Everything You Need to Know About Spend Management Strategy
As difficult as it may seem to fathom, the secret to long-term financial stability and potential profit is quite simple: spend management strategy. Ahead, we’ll dive deep into why spend management strategy is important, what it entails, how it factors into procurement, its potential for improvement, and where it may go in the future.
This article will cover the following topics:
- What is Spend Management, and why is it important?
- What is Spend Management strategy, and why is it Important?
- How Spend Management Strategy Improves Procurement
- Checklist to improve businesses’ spend management strategy
- Automating your Spend Management Strategy
- The Future of Spend Management Strategy
What is spend management, and why is it important?
Spend management is an umbrella term referring to the ongoing improvement upon spending controls and strategies in a business. Affiliated Departments: Procurement to supply chain management, budgeting, investor relations, and more Financial Actions: spend management often includes vendors, inventory, procurement, and expense reporting procedures. Strategic Focus: Spend management focuses on data-driven spend analysis to maximize the return on investment (ROI) for each outgoing dollar.
Spend management is important since it provides real-time financial insight that organizations may otherwise lack. Spend management can improve a company’s economic potential by at least 55%, or at least prevent errors from escalating into severe systemic issues.
What is Spend Management strategy, and why is it Important?
Spend management strategy takes the concepts put forward by spend management and puts them into practice. Directly speaking, spend management strategy is the process of planning and implementing spend control procedures that aim to strengthen a business’s bottom line. In the business world, a spend management strategy can take the form of policies that minimize the risk of overcharging or provide more detailed end-of-month budget data.
Spend management strategy is important because businesses will struggle to devise and launch innovations to their current spend management practices without a clear plan of action. As great as the benefits of spend management are, they are nice-sounding concepts without much tangibility until there is a strategy in place to put them into action.
How Spend Management Strategy Improves Procurement
Procurement is an essential part of any business, large or small. Procurement involves the negotiation or acquisition of goods and services via external suppliers. Like most purchase decisions, procurement often comes from the initial position of scarcity, meaning that solid negotiation and data-based decision-making are key. At this point, you may be able to guess that spend management can complement and improve procurement and procurement-related costs in a variety of ways, outlined below:
- Improved sourcing
Spend management includes management assistance over external vendors. As part of procurement’s focus on term agreements with third parties, spend management can offer keen analysis regarding performance and efficiency. Essentially, through spend management, businesses can better understand which vendors are excelling and which may need replacing.
- Greater Efficiency
Nothing says “greater efficiency,” quite like automation. In that vein, spend management platforms remove the touchpoints associated with manually processed financial analysis & planning. This greater efficiency may result in time and money refocused towards high-level strategic pursuits and their execution. In terms of procurement, these can include contact negotiations and smarter sourcing.
- Clearer Spend Insight
Sans clear spend management procedures, businesses in the B2C and B2B spaces may struggle with clarity regarding their overall spend. It’s understandable, but does not make for good business. Analytics may easily suggest potential savings scenarios thanks to the organized, real-time data provided via spend management. In turn, acting upon such insights, especially procurement, can become as easy as clicking a button.
- Increased Risk Assessment
Risk is an inherent part of any professional endeavor. Risks to one’s finances, reputation, long-term strategy, and security are just a few of the risks businesses constantly face. For instance, an effective spend management solution in the procurement space will assist with market trend assessments and discern potential future risks. In turn, it can help develop strategies to take advantage of likely obstacles and turn them into points of excellence.
Checklist to improve businesses’ spend management strategy
Businesses that have a spend management strategy in place are one step ahead of the pack. That means they have not only come up with a plan, but implemented it as well. However, there is always room for improvement. We’ve put together an analysis of areas where businesses can improve their spend management strategy. They should be taking a look at the following:
Automating your Spend Management Strategy
Generating, implementing, and improving a business’s spend management strategy is essential to the organization's continued success. That said, as with any task worth its salt, the next step comes in the form of automation. This potential leap means that your spend management strategy can go from a manual endeavor to an automatic one. To do so, we’ve outlined the following steps that will enable such automation and the success that comes with it.
- Digitize expense records & spend history
- Implement company-wide spend policies
- Connect procurement and spend management tools
- Organize expenses into categories
- Generate reports and optimize spending
The Future of Spend Management Strategy
Just five years ago, you would have been sorely disappointed if you had searched for a spend management platform. The pickings for intelligent budgeting and payroll options have been bountiful for nearly two decades, but until recently, spend management was wallowing in the 1990s, with only Microsoft Excel for support.
Now that spend management has joined the digital age, at last, it’s never been easier to improve your spend management strategy’s process. Spearheaded by the hot, new financial technology, or FinTech space, interest is high, and innovation is booming.
One such company that has found a space for itself in this new environment is PayEm (that’s us!). Our connected finance platform takes spend management strategy to its logical next level by integrating real-time data capabilities with related corporate financial concerns. These include procurement, corporate card issuance, supply chain administration, and vendor management. With PayEm’s spend management software, we can revolutionize your business’s strategy. To learn more about how it can help your company and boost efficiency, take a moment to speak with our experts and book a demo.
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