Spend management is the practice of optimizing business expenditure through active management. We discuss the benefits, best practice and more in this new blog post.
What is spend management?
Spend management is a practice that involves managing and optimizing business expenditure across an organization. By managing spend effectively, companies can reduce costs, increase the efficiency of procurement processes and improve collaboration, both internally and with external suppliers.
While different businesses will incur different types of spend, common spend areas include goods and services needed to manufacture products and indirect expenditure related to items consumed within the business, such as IT, office supplies, utilities and maintenance costs. Business expenditure may also include costs relating to service providers, contractors and business travel.
For large organizations, managing spend effectively can be a major challenge. Many companies lack visibility over their sources of expenditure or struggle with inaccurate spend data, which can make it difficult to make effective decisions about purchases.
Benefits of spend management
Companies that focus on improving their spend management can take steps to address the above issues, as well as achieving various benefits. With a clear picture of expenditures across the business, companies may be able to:
- Avoid unnecessary expenditures
- Gain centralized control over spend
- Negotiate volume discounts or favorable terms with key suppliers
- Make better-informed strategic decisions about expenditures and supplier relationships
- Reduce maverick spend
- Improve the accuracy of financial forecasting
In addition, effective spend management can enable companies to reduce duplication of effort by employees who may be taking time to research and purchase goods independently, thereby improving staff productivity.
Spend management best practice
Of course, companies will need to adopt best practice and suitable processes. These should include identifying the types of expenditure carried out by different parts of the organization and gathering the relevant data into a repository. Spend data can then be validated, cleansed and categorized into different types of spend.
By analyzing spend data, the company will be able to pinpoint purchasing patterns and identify any anomalies, before deciding which actions should be taken in order to optimize spend across the organization.
Analysis can also be used to benchmark supplier performance, while insights can be harnessed during future negotiations with suppliers, for example when seeking to obtain bulk purchasing discounts. Based on their spend analysis, companies may also take actions such as consolidating their supplier base in order to reduce supply chain complexity and develop key relationships.
As enterprise spend management is a process that encompasses different areas of a business – such as procurement and finance – effective spend management requires collaboration and cooperation. Other ingredients of successful spend management include gaining buy-in from senior leadership, educating people on process changes and taking advantage of best-in-class spend management tools and technology.
Spend management solutions
Having the right systems in place is an important aspect of spend management. A robust spend management solution can improve decision making, support compliance and free up staff from time-consuming activities.
Different spend management systems are available which focus on areas such as sourcing, procurement, contract management and expenses management and can connect seamlessly to each other. As a result, companies can use different best-of-breed solutions in combination and thereby access the best functionalities from different specialists.
Spend management solution vendors are increasingly leveraging new technology to help companies manage spend more effectively. By harnessing developments such as robotic process automation (RPA), artificial intelligence and APIs, spend management solutions can provide numerous benefits, such as:
- Providing a single view of expenditure across the organization
- Enforcing compliance with company policy on different types of spend
- Supporting supplier management and monitoring the output of individual suppliers
- Enabling more effective decision making.
In conclusion, companies often face challenges when it comes to managing expenditures effectively. By adopting best practices, and by taking advantage of innovative and robust spend management solutions, companies can gain more visibility over their spend, manage costs more effectively, and make better-informed decisions.
Taulia’s commitment to helping companies liberate cash, optimize procurement processes and support their supply chains was recently highlighted by its inclusion in the Spend Matters ’50 Procurement Providers to Know’ list for 2020.