What is Spend Management? Why and How it is Implemented?

What is Spend Management? Why and How it is Implemented?

Spend management means managing organization expenditure through processes starting Demand Identification and Spend Analysis to Sourcing and Order Management, for both direct and indirect spend categories. A robust Spend Management includes the use of best-in-class technology and methodologies enabling organizations to optimize the cost, quality, and performance of revenue and profits.

When you are running a business, whether it is operating on a small scale or a large scale, there would be numerous sorts of expenses that it has to go through and measure on the daily level, monthly level, quarterly level, and per year basis. There are three more types of spendings that a business has to bear including start-up expenses, business assets, and improvement spending. The start-up cost is spent only once or just when something new is required to be introduced. Next is the asset cost, these spending or expenses can be related to the cost for which the equipment and the place are bought such as computers, furniture, property, equipment, vehicles, etc. Then we have improvement spending. These spendings are continuously required in business. Now, management of all the aforesaid spending is known as Spend Management.

An effective management process assists businesses to bolster control of their purchases. It maximizes the ROI of every buck spent and optimizes supplier connections.

Planning, budgeting, requisition processing, sourcing, and contract management are essential elements of definitive spend management. Besides procurement, spend management is also concerned with external and internal stakeholders who are accountable for plotting and budgeting future profitability.

Spend Management

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Why is Spend Management Important?

Spend management is the process of collecting, categorizing, and analyzing the expenditure of capital by the company, for production and procurement.  It is primarily used to control and potentially decrease the expenses where they are not needed and to increase the efficiency of allocating capital to generate higher revenues with lower functioning costs. It simplifies compliance with the regulations and especially mitigates the financial and economic risks with a strategic and sophisticated system of expenditure.

Business “spend management” allows business owners, employees, and stakeholders to thoroughly understand the movement of capital throughout the system and helps keep track effectively. It encourages them to make data-driven decisions that take the company to new heights. Below are the top reasons that suggest why spend management is crucial:

Spend management is very important because if you don’t know what, when, where, and how your money is going to be utilized then how you will be able to make the right business decisions. In order to keep a record of the cost and spending and understand which resource is bringing more profits, spend management is necessary. It is just like making a budget for a home. At the start of every month, a household head makes a budget in which spending and savings for the full month are addressed. The same is the case with business spend management however their scale is larger.

Provides Accurate Financial Data:

The spend management software is capable enough to compile and organize a business’s spending data by working on it in real-time. A spend management software serves as a single platform where all the data is centralized. Companies can amass spend analysis and get the information they require to observe how the money is being spent across the company.

Read More:- What is Procure to Pay – A Guide to Procure-to-Pay (P2P) Process

Improve Risk Management and Internal Controls:

Typically, unforeseen mishaps with dealers and unapproved purchases may seem a minor loss to a company. But such issues, if continued, can even cause a company to languish in profits. But when businesses make the use of the right spend management software, it helps them to:

  1. Assure that purchase approval always transpires before the expense transpires, not after.
  2. Ensure abidance with external audit requirements and internal control policies.
    Stop unnecessary spending before it gets too late.
  3. Identify every potential risk involved with suppliers.
  4. Keep track of the performance of every vendor.
  5. Catch defrauding invoices before they are paid.

Promote Lower Spends and Improved Profits:

Business spend  management helps enterprises to:

  1. Reach duplicate invoices.
  2. Recognize price arbitrages.
  3. Get rid of unnecessary purchases.
  4. Prevent delayed fees.
  5. Optimize working capital.
  6. Retain lower prices by augmenting supplier relationships.
  7. Reduce expenses by canceling undesirable contract renewals.
  8. Intervene lower prices and volume rebates.

Provide Knowledge to Drive Business Decisions:

The spreadsheets used by the finance team are not always helpful in performing real-time, detailed, and valuable spend analysis. But spend management software provides the level of functionality and detail that department leaders and executives require to:

  1. Specify and influence trends in spending data.
  2. Effectively dispense savings to scale up the business.
  3. Project spend scenarios.
    Boost profits by finding out the untapped cost savings.
  4. Benchmark performance.

Improve Operational Efficiency:

Spend management saves a lot of time. For procurement teams and finance, automation and better workflows can eliminate duplicate purchase and payment requests, prevent late fees and payments, and secure lower cycle times. In addition, it provides comprehensive spend visibility around the entire procure-to-pay orbit.

Transparent spend systems and straightforward spend policies that also work on smartphones curtail the bottlenecks. They make it easier for teams and employees to request and obtain approval for purchases even while people are operating remotely or on the go.

How to Implement Spend Management?

It is inefficient and time-consuming to implement procurement strategies by using manual processes. There is more chance of inefficiencies and errors when business spend management is carried out manually.

That is why most companies are now switching to spend management software to achieve greater efficiency. They simplify and streamline their spend management method by digitizing spend analytics, spend tail, procurement and sourcing. Here are five ways to implement a compelling spend management strategy:

1. Clarify Business Needs:

Category Spend Analysis

Before initiating business spend management, it is imperative to discern where the company stands and what are the expected business achievements and aspirations. The following questions need to be addressed:

  • What is the medium of carrying out processes? Whether it is paper-based or manual?
  • Are there any requirements for integration capabilities?
  • Are existing systems effective? Will new solutions and technology upgrades (for example, esourcing) serve the business better?
  • Is the team functioning at an optimum level?
  • What support can be provided to the faculty to help them operate efficiently? And will this empower them to make responsible and receptive spending decisions?

By finding answers to these queries, any business owner will be able to establish and implement a business spend management strategy effectively.

2. Digitize Processes

As soon as a business is ready for hailing changes, its success begins with improved process efficiency, risk management, and cost savings will be improved.
It is compulsory to enter data continuously to accomplish accurate procurement. These tasks are time-consuming and redundant, so when performed manually provoke vulnerability to human error. When processes are paper-based and manual, there is no room for effective oversight. Such systems not only foster accountability but also put the business at risk of overspending, maverick purchasing, and fraud.
But when a company digitizes its procedures and gains the dexterity and mobility of cloud technology, immediate advantages extensively strengthen its spend management strategy. Choosing the right business solution is critical to implementing an expense management policy.

Follow these steps to digitize processes:

  1. Work with a spend management software that can handle all three types of expenses: hand-written, printed, and online. For instance, online receipts and payments should be downloaded and integrated through a simple interface with little to no manual effort.
  2. Set the business and approval process rules based on amount or dates, expense type, and other requirements. The structure should be flexible enough to be automated wherever possible. It should be accessible on desktop, mobile, and in-app.

3. Analyze Spend

Spend Analysis Approach

The insight into how a business spends is the only route to interpret the exemplary array of activities for a spend management procedure.
Business spend management starts by attaining prescient control of supplier management, purchasing, expense reporting processes, and AP workflows. Analyzing spending data and businesses’ wide-purchasing insights becomes rapid and less time-consuming when a single digitized outlet automates the processes. 
There are more chances of success in such management with the understanding of spending behavior to acquaint companies’ findings. Relying on spreadsheets to access and analyze information is unquestionably a flaw. It increases the chance of making ill-informed decisions which can be expensive in the long term. Here human errors impede skewing the data and manipulating the investment of time and resources from all standpoints. And primarily for a rapidly thriving business, this process is simply not sustainable or scalable.
It is imperative to do and spend analysis of budget, financial period, supplier, employee, and transaction effectively for building a robust spending management strategy. Such spend analytics improve budgeting, forecasting, and reveal saving opportunities. They also highlight spending control, spending patterns, and areas needing more scrutiny.

4. Evaluate Supplier Database

Supplier Diversity Spend

Accommodate regular efforts to evaluate supplier base. The remarkable reporting capabilities and solution-driven spend analytics streamline and simplify occasional supplier audits.
A business should how many suppliers the business purchases from, how much is the compliance rate, and how much money is disbursed if the contracts are in place. Early payments or payments on time improve supplier relationships, leading a company to reduced pricing, discounted rates, and even more favorable payment terms.

To strengthen the supplier base, analyzing supplier data is crucial. It may incorporate:

  1. Directing spending to preferred suppliers.
  2. Pivoting and tracking according to supplier assortment initiatives
  3. Identifying leading performers and
  4. Planning accordingly to mitigate supply risks

5. Establish Policies and Allow Collaboration

A business may find procurement complex and sometimes problematic. It needs persistence, policy compliance, strategic focus, and affiliation. It is noteworthy to assure all the departments, companies, and stakeholders are on board and in sync. 

Obstacles and resistance in attaining effective results will transpire between the finance department and procurement in case the data is missing. It also occurs when there is a lack of understanding and vision about the operational needs of teams and purchasing policies of an enterprise.

For a helpful business spend management strategy, find the ways by which you can achieve cohesion with the team and sync with the key departments.

Relying on effective tools for subordination, organization, and dissemination of procurement strategies is integral for revenue generation and therefore, is observed.

But procurement is often overlooked because of its procedures and protocols. But implementation of a framework that guides spending behavior without requiring human intervention changes all the perceptions about procurement.

When you automate strategy by deploying spend management solutions, it sets in action by workflows with approval hierarchies, policy controls, configured rules, thresholds, and budget checks. Visibility at every stage in the marketing cycle through audit trails ensures audibility and accountability.

Final Thoughts

So, all the details about spend management show the value and the crucial impact of using such a technique on a business. Choosing a spend management system or setting it up must not be difficult or confusing. Simfoni provides you with the best spend management system at optimum rates to help your business achieve new heights. 

Contact us today to know more about how Simfoni’s technology and processes can help your organization achieve world-class Spend AnalyticsSavings Tracking & Tail Spend Management Solutions.

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