As unpredictability and disruption to daily business activities prevails, taking a look at ways to leverage controllable factors can help business leaders ensure that they are better equipped to weather any storm. With the uncertainty of what business as usual will look like in the months to come, effective spend management will be a critical component to ensuring business longevity. It facilitates flexibility in your operational structure, streamlines your processes and provides internal controls and the visibility you need to make informed business decisions, and affect change where it counts.Future-proofing your business
Future-proofing is the process of anticipating what changes could lie ahead, and implementing measures to mitigate potential risks associated with these changes. The current crisis is evidence of just how quickly circumstances can change, without warning.
The value of on-demand data that enables you to pivot timeously and make informed decisions to keep your business afloat is invaluable. Most businesses were blindsided by the economic fallout from the global pandemic, however, it's evident that the utilization of spend management solutions has been a safety net for some businesses that have managed to remain operational due to the agility, visibility and control that their solutions have afforded.
Top spend management KPIs to track
Introducing KPIs is necessary to track the progress and success of your business initiatives. In this case, tracking your financial sustainability goals can be simplified by a spend management solution that provides the framework for efficient processes and controls, while enabling you to benchmark spend by users, departments, projects or suppliers.
Benchmarking your KPIs can assist in performance tracking and understanding which areas need improvement or adjustment.
Implement and track these fundamental spend management KPIs to future-proof your business:
Reduce the right costs Cost reduction is often the only leverage a business has to manage profitability, and, in some cases, survival.
Knowing where to cut costs is key. Blindly cutting spend or freezing budgets is short-sighted and could do more damage than good. Establishing strategically-critical costs from non-essential costs is pivotal. You should also apply more stringent approval workflows, and increase purchase accountability. These factors go a long way in ensuring responsible purchasing of business-critical items and reducing waste in your purchasing process.
With a spend management tool, you’re able to automate and categorize your expenditure sources and easily decide if you can afford items and whether or not items are actually required. With an on-demand overview of your spend infrastructure, you’re able to discover saving opportunities and ultimately impose cost avoidance.
Stay on budget
To curb overspending, revise and configure budgets and spending limits within your spend management solution. Provide managers with real-time budgetary insight and impact analysis data—this empowers responsible decision-making and takes the risk out of your approval processes.
With visibility into available and committed spend, approval limits and spending policies enforced, configured budget limits cannot be breached.
Tracking and controlling spend can positively impact your bottom line. Budget controls ensure that spending remains within defined GL account, department, project or vendor level budgets. Tracking these budgets will help to identify areas that over or under-achieve.
The ability to make data-driven decisions from anywhere, at any time, through a flexible and mobile solution, leads to faster turnaround times, informed purchasing decisions and accountable spending behavior. Whether teams are in the office or working remotely, they can operate with a level of autonomy and are responsible for spending judiciously, knowing what’s available, committed or non-compliant before approving any requests.
Technology-enabled in-app alerts and email notifications prompt users when action is required, highlight potential risks and flag non-compliance. These features ensure the timely completion of tasks, mitigate risk and ensure that any issues are proactively addressed before any costs are incurred.
Audit your suppliers
Analyze supplier spend and consolidate your supplier base. Determine how much you’re spending with each supplier. Your spend analysis and reporting tools will provide actionable insights and help you identify opportunities for efficiencies. Furthermore, your data and analytics reports can help you to determine which supplier relationships are no longer beneficial to your business.
Reduce the number of suppliers that your company does business with. Supplier consolidation reduces costs and administration, improves supplier quality and strengthens supply agreements.
Manage supplier relationships. Partnering with preferred suppliers can result in lower costs, higher reliability, and better purchasing terms. Maintaining good relationships with key suppliers is vital—communicate regularly and foster trust to ensure certainty of supply. In sustaining these key relationships, manage supplier take-on processes and ensure that your staff only purchase from these authorized suppliers.
Leverage your supplier data. Spend management reporting capabilities and spend analytics enable on-demand reports to facilitate supplier negotiations. Armed with this data, you’re in a better position to renegotiate contracts and qualify for more favorable terms. Factors like free delivery or priority supply goes a long way in yielding better business returns and savings.
These supplier KPIs will minimize your exposure to supply chain risks and help your business to reduce operational spend. Areas to focus on include:
Percentage of spend under contract
Tracking percentage of spend under contract ensures employees are purchasing products from approved suppliers with pre-approved or pre-negotiated prices, with terms that offer the best value to your business.
Total spend by supplier
Including this KPI ensures that your procurement team is actively tracking the number of suppliers your business is reliant on, and how much you’re spending with each of them. Having an extensive supplier base diminishes opportunities to negotiate more favorable terms, early settlement dates or bulk discounts. Consolidate your vendor numbers to decrease costs and realize saving opportunities.
Measure your suppliers by tracking the quality, delivery, accuracy and cost savings they provide. Monitor your supplier bases and retain those that remain compliant and offer the best products, customer service and pricing.
Improve your purchasing cycle
Reduce your purchasing cycle times
Cost savings and productivity gains can be derived from improved purchasing cycle times. These include, but are not limited to, your requisition-to-purchase order cycle, invoice approval cycle and expense report approval cycle times.
A spend management solution significantly reduces these cycle times through automation, process efficiency, approval workflows and supplier management. By reducing the burden on resources, your processes are accelerated, and the savings in time transfer directly to your bottom line.
A cloud-based spend management solution enables mobile purchase requisitions and expense claims, automated approval processes, supporting document uploads, while email notifications and in-app alerts further streamline processes, ultimately reducing cycle times.
Reduce the cost to process POs and invoices
By reducing your cycle times, you’re able to improve the turnaround time of central business initiatives, boost staff productivity and reduce the overall cost of the entire procurement process.
This KPI measures the average cost of processing an order—from purchase requisition to invoice closure—while considering how long it takes to do so, by the staff directly or indirectly involved in the process.
Reduce the average requisition approval time
To ensure process efficiency and business agility, it’s critical to fast-track the requisition-to-purchase order process while maintaining financial control. An automated workflow facilitates the following steps: A mobile, on-demand requisition approval workflow that directs spend to authorized vendors, and routes submissions through appropriate multi-level approval workflows, with budget and policy checks. This delivers not only a streamlined process, but reduced risk and lower processing costs.
Track FTE to transactions
To determine FTE (full-time equivalent), calculate a full-time employee’s work week and the percentage of time that the employee spends on a specific process. For example, if a full-time employee represents a 40-hour work week, calculate the percentage of time allocated to completing one particular task or process.
Staff productivity KPIs for the procurement process could look like: the total number of purchase orders processed per procurement FTE employee.
Developing and implementing these baseline KPIs will support a lean, cost-conscious business model.
Track cost savings
With the business intelligence tools and spend analytics in a spend management solution you’re able to determine where you’re reducing your costs, as well as highlight areas that need additional focus. These metrics are invaluable when faced with economic instability, market uncertainties, or when a sudden shift is required.
Set specific, measurable, accurate, realistic and timely (SMART) KPIs to track cost reductions, savings and improvements such as:
Reduced maverick spend
Any rogue purchases made outside of official contracts count as maverick spending. These include purchasing from unauthorized vendors, transactions without purchase orders (or purchase orders requested after the fact), or any expenditure that has not been approved. As many as 54% of employees admit to making purchasing decisions without following the correct purchasing process.
For your business to be as profitable as it can be, you need to curtail all superfluous spending. A study found that the average large organization stands to save millions of dollars by reducing rogue spending by 5-10%. The more progress made on reining in maverick spend, the healthier your bottom line will be.
Tracking your annual savings year-over-year will indicate how efficient your spend management initiatives are. One of the main goals of proactively managing procurement processes is cost saving and the elimination of inefficient processes and outdated supplier agreements. To get a good idea of how well (or how poorly) your procurement initiatives are performing, it’s vital to track year-over-year savings.
Fortunately, cloud spend management solutions like Fraxion can facilitate these processes, provide the necessary visibility and robust framework for achieving these goals. Fraxion's fully-automated, cloud-hosted spend management software aids in future-proofing your business, allowing more significant levels of transparency and control across your organization. A firm grasp of your operations and spend granularity assists in tracking performance, to achieve and maintain sustainable savings, even in the face of economic adversity. Adopting a proactive spend management strategy underpinned by transparency, compliance and internal controls, before spend occurs, will aid in preserving working capital and maintaining business profitability.