5 Steps to Strategic Spend Management

Strategic spend management further entails applying the best spend management practices to ensure that the financial inflows support the outflows. Strategic spend items are products or services most critical to an organization’s long-term value and growth objectives.

Strategic spending management seeks to optimize spending to ensure that only strategic products and services are available to meet ever-changing organizational needs.

Keeping expenses under control is the secret ingredient of any successful enterprise. So, strategic spend management ensures that spending is optimized to meet emerging procurement needs.

When organizations plan their procurement costs, they can achieve cost-saving opportunities and channel the savings to other mission-critical operations. This is precisely why strategic spend management is critical for business success and sustainability.

Let’s look at the 5 steps to strategic spending management.

5 Steps to Strategic Spend Management

1. Defining your business needs

A key step to strategic spend management is knowing exactly where your organization stands in terms of spending and overall expenditure – and knowing your long-term business needs and objectives.

To know where you stand in the adoption of strategic spend management, ask yourself these questions:

• Are you using automatic or paper-based processes?
• What’s the mode of your procurement process – hybrid, office-based, or remote?
• Is your procurement centralized or decentralized?
• How are you planning to avoid uncertainty?
• Does your technology stack require evaluation – integration capabilities, upgrades, new systems, and review?
• Is your team developing and growing with the new technology?
• How do you support your team’s growth?

These are a few questions to ask yourself when implementing the right technology. Strategic spend management helps you pinpoint areas where operations are affected due to poor spending management.

2. Digitizing procurement processes

Strategic management involves a lot of data entry, it’s a repetitive process with little or no room for mistakes – especially for organizations dealing with huge budgets. However, you can eliminate these roadblocks by giving your employees the tools and software required to record all their expenses in digital files.

Today, there are many cloud-based and digitally-driven solutions for recording expenses. You automatically take a leap in intelligent spend management and process automation by undertaking new technologies and deploying innovative solutions.

A spend management software will keep your procurement team updated with up-to-the-minute notifications on tracking, expenditure, review, and reporting. In addition, the availability of the cloud platform ensures 24/7 data availability and security, thus ensuring transparency, accountability, and integrity of protected financial information.

3. Analyze spending

Defining your organizational expenditure is the best way to define the right course of action for your procurement. Spend management starts by having full control of AP processes, supplier management, and workflow processes.

By automating your procurement processes, you’re bound to collect and collate spent data. Automation obtains company-wide spending insights allowing organizations to control and manage their spending. Automation helps you digitize your records and build a robust database that you can use to draw meaningful company-wide purchasing insights.

Your strategic spend management solution or software must provide comprehensive spend reporting on the following areas:

• Transaction and processing costs associated with it
• Financial period
• Budget
• Supplier
• Employee

Spend analytics shed light on areas needing more insight, spending insights, and improve forecasting, budgeting, and uncovering saving opportunities.

4. Supplier evaluation

Supplier evaluation is a critical step of any strategic spend management. By evaluating your suppliers, you can predict your product or supply quality, and delivery time, and obtain an end-to-end understanding of your procurement lifecycle.

Solutions-driven supplier analytics streamline period supplier audits, providing real-time data on supplier performance. It’s through constant investigation of suppliers that organizations can understand good and bad suppliers, as well as root out poor supplier practices.

A critical part of spend analysis is to identify the number of suppliers you can comfortably purchase from, how much you can pay for, what contracts are in place – and establish the compliance rate.

In addition, organizations must strive to make timely payments to suppliers to enjoy flexible payment rates, discounted payments, and offers. You can make more informed supply chain decisions by consolidating your supplier base and analyzing your supplier data.

By analyzing your spending, you can make informed supplier decisions including:

• Prior planning to mitigate supply chain risks
• Identifying suppliers with best practices
• Tracking according to supplier diversity
• Prioritizing spending on specific suppliers

Supplier management must be intertwined with spend management to ensure costs channeled to suppliers do not exceed an organization’s spending limits.

5. Collaboration and policy

Procurement is a complex undertaking that involves many processes from different departments. Departments identify their needs, contact the procurement department for inquiries about products, and requisitions are sent to suppliers for specific products and services. As such, procurement proves a substantial undertaking, especially for organizations dealing with huge procurement expenditures.

Due to its complexity, procurement demands strategic focus, collaboration, and policy alignment. You need to sync all your stakeholders, departments, and employees to realize strategic spending across discrete functional areas – marketing, sales, research, HR, and procurement. In most cases, there might be conflicts between the procurement and finance departments, especially when data is missing.

Other times, trouble brews due to a lack of understanding of procurement policies and operational controls, especially among staff handling procurement duties. So, organizations must be proactive to build clear policies and frameworks and fostering collaboration among departments and teams.

Strategic spend management is built on a firm, robust architecture of policy support and cross-collaboration.

ProcurePort – The Key to Unlock Strategic Spend Management!

Strategic spend management is anchored on proper planning, best practices, and a strategic approach to optimize costs and intelligently allocate expenditures.

Prioritizing spend management enables you to achieve your cost containment goals, giving you an edge over competitors with poor spend management practices. And this cannot happen without due intelligence of procurement processes.

In addition, developing a robust and targeted strategy is a key step to prioritizing spending management. And finally, implementing the strategy by using best practices is paramount in unlocking strategic spending management.