. This helps shore up the procure-to-pay process and improves the performance of the procurement function as a whole. 

How to Improve Your Spend Management Strategy

If your business already has a spend management strategy in place, it’s important to take steps to optimize and improve it. Here are a few tips that’ll help.

  1. Identify Sources of Major Expenses

The first step is to identify sources of major expenses that impact company spending. This could be data from GRNs, purchase orders, invoices, or information extracted from supplier payment records. Indirect procurement spend must also be identified. Using a spend management solution to automate this process is generally the best option. 

  1. Group Data in a Central Database

With automation solutions, organizations can gather this data into a centralized database, creating a single source of truth for all such information. This also makes it easy to maintain records and a comprehensive audit trail for businesses.

  1. Cleanse Data

The input data needs to be independently verified and cleansed accurately. It is critically important that all input data is accurate, which is generally possible with matching. Once accuracy is assured, the next step is to cleanse the data by removing any instances of duplication, resolving errors, such as spelling issues, and carrying out currency translations. 

  1. Classify Spend Data

Once you have the clean data at your disposal, the next step is to classify it into different categories. You can create multiple categories and then classify transactions into each. This will help procurement professionals see available information through multiple angles. 

  1. Analyze Data

Finally, it’s time to execute your spend management strategy. This involves reviewing spending patterns and checking any trends to determine key points for cost savings or for highlighting inefficiencies in the procurement process. With this information, you can rework your spend management strategy accordingly before putting it into action.

  1. Create Forecasts

Your spend management strategy will allow you to make more accurate forecasts. Modern eProcurement systems leverage the power of advanced technologies like machine learning and AI to identify key trends and help analysts better forecast and plan for upcoming events, such as major fluctuations in the demand or supply of goods.

Use SoftCo eProcurement to Gain Maximum Visibility into Organizational Spend

SoftCo eProcurement is a comprehensive solution for helping businesses create a robust spend management strategy. It provides an array of intuitive analytics in real-time to finance leaders, allowing CFOs to create custom dashboards and review key spend metrics. 

Reviewing information on these dashboards allows finance leaders to identify new strategies to cut down on expenditure, mitigate risk, and maximize vendor performance. All of this translates into a higher ROI for organizations and increased procurement efficiency.