What is Spend Management?
Spend management is the practice of managing all supplier relationships and company purchasing to identify money will spend and get the most out of it. Spend management best practices integrate and automate all spend-related activities from source to pay so that buying happens as planned and suppliers get paid in compliance with contracts.
By taking a big-picture view of spending, more addressable spend can be brought under management, driving more organizational value. The value is derived from:
Lower supply costs and risks – by knowing exactly what is being bought, from whom, and for how much
More effective collaboration – between trading partners and cross-functional teams
Improved productivity – by freeing time and resources to focus on more strategic activities
Processes digitized and consolidated
SAP Ariba Cloud based platform integrated with a digital business network consolidate the sourcing, contracting, and purchasing processes along with supplier management, invoices and payments processing. Spend Management makes it possible to analyze all spend data, gaining insight into company spending activities across the entire organization.
Turn Insights into action
Using Spend Management, you can insights into action in an interconnected end-to-r=end process.
· Sourcing makes possible stronger negotiating on better pricing with suppliers.
· Contracts are written in real time, and then stored in a centralized repository to facilitate visibility and compliance.
· Purchasing is controlled by guiding employees to buy from preferred suppliers on negotiated price.
· Supplier Lifecycle and Performance are managed with 360 degree view of reliable and up to date data.
· Multitier supplier visibility mitigates supplier risk and potential threats to operations, image, and revenue.
· Invoice capture, workflow and approval are automated to eliminate exceptions and ensure compliance with contracts and purchase order.
· Collaborating with supplier’s payment and managed to increase free cash flow, improve working and take advantage of early-payment discounts.
The future of Spend Management
Intelligent spend management is a requirement for a business. Business is capable to analyze and would be able keep watch on their spent.
Comprehensive supplier and policy management – Supporting all categories of spend, be there every time money is spent, regardless of the source of that spending, and capture that data
Best-in-class control of each spend category – Optimize indirect materials, direct materials, services, external labor, and travel and expense
A unified view of spending – Bring spend data together from across all sources and categories and understand total costs so you can work with colleagues to make smarter, faster spending decisions
OUTLINING THE SPEND MANAGEMENT PROCESS
STEP 1: IDENTIFY SOURCES OF EXPENDITURE
Sources of expenditure range across the procurement of goods and services. They include employee salaries, rent, utilities, licenses, advertising and marketing, insurance, training, etc. Sources of expenditure vary from business to business, depending on the nature of the business. Hence, spend management is an activity that every business must carry out uniquely.
Although identification of sources of expenditure is necessary, plotting and identifying an exhaustive list of expenditure sources is a challenge. To help overcome this challenge, either automation at source eradicating duplication or a team of department heads can is the solution. A bird’s-eye view into the spend infrastructure should help identify overlooked savings opportunities.
STEP 2: CENTRALIZE ALL EXPENDITURE DATA IN A REPOSITORY
Ideally, the accounts department is in charge of expenditure data repository. With the help of automation, they can capture and maintain records of spends. Mandating records for audit at regular intervals is always recommended.
While identifying sources of expenditure may have its challenges, centralizing the data into a repository is no mean feat. The data is sensitive and critical and hence cannot be accessible and visible to all. This makes it necessary for the organization to appoint a responsible individual who can categorize and process the data in chunks and have a unified view of the spending structure.
STEP 3: VERIFY AND CLEANSE DATA
Since expense data is analyzed, interpreted, and showcased to draw inferences and make decisions, it becomes imperative that such information is accurate. Validating transaction entries include tallying the data entries with receipts, inventory, communication, etc. Cleaning the data includes activities such as removing duplicates, errors, spelling mistakes, and such.
Since spend data may not always be accurate due to its manual processing, differences in formats, data fields, etc., standardization is necessary. To do so, establish a format for versatile domains such as currency, dates, etc.
STEP 4: CATEGORISE THE SPEND DATA
Spend data comprises various types of spends. These categories and classifications are created depending on an organization’s objectives and operations. It is necessary to keep in mind that the groups prepared by the authorities for this classification should cover all spend to bring them under one view.
Based on the information that one needs, you can categorize data is categorized in more than one way. For example, IT services may be classified as ‘Types of IT services’ or tagged by its ‘vendor name.’ Here, it becomes necessary for an organization to prioritize its needs, which requires the understanding of spend per vendor or spend per activity.
STEP 5: ANALYSE SPEND
Analyzing the collected, cleansed, and classified spend data will highlight recurring spend activities and other anomalies. It’ll help in calculating aggregates/averages, percentages, etc.
STEP 6: STRATEGIZE AND EXECUTE
Execute changes concluded and decided upon based on The project, if introduced from scratch, can be rolled out in phases and spend data can be collected and analyzed department-wise if not organization-wide to test and correct the procedure.
Change management is often challenging activity, and for it to be successful, it requires acceptance and participation of all stakeholders.
STEP 7: FORECAST TO FORESEE
Data collected can help you forecast events. With spend management, obtaining accurate and regular data is secure and effective. It enables you to track and identify trends in data to forecast spend scenarios and plan for the slacks and booms.
Data forecasting, as discussed above, depends on the accuracy of the data collected and the ability of the analyst. However, with e-procurement systems that use Artificial Intelligence (AI), categorizing and managing spend data has become a cake-walk
Spend management, in any organizational lifecycle, gains importance as soon as expenditures start growing exponentially. Until then, firms do not worry about late payments, percentage point discounts, or even vendor performance. The growth of expenses is proportionate to the importance of spend management. If you are in a tough spend management situation, have you considered optimizing your spend process? With the steps discussed, we assure you that it is possible to manage to spend before it goes out of hand.