Spend management is an umbrella term used to encompass a set of procurement and sourcing practices to maximize value from a company’s spend while mitigating risks, enhancing supplier relationships, improving efficiency, and regulating compliance.
Spend management means giving your spending a framework to help you look into, manage, categorize, and analyze it. But spend management, in reality, is a lot more than that: it is to equip people with tremendous visibility of the right data they need to draw insights from and make decisions.
To make the concept of spend management simple and fun, look at it as a health device or those monitors we see in the hospitals that can track your pulse, blood pressure, temperature, and more. Your vitals are running irrespective of whether you are tracking them or not, but when you can see them, you know where things are going wrong and where exactly you need to take action.
Similarly, organizations run with or without managing their spending but, when they do not, the chances of wasting time, energy, and resources on lower-value activities increase and expose them to fraud and risks.
From sourcing goods and services to managing relationships with suppliers and maintaining contracts, procurement is a complex web of strategic activities.
“Skilled procurement team can reduce a company’s purchasing cost base by eight to 12% – enough for big companies to save billions. Procurement is the biggest lever companies have for optimizing costs,” says Klaus Neuhas, partner Bain.
We agree procurement is the biggest lever for optimizing costs. To appreciate this concept better, take a look at these numbers:
According to the Chartered Institute of Procurement & Supply, companies can spend more than 70% of their revenue on procurement. So, any small or big reduction to this amount can add significant benefits to the bottom line.
Now, let us move beyond cost and look at the figures from Deloitte CPO survey report 2021 that states: for the first time in 10 years, “reducing costs” was not the highest priority. Instead, nearly 78 percent of respondents cited “driving operational efficiency” as the first priority, with cost reduction as a close second.
Clearly, this report indicates how CPOs are contending to become more efficient with their procurement processes.
When you look at all these priorities, you see how each of them is closely interlinked and necessary for achieving procurement’s value proposition of getting more from less.
That is where organizations establish the need for spend management, to do more with less, and be more profitable, efficient, and proactive.
With spend management, organizations can find answers to many crucial questions regarding their spending, including:
With these answers at hand, spend management helps companies realize the following benefits:
Spend management involves and affects various activities across the procurement cycle. It includes sourcing, budgeting, data management, supplier management, contract management, category management, and initiatives and task management. These activities and their dynamics differ for each organization, depending on their industry, size, and requirements. Below, we have listed 8 steps in the spend management process:
Despite the enormous benefits spend management can bring, getting complete visibility of their spending is a daunting task for many organizations today. At first, it might appear that finding answers to what, why, whom, and where of spending is easy. However, as procurement data crosses departments and silos, achieving cross-organization visibility is indeed a big challenge.
Following are some major roadblocks in the way to spend management:
Diverse data sources
The spend data is often disconnected and scattered across multiple systems and sources like invoice systems, accounting systems, PO systems, contract data, supplier data, etc. Effective spend management must support the consolidation of all spending information from disparate data sources and provide a 360-degree view of company spending.
Spending data is often chock full of errors, inconsistencies, duplicate information, and misspellings. As a result, a large proportion of spend gets classified as “other” spend. If such is the state of your data, even with spend management, you will be making decisions based on assumptions. Hence, to get true insights, you need to fortify your spend data with accurate and up-to-date information.
Lack of skill or resources
According to the 2019 Cognitive Sourcing Study from LevaData, more than 50% of procurement organizations use legacy tools like Excel spreadsheets to store and analyze their data. A spreadsheet is an inflexible tool and only captures and displays snapshot information and cannot pull data from various sources. Besides wasting your time, resource, and energy, using these legacy tools also limits the breadth and sophistication of analyses you can conduct.
Many roadblocks prevent organizations from having a complete understanding of their spending. As a result, insights on excess spending, opportunities, and risk avoidance remain hidden, and companies cannot capitalize on savings and scaling opportunities.
To overcome these roadblocks, companies are now looking towards cloud-based spend management solutions to better organize, analyze, and manage their spending information, including full visibility into their procurement data.
Ignite procurement best-of-breed spend management offers a one-stop solution to simplify spend management. Along with providing a single source of truth for all your procurement information, Ignite spend management is packed with features like:
This way, Ignite Procurement brings in a comprehensive set of capabilities and resources you need to start or transform your spend management. Our team of experts fully understands a procurement professional’s woes and thus, can help you find the right set of skills and technology for your individual business needs.
Let us work towards making your procurement a source of larger cost savings, more efficient processes, greater competitive strength, and a stronger bottom line.
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