Are you in the process of choosing the best procure-to-pay software for your business? Read on to find out which features you should be looking for.
5 Simple steps to building a solid spend management strategy
Spend management is a framework of best practices that businesses implement to track, manage, and analyze operational spend. An effective spend management strategy helps organizations to optimize their spend, by improving processes and supplier relations, reducing costs, and mitigating financial risks.
Using manual methods to carry out procurement processes is not only a tedious, time-consuming endeavor, but often results in errors and inefficiencies. Consequently, more businesses are turning to software solutions to digitize and simplify their spend management process and achieve greater efficiency.
This blog explores the five simple steps to building a solid spend management strategy.
5 Steps to building a solid spend management strategy
Step 1: Define your business needs
The first step in building an effective spend management strategy is understanding where your business stands, and what is required to achieve business objectives and growth aspirations.
● Are your processes manual, or paper-based?
● If you’ve already implemented solutions, does your tech stack require evaluation - how effective are the existing systems, do you require integration capabilities, and could a technology upgrade or new solution better serve your business?
● Is your procurement process decentralized, and what operating model (hybrid, remote, or office-based) is in place, or planned to navigate uncertainty?
● Is your team growing?
● How are you supporting your team to operate efficiently? Are you empowering them to make informed and responsible spending decisions?
These are just a few examples of pertinent questions to ask in order to establish and effectively implement your spend management strategy. The answers to these questions will highlight efficiencies as well as where opportunities for improvement exist, and pinpoint where operations are being impacted.
Step 2: Digitize processes
If you answered yes to the first question, your business is ripe for changes that could introduce benefits that begin with process efficiency and extend to accountability, cost savings, and risk management.
Accurate procurement processes require continuous data entry. These tasks are repetitive, time-consuming, and performing them manually creates room for human error. Manual and paper-based processes do not allow for effective oversight, they’re inept in promoting accountability, and put your business at risk of:
- Maverick purchasing
By digitizing your processes and gaining the agility and mobility of cloud technology, you gain an immediate advantage that can strengthen your spend management strategy significantly.
Choosing the right solution for your business and its specific needs, is pivotal to your spend management strategy. Consider the savings that can be captured if each business purchase over a defined value is subject to a requisition, budget review and approval process. If every employee expense report is verified, spending policy compliant, and streamlined by an automated workflow that effortlessly routes requests through risk mitigating steps, with limited intervention from your team.
The automated efficiency enhancements alone will enable your team to do more in less time. Your spend management strategy gains the overarching advantage of spend visibility, and if you’re strategic in selecting a spend management solution, the ability to turn insights into action with advanced spend analytics.
Step 3: Analyze spend
The only way to truly define the right course of action for your spend management strategy is by understanding how your business spends. Spend management begins by gaining proactive control of purchasing and expense reporting processes, supplier management, and AP workflows. When these processes are automated using a single digital platform, you’re equipped to collect and analyze spending data, and company-wide purchasing insights.
A spend management strategy is more likely to succeed, with insight into spending behavior to inform your business decisions. If you’re relying on spreadsheets to access and analyze this data, you’re certainly at a disadvantage, and at risk of making ill-informed decisions, which can be costly in the long run. Human error can easily creep in and skew your data, and the investment of time and resources will be taxing from all perspectives. If your business is growing rapidly, this process is not scalable or sustainable.
To build a robust spend management strategy, underpinned and informed by reliable and accurate data, ensure that you can effectively analyze and report on spend by:
- Financial period
- Transaction (and the processing costs associated with these activities)
These spend analytics will shed light on spending patterns, areas needing more scrutiny and spend control, and improve forecasting, budgeting, and uncover saving opportunities.
In building your spend management strategy, if you identify that visibility and reporting gaps exist, it could be time to consider investing in spend management software with embedded business intelligence and reporting tools.
Step 4: Evaluate your supplier base
Best procurement practices include the regular undertaking of evaluating your supplier base. This important initiative is a key component to a successful spend management strategy. Periodic supplier audits are streamlined and simplified with the help of solution-driven spend analytics and reporting capabilities.
It’s important to understand how many suppliers your business purchases from, how much you’re spending with them, if contracts are in place, and the compliance rate.
Improving supplier relationships by paying early or on time, can lead to reduced pricing, more favorable payment terms and discounted rates. By analyzing your supplier data, you can make an informed plan to consolidate your supplier base - one that includes:
- Identifying top performers
- Planning accordingly to mitigate supply risks
- Tracking and pivoting according to supplier diversity initiatives
- And, directing spend to preferred suppliers
The supplier management component of your spend management strategy can lead to sustainable cost savings for years to come. By constantly reviewing your base and directing more spend to top performing suppliers, your business benefits from the savings that result from your increased purchasing power.
Step 5: Establish policies and enable collaboration
Procurement can be complex. It requires strategic focus, policy compliance, collaboration, and diligence. As such, you need to ensure all your stakeholders, departments and companies are in sync, and on board. In most cases, friction occurs between procurement and finance departments when data is missing, or if there is a lack of visibility and understanding of purchasing policies and your teams' operational needs.
In building an effective spend management strategy, look for ways to create cohesion between these key departments, and your team at large. Establish and communicate procurement policies and rely on tools to ensure compliance. Procurement, although a strategic and vital function for profit generation, is often seen as an inhibitor due to their protocols and procedures. Technology gives you the tools to change these perceptions by implementing a framework that guides spending behavior without the need for human intervention in day-to-day processes, while simplifying adoption and compliance.
By deploying a spend management solution, your strategy is automated and set in motion by workflows with configured rules, thresholds, approval hierarchies, budget checks, and policy controls. Any unauthorized or wasteful expenditure is easily flagged and subverted. The added benefit of visibility at each stage in a transaction’s lifecycle via audit trails, ensures accountability and auditability.
By centralizing data and using accessible mobile app-enabled solutions, purchasing workflows are routed to appropriate users, collaboration is enabled, and all users have access to data for fast and accurate completion of tasks from any location.
With synergy and productivity enhanced by collaboration, and internal controls ensuring compliance, your spend management strategy is strengthened and geared to deliver value.
Take a strategic approach to spending
Spend management requires a strategic approach, best practices, and diligent planning to ensure optimal resource allocation to drive growth and increase profits.
Prioritizing spend management is the first step in achieving your cost containment goals, developing an effective strategy follows, and how you go about implementing that strategy is the key that unlocks results.
Need help defining and implementing your spend management strategy? Reach out to discuss your business needs with one of our product specialists. Fraxion’s cloud spend management solution offers purchase requisitioning-to-PO, expense reporting, approval, and AP workflow management with embedded spend analytics and reporting power. It’s a proactive tool for automating your entire spending process and streamlining the procure-to-pay cycle to achieve complete visibility, spend and policy compliance. Request a demo today.