Spend management is essential for maintaining profitability and competitiveness in any company. It involves managing procurement and suppliers within the organisation, with the aim of maximising the return on investment for every pound spent. Today, effective spend management underpins the integration and automation of all spending-related activities, from contracting with suppliers to paying them.
What is spend management?
Business spend management involves managing and optimising expenditure within an organisation on an ongoing basis. This means tracking, analysing, and automating all activities and processes related to business spending. This approach encompasses everything that happens before, during, and after spending money on behalf of a company, namely:
- Negotiating contract terms;
- Creating purchase orders;
- Processing invoices;
- Supplier and inventory management;
- Product development.
By implementing robust spend management, companies benefit from a comprehensive and detailed overview of how resources are used, as well as the reasons behind it. While spend management is often carried out by finance and procurement departments, it also involves stakeholders in budget management and profitability planning, such as accounting, management control, and the supply chain.
Tony Tiscornia, Chief Financial Officer of Coupa, a unified spend management platform, explains: "Business Spend Management harmonises a series of administrative processes so that together they deliver more value and efficiency than they could alone. It starts with using technology to gain a unified and granular view of all company spending, enabling procurement and finance teams to make decisions and act quickly, reduce risks, and create smarter supply chains."
-
Fixed costs, i.e., any expense that does not vary with production volume (premises rent, maintenance costs, employee salaries, taxes, etc.).
-
Variable costs, i.e., any expense directly linked to the company's activity volume (raw materials, logistics costs, temporary staff salaries, service providers, etc.).
Spend management: Best practices
To implement effective spend management, every company must rely on three essentials: In-depth analytics, structured spend management processes, and suitable tools.
In-depth analysis
Before optimising their spending, companies need to understand where their money is going. Through thorough analysis, they can identify potential cost savings sources and opportunities to improve overall efficiency.
This involves systematising this approach by implementing a spend analysis grid with the following objectives:
- Creating a comprehensive procurement map;
- Improving spend tracking;
- Identifying areas for improvement.
Structured processes
The spend management policy is based on clear processes known to all.
This covers:
- Authorisations and procedures for spending commitments;
- Invoice transmission processes to the accounting department;
- Invoice validation workflows before payment;
- Payment policies applied to suppliers and partners;
- Etc.
The idea is to strengthen internal control, better manage costs, and thus optimise capital management.
Suitable spend management tools
Companies also benefit from equipping themselves with appropriate spend management software covering the entire procurement process. This allows for automating recurring tasks, reducing manual errors, and implementing collaborative processes at the heart of the organisation. This enables teams to ensure real-time monitoring of reporting and of their budget from a single digital platform.
The benefits of spend management
Business spend management allows leaders to make more informed decisions based on accurate spend data. These advantages concern cost reduction, improved productivity, risk mitigation, and financial planning.
Reducing costs
With good spend management, companies know exactly what is being purchased, from whom, by whom, and at what price. Data is centralised, categorised, and analysed to identify savings opportunities. This can highlight the importance of renegotiating an agreement with a supplier to obtain more advantageous rates and/or better contractual terms.
Boosting productivity
Spend management tools promote process optimisation, particularly the automation of manual processes. This allows teams to gain efficiency while reducing the number of errors. This is critical, as it frees up time and resources for more strategic activities.
Better risk management
A comprehensive spend management solution allows for better identification of risk factors, but most importantly, anticipating them through the construction of a solid action plan. This particularly promotes compliance with regulations, evaluation and supplier panel control, and fraud prevention.
Improving financial planning
Companies that focus on managing their spending benefit from better spend visibility on all types of expenses, including approved invoices, upcoming payments, and overall cash flow. This helps them maintain control over spending while preventing budget overruns.
Spend management is an essential element of business management to ensure sustainable growth in the future. By carefully analysing their spending and optimising processes through a dedicated tool, companies maximise operational efficiency while improving profitability. Adopting these spend management best practices means positioning oneself on the path to success in a competitive environment.
