Enterprise spend management is a set of processes meant to bring transparency and control over the manner in which people given the power to spend are doing so. Such transparency can help to reduce business risk, increase profits, and improve efficiency in various areas of the business.
In business spend management, it’s extremely important to have benchmarks. These are standards of efficiency, profitability, and risk diversification that the business seeks to achieve. Benchmarks can be set through looking at industry peers together with internal goal-setting to come up with the best practices. In fact, successful enterprise spend management requires a strategy.
Building a Successful Enterprise Spend Management Strategy
Internal Needs Assessment
The first step on the journey to effectively manage company spending is to ask questions about the current needs of the business. For instance, the business needs to have ways to encourage business spending by employees entrusted with spend responsibility. There should be internal processes to enforce accountability of the same. Such things as manual processes are likely to result in inefficiencies in accountability checking. If there is technology involved currently, it should stack up well. There might be integration gaps, however, that need to be addressed.
A business that is growing fast needs to ensure they have the proper capacity to handle increased demands in the procurement and accounting departments.
Digitization of Process
It’s not enough to record transactions on spreadsheets. Effective spend management for a growing business needs a method of automatically capturing information accurately and in real-time. This requires a careful look at internal processes to find repetitive tasks that can be automated.
Spend management software is capable of providing a system to track spending by different departments and check whether limits have been reached. At any one time, it’s possible to see what proportion of the allocated budget has been spent and on what. It also keeps a record of pending approvals. Such record-keeping helps to avoid maverick spending by people in authority.
Digitization and automation of processes can greatly improve the speed of doing things in a business. When a task is managed from a software platform, it’s automatically sent to the next person in the procurement process. All correspondence is done within the management platform meaning they get notifications whenever something lands on their to-do list.
Being able to collect and analyze data on the various procurement transactions the business undertakes is at the heart of effective spend management. The use of e-procurement software unlocks this capability through inbuilt reporting tools. It becomes possible to query and generate spend data on individual categories, time periods, and suppliers.
Analysis can therefore be looked at from numerous angles in a business to help draw useful insights. For instance, it’s possible to come up with a way to rank suppliers based on pricing, speed of delivery, and ease of communication. Businesses can find out how much of the budget various categories take up and the underlying trends. If a certain category’s uptake is growing, an investigation may be due to find out the reason and determine the right course of action.
As highlighted, part of the work analysis is considering the performance of suppliers you currently have. Your business needs to have a framework for supplier audits. E-procurement software enables automated contract management which helps to track supplier performance.
Supplier evaluation helps to put in place contingency measures to counter supply risk. For instance, if all suppliers are concentrated in one region, the business may need to prepare for a scenario where shipping lines from that region are closed. Evaluation would also be useful where a business wants to utilize its spend patterns to fulfill other goals such as driving the sustainability agenda or procuring from particular demographic groups.
In case the current list of suppliers does not meet the preferred criteria, the business may need to look wider for new suppliers.
Developing and Communicating Policies
Strategies can only be established by putting in place policies that must be followed by everyone in the organization. Successful implementation requires commitment and diligence by those in positions of authority. It’s therefore extremely important to communicate the need for and importance of the policies being developed and the overall spend management strategy.
Spend management efforts can often be seen as too bureaucratic and inhibitory when a lot of human intervention is introduced through rigorous approval processes. However, through technology, too much human intervention can be removed. Technology acts as a guide for expense management as opposed to a policing tool.
Technology also helps to create synergies between departments through easier communication and enforcement of agreed-upon rules for everyone. Eliminating maverick spending is crucial for harmony between departments so that none feels neglected in allocations.
How Do You Measure Enterprise Spend Management Success?
There are numerous yardsticks to evaluate the success of a business’s spend management efforts. One place to start would be to evaluate the effects of digitization on approval times. Cutting down the purchase requisition-to-order time while following the right channels is an indication of spend management success. It leads to better employee satisfaction and employee spending.
Another indication of success would be the proportion of pre-approved spending in a company. The goal would be to have 100% pre-approved spending in a year but this is not always possible. However, if a majority of spending is pre-approved, the business benefits immensely from pre-negotiated discounts and payment terms. It minimizes the likelihood of fraudulent spending too.
If your business is seeking to succeed in spend management, it needs a well-laid-out strategy backed by robust procurement software. The software should be customizable to suit your business workflow. ProcurePort is the world’s leading provider of e-procurement customizable software. Reach out to us so we can help you use our tools to gain transparency and insights into your business spending patterns.