Spend Management Best Practices
Spend management can help procurement teams reduce costs, drive growth, and improve the business’ profit margin. Spend management involves overseeing supplier relationships to build long-term value, as well as tracking the procurement budget to make sure each dollar spent is used for maximum value.
However, many companies fall short when it comes to spend management. Too often, companies treat spend management as an isolated practice. Instead, spend management needs to be incorporated into every facet of the business: budgeting, sourcing, contract management, order requisition, inventory management, and even product development so that your business has the items they need when they need them.
Here are some best practices to help procurement teams adopt a holistic spend management approach and extract the most value possible from this important function.
Integrate spend management tools
Spend management tools, when integrated properly, can help businesses manage their tail spend and cut overall annual expenditures by 5% to 10%. Spend management software is any tool that helps manage, track and analyze an organization’s expenses—everything from paperclips to large real estate purchases and beyond.
Comprehensive management of spend starts with integrating spend management tools with other software used throughout the organization —including enterprise resource planning (ERP) software and its financial and invoicing systems.
ERP software integrates all of the processes needed to run a company; integrating procurement systems with an ERP can help an organization decrease time to market, use resources efficiently, and leverage data to find critical insights.
Find areas to automate spend management
The best spend management tools offer automation features to help make procurement team’s job easy. Without automation, the procurement team is simply making more work for themselves.
Automation tools allow procurement teams to get more spend under management and the most out of every dollar spent. Automation and integration can be applied to the source to pay process and beyond. Platforms like Fairmarkit can automate entire sourcing events, including supplier identification, bid invitations, and response scoring. Automation leads to decreased source-to-award cycle time, increased buyer satisfaction, and improved operational efficiency.
Moreover, purchasing workflow automation makes it easier for everyone in the company to stay compliant with their purchases. Automated reconciliation makes reporting and analysis easier and more accurate.
Centralize spending data
Spend management tools can consolidate your spending data to help procurement teams extract key insights. Bringing spending activities into one centralized platform immediately surfaces areas for optimization.
Univision, for instance, uses Fairmarkit’s SaaS platform to streamline and simplify their processes. Fairmarkit optimized visibility into and control of tail spend processes, enabling the multimedia organization to realize cost savings of 6% on all spend pushed through the platform.
With spend management software, procurement teams can centralize bids from vendors to see who offers the best value. Once agreements are signed, supplier performance is managed with a 360-degree view of real-time data. Performance issues are easily pinpointed and resolved. Records and documents are kept in one central place to ensure easy compliance. And, perhaps most importantly, the right software can help you eliminate unnecessary purchases, catch duplicate invoices, and avoid late fees.
Don’t stop at software
Spend management is as much a mindset as it is a set of tools and platforms. Educating others in your organization about spend management can help cut down on tail spend and rogue spend.
Often, managing the impact of tail spend starts with educating employees about the procurement software you have in place. When a manager needs an item, and can’t find it in the procurement system — or want to avoid a lengthy approvals process — they will go off-book and contribute to maverick spend.
Yet, when provided with training in the system and an understanding of the problems that rogue spend causes for their company, these mavericks quickly become part of the solution.
Make sure that all parts of the company become familiar with the centralized platform and automation tools you’re using to make procurement an integrated function. Set forth clear processes that users can follow — including a separate ‘special’ process for emergency procurement needs. By offering a way for purchasers to quickly escalate their requests, procurement can keep the spend visible and better plan for the future.
Plan your spend ahead of time
Spend management best practice entails planning your spend throughout the year. Involve members from every department in your spend management planning: This big-picture view of an organization’s spending leads better efficiency, lower costs and risk, more effective collaboration between departments, and overall improved productivity.
Spend management and budget management best practices intersect frequently. Budget management is the process of managing the revenue and expenses of a company or internal department over a specified, future period. Procurement plays an integral role in budget management, enabling companies to find cost savings and improve profit margins.
Spend management also benefits from budget management best practices. Budget management can help spend management leaders prioritize where to focus on making improvements; Fairmarkit breaks down spend data by category and highlights strategic versus tactical sourcing opportunities, as well as supplier performance. This helps procurement and finance teams cut down on expensive tail spending and optimize resources, ultimately driving better financial performance.
To learn more about spend management, check out our blog, The Source.