6 reasons you need a spend management solution

This blog will walk you through all you need to know about spend management and why managing spend is important for companies of all sizes.

Table of Content:

Introduction
What is Spend Management
What is Spend Management in Procurement
The Spend Management Process
6 Benefits of Spend Management
Why Managing Spend is Essential for Forward-Looking Companies
How Spend Management Supports a Fast-Growing Company
Spend Management Cloud Solutions

Introduction

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Until recently — and still so for many — businesses relied on tools like spreadsheets to manage their spending. These manual tools aren't just unreliable, using them costs a lot in terms of time, effort, and even money.

To beat these challenges, businesses moved towards automation. Doing so did help companies track their spending better and reduce losses, but this technology had its limitations.

If you ask why? Take a look at this International Data Corporation (IDC) study:

Sixty-one percent of respondents used disparate tools and processes to manage business spending.
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And whoever has used multiple tools for managing procurement understands the ordeal of tracking data across various sources and systems.

For that reason, the same study further highlights how 87 percent of the respondents have planned to invest in a unified spend management solution.

This blog will walk you through all you need to know about spend management and why managing spend is important for companies of all sizes.

What's Spend Management

Spend management is an umbrella term used for various sourcing and procurement activities to control spending. When performed effectively, spend management helps companies mitigate risks, enhance supplier relationships, improve efficiency, and regulate compliance.

In simple terms, it means equipping people with tremendous visibility of the correct data they need to draw insights from and make informed decisions at every step of the way.

To learn more about Spend Management, visit our All You Need to Know About Spend Management page.

What's Spend Management in Procurement

In most companies, procurement is an ongoing activity and is incorporated into business as usual. This notion of transactional procurement sidelines a strategic approach and does not think long-term.

If transactional procurement is reactive, spend management is proactive.
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Spend management is rather a proactive approach that begins with analyzing what a company spends on the goods and services they procure to support their business. Besides undertaking procurement in the most efficient manner, spend management also considers the bigger picture such as environmental, market, disposal, and aims to keep the organization ready to fulfill any demanding scenario. Thus, it is an improved way of managing the procurement activities of a company.

Spend Management Process

Spend management involves and affects various activities across the procurement cycle. It includes sourcing, budgeting, data management, supplier management, contract management, category management, and initiatives, and task management. These activities and dynamics differ for each organization, depending on their industry, size, and requirements. Below, we have listed eight steps in the spend management process:

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Identifying relevant sources and extracting data
Creating a single source of truth to make the data available to a large base of users
Cleaning, normalizing, and enriching the data to meet the quality standards of practical analysis.
Categorizing the spend data to facilitate perfect transparency and comparison for spend analysis.
Visualizing the data to uncover opportunities.
Analyzing spend to filter, segment, analyze any patterns, irregularities, or trends.
Strategizing, planning, and executing to increase the chances of users adopting these changes and working towards its success
Forecasting spend by collecting, maintaining, and analyzing your data and looking into your past, present, and future.

6 Benefits of Spend Management

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Spend management helps companies realize the following benefits:

Spend Data Visibility

Siloed and inaccessible data are one of the most significant setbacks for organizations. By pulling data from various sources like Excel, emails, ERPs, invoices, files, etc., and presenting it in a single platform, spend management gives structure to your procurement data and helps you make sense out of it.

Higher Spend Compliance

Putting more spend under the spend management lens ensures that more and more purchases are contracted and approved. This particularly helps in preventing off-contract or maverick spending and boosting compliance.

Enhanced Process Efficiency

Spend management helps companies reduce the time and effort they put into performing low-value activities. An effective spend management solution helps you optimize your data management, procurement analytics, strategic sourcing, category management, contract management, supplier management. Thus, it allows your procurement teams to focus on strategic activities that can impact the bottom line.

Better Risk Management

The best way to manage risks is to have an agile and proactive approach. With market insights, supplier assessments, and contract management, spend management makes it easier for organizations to highlight risks and prepare for them well in advance. Also, with regular alert notifications and updates around contracts and markets, spend management providers further help companies limit risks.

Negotiate Better Rates With Suppliers

With strategic sourcing, supplier assessment, and analyzing the spend data, companies can quickly determine how much they are spending on each supplier and how those suppliers are performing. This crucial information helps companies drive meaningful negotiations with their suppliers to get a better rate.

Identify Other Levers for Cost Reduction

By lowering spending and increasing profits, spend management directly contributes to a better bottom line. Spend management can help you uncover several levers to drive cost reductions.

Why Managing Spend is Essential for Forward-Looking Companies

Companies across sizes and industries underestimate the importance of effective procurement management. This is especially true for middle market companies who most frequently downplay the importance of effectively managing their supply base and flow of materials.

Most mid-market firms view procurement as a transactional necessity rather than adopting proactive procurement management and giving themselves a strategic advantage to improve finished goods quality and cost. On many occasions, a severe disruption is what it takes to prompt senior executives from Sales, Operations, and Finance to appreciate the importance of strategic procurement.

That said, it is essential to move away from conducting procurement the same way. The ability to see the big picture, communicate, use data, and think long term is beyond important.

Be prepared to be proactive, which will assist in keeping ahead of the issues. Being in reactive mode all the time does not move procurement forward in a positive way. The goal should be strategic procurement.

How Spend Management Supports a Fast-Growing Company

According to Deloitte’s 2021 Global Procurement Officer Survey of 400 procurement professionals, efficiency and reducing costs are top priorities for CPOs in the next 12 months.

“The results reflect the changing role of the CPO, which now encompasses innovation, digital transformation, and introducing new products and services, among others,” - Ryan Flynn, Principal, Deloitte.

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That's where organizations develop the need for spend management, do more with less, and be more profitable, efficient, and proactive.

Because having total control over a company’s spending is a winning move for all, especially for fast-growing companies as they:

Have a lot of things to do, and find it difficult to prioritize on data and analytics.
Have excellent bargaining power/potential with suppliers (as they typically buy more), and procurement is a volume game.

Spend management is important to companies of all sizes across industries because the transparency and control over spending that it provides ultimately helps reduce risk, fuel growth, enhance efficiencies, and drive profit.

These attributes are particularly important for mid-market companies or fast-growing organizations who spend a lot of their time and money to drive expansion. If spend isn't managed well for these fast-growing organizations, opportunities get missed, and problems emerge.

A powerful spend management solution makes it easier for these companies to tackle the high amount of work and analysis alongside increased spending, including work across procurement, sourcing, supplier management, and real-time reporting.

Additionally, with a sophisticated spend management solution at their convenience, fast-growing companies can leverage real-time visibility into their spending to make smarter decisions and stay ahead of the curve.

Spend Management Cloud Solutions

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So what stops companies from conducting a spend management program?

There are many barricades to this winning strip, a few of them being:

disconnected and dispersed data,
data full of errors, inconsistencies, duplicate information, and misspellings, and
lack of skill or resources.

To overcome these hurdles, companies can leverage investment in a cloud-based spend management solution like Ignite Procurement to better organize, analyze, and manage their spending information, including full visibility into their procurement data.

Ignite procurement offers a one-stop solution to spend management with features like:

Advanced security protocols to store and handle your data securely.
AI and machine learning-based algorithms to link, clean, and enrich spend data.
Sustainability-focused sourcing, campaigns, and supplier assessments + data enriched with CO2 emission levels, to help you drive your sustainability efforts forward.
Easy-to-use, visually compelling, drag-and-drop dashboards to simplify complex information.
Spend and procurement analytics to drive insights across data sources.
Initiatives and task features to plan your activities and design workflows.

This comprehensive set of capabilities and resources can kickstart your transition from transactional to a strategic spend management organization.

To evolve your procurement organization, you must make it a priority to begin the process. and we will work alongside you to provide the catalyst for change.