Previously, businesses depended on tools such as spreadsheets to monitor expenses. However, these manual approaches were unreliable and costly in terms of time, effort, and money. As a result, businesses moved to automation, which eased many cash flow issues.
In short, businesses might improve their spend tracking and decrease losses and errors. However, incorporating technology into spending control did not solve all of the issues. According to an IDC survey, 61% of respondents utilized heterogeneous tools and procedures to manage corporate budgets. And, as you can expect, tracking data across several tools is a headache.
This is why, according to the same survey, 87 percent of respondents planned to invest in a unified spend management platform.
Controlling and monitoring spend in today’s scattered (and frequently chaotic) workplace is becoming increasingly complicated, and companies struggle to combine expansion with operational efficiency. More significantly, in a post-pandemic environment, many businesses struggle to maintain a strong culture.
We’ll guide you through all you need to know about spend management and how to stay up with the changes in 2021 in this article.
What exactly is spend management?
Spend management is the process through which organizations monitor, regulate, and evaluate their expenses.
According to Gartner, spend management is about getting the most out of corporate spending while lowering expenses, reducing financial risk, and strengthening supplier relationships.
It is nearly difficult to accomplish all of this using manual means. As a result, more companies are digitizing their spending management processes.
“Because of the way software has helped digitize spend management strategies, there is a great impact on digital transformations that affect the way businesses control their finances today” says Zach Reece, COO of Colony Roofers. He continues, “ERP and MRP systems have allowed for the automation and scalability of organizations through cost-efficacy solutions, and have led to more centralized and analytical forms of managing spending behaviors. Therefore (…) spend management today has turned agile and highly systematic with its approach to procurement tasks, with a more strategic and sustainable framework when it comes to spending processes”
This shift extends beyond the use of technology to a greater emphasis on strategy.
Tony Monisse, Director at Brentnalls WA, points out that, “over the past decades, this role has gone from operational to strategic. Organizations are slowly accepting the change and moving to more thoughtful and well-researched decisions made via spend management.”
Digital transformation is equally essential in strategy development. New digital technologies are increasingly assisting financial departments in making more precise judgments.
But first, before we go into strategic spend management, here are some spend management words you should be familiar with.
Essential spend management approaches explained
1. Source-to-pay (S2P)
Identifying and selecting suppliers, negotiating and contracting with suppliers, and eventually paying for the products or services are all part of the source-to-pay process.
Source-to-contract, like source-to-pay, begins with sourcing items or services from suppliers. The best-priced quotations are chosen. Contracts are then negotiated, and the chosen vendor is granted a contract.
The invoice to pay process begins with the accounts payable department receiving the invoice from the supplier and ends with the supplier being paid.
Unlike source-to-pay, procure-to-pay does not involve the search for vendors. It simply includes all operations from acquiring goods and services to paying for them.
From seeking quotations through authorizing the invoice for payment to the supplier, the procure to invoice process comprises all steps.
What is strategic spend management?
The process of developing policies and executing spend controls when it comes to corporate expenses in order to have a greater profit-loss ratio is defined as spend management strategy.
It is not sufficient to just control corporate expenses. Finance teams and executives must go above and beyond to build a plan to assist the business thrive in order to genuinely succeed at operationalizing cash flow for growth.
5 areas to focus on when building a proactive spend management strategy.
|Why is it important?
|How can automation help?
|Without a strong requisition process in place, fraud and maverick spending are more likely to occur.
|Manually approving requisitions and filing them is repetitive and mind-numbing. It’s also impossible to do this effectively with a remote team (or during a pandemic economy). The solution? Use a spend management tool to let team members make requests from anywhere, clarify each request, and leverage your existing vendor relationships to cut costs.
|To avoid sunk costs, you must authorize every purchase prior to a financial commitment.
|Using a spend management tool will allow you to build controlled approval workflows. Determine who can approve requisitions, and ensure everyone else can request, and request only. This way every requisition will be examined before they become purchases.
|Poor purchasing leads to extra costs, redundant expenses, and longer purchase cycle periods.
|Automating this process reduces the purchase order cycle time and gives you information when you need it. You can also budget accurately as well as make forecasts based on data.
|The receiving company needs to inspect products for quality and quantity and accept receipts.
|Integrating technology into this process helps you avoid slow processing, reduces the risk of paying for goods you didn’t order, and reduces overpaying for inventory.
|Delayed payments or incorrect amounts can damage your relationship with suppliers.
|By automating AP processes, you can manage purchase orders and approve invoices without entering data manually. It also helps you stay on top of the amounts you owe vendors.
How to increase the adoption of your new spend management strategy
According to Harvard Business School professor John Kotter, one of the reasons 70 percent of all organizational change attempts fail is a lack of buy-in from enough individuals.
Here are some suggestions for motivating team members and executives to support your new spend management approach.
- Get leadership buy-in
Without support from leadership teams, any strategy will fail. So how do you get the leaders on your side? Diana Booher, author of Communicate Like A Leader suggests you talk about how profitable the new initiative will be, rather than fixating on revenue and growth. You should also cut the excess talk and clearly define the business benefits instead of simply letting facts speak for themselves.
- Offer training for team members
The biggest challenge of integrating new technology is team member buy-in. To counter this, be sure to offer sample training. Start by identifying early-stage adopters and encourage them to advocate the use of new spend management systems. Then, help team members understand how to use these tools effectively, why you chose them, and how it can help them work smarter.
Virtual training events are a great way to educate teams, answer questions, and address their fears.
- Create and automate processes
Including step-by-step processes in your strategy helps you work smarter instead of harder. It also guarantees similar results on implementation. More importantly, automating these repetitive processes frees up time for teams to do more meaningful work, rather than simply input data.
- Finally, use the right technology
The tools you use will determine whether or not your strategy will fail.
The importance of a proactive Spend Culture in 2021
Every company’s spending culture must adjust to the new reality. How, why, and when money is spent must be consistent with the organization’s overall spend management plan, and technology is the solution to doing so successfully and efficiently.
With the proper strategy, efficient tools, a strong culture, and smart procedures, your company can save expenses, boost profits, and remain nimble and flexible in both difficult and quiet times.