Spend Control: How to Reduce Costs For Enterprise
As more and more businesses embrace digital transformation as part of their long-term business development planning, the procurement and finance functions are taking a more central and strategic role in guiding organizational decision-making. Spend control (also called spend management or expense management) is one of the most important ways in which procurement and finance teams can secure cost savings and build value for their businesses.
Generating an optimal return on every dollar spent doesn’t have to be complicated or even difficult. With the right spend policies and spend management solution, cutting costs and taking control of company spend is within your reach.
What is Spend Control?
When it comes to company expenses, every business wants to get the best possible value. Another long-cherished financial goal—spending as little as possible when you buy and cutting costs everywhere else—is the traditional intended meaning when the term “spend control” is used.
But modern businesses understand that cost control is not the same as spend control. They have access to, and control over, more information than ever before—including spend data, rich with potential insights that can guide everything from budgeting to process optimization and product development.
In the age where Big Data is king, companies understand that truly strategic spending is about not just managing costs or enhancing the bottom line, but leveraging business intelligence to secure an optimal return on investment (ROI) and generate as much long-term value as possible with every purchase.
Modern spend control supports this goal by helping procurement and finance teams evaluate company expenses and fit them into forecasts and budgets as effectively as possible. Through the use of digital technologies such as automation, centralized, real-time data management, and analytics, these teams can streamline procurement processes, develop stronger, more strategic supplier relationships (and pursue both strategic sourcing and supply chain resilience more effectively), and gain full control over company spend.
“In the age where Big Data is king, companies understand that truly strategic spending is about not just managing costs or enhancing the bottom line, but leveraging business intelligence to secure an optimal return on investment (ROI) and generate as much long-term value as possible with every purchase.”
Overcoming the Limitations of Traditional Spend Control
Like many other business processes, the effectiveness of spend management has traditionally been limited by reliance on paper documents and manual workflows. This arrangement creates a number of challenges for companies competing in a fast-paced, digital economy, including:
- High complexity, low integration. With spend data being drawn from diverse sources in multiple formats and without any guarantee of ready compatibility or accessibility, traditional spend management requires lots of manual review and protracted data conversions (including error-prone manual data entry).
In a decentralized environment, different departments and business units have their own documents and processes. This makes integration and analysis a multi-stage affair (and a major headache for accounts payable and finance) that still might fail to include essential information if a given department or business unit doesn’t have policies in place to limit rogue spend.
This data is often siloed as well, so finding ways to share the data in order to convert and analyze it adds another bottleneck.
- Lack of real-time visibility. With siloed data, lack of automation, and no way to readily verify compliance with spend management protocols, procurement and finance teams often can’t get a clear and accurate view of company spend at all, let alone in real time.
This can result in wasted time, resources, and money through redundant purchases, rogue spending, late payments on invoices (which creates further problems by damaging supplier relationships) and even increase the company’s risk exposure by permitting invoice fraud and theft.
- Inaccurate financial planning. If you can’t see what’s being spent, can’t be confident that the data you do have is complete, and don’t have effective tools for collaborating or communicating about the company’s finances, it’s incredibly difficult to create accurate financial reports, budgets, and forecasts.
Without accurate budgets, spend gets further out of hand. Growth may slow or disappear altogether. Waste and inefficiency run rampant and costs skyrocket as you struggle to manage not just your spend, but inventory levels and supplier relationships. And without effective spend controls or clear budgets, business units and departments can quickly spend themselves into a corner from which they may not be able to be extricated.
- Lost value and higher costs. Human error and slow manual workflows, combined with high resource costs for purchasing, using, and storing paper documents, can quickly erode whatever savings are achieved through economies of scale or off-contract “bargains.” And with no reliable way to monitor and streamline procurement processes (including purchase order and invoice processing), companies lose out on the increased value that comes with incremental process optimization.
Further value is lost through missed opportunities. Without real-time visibility and access to data, it’s hard to guard against supply chain disruptions, partner with vendors on shared initiatives and product innovations, or monitor cash flow to make strategic investments that promote growth without risking liquidity or business continuity.
For modern enterprise, this approach simply won’t cut the proverbial mustard.
Choosing a modern, cloud-based procure-to-pay (P2P) solution like Planergy is one of the most effective ways companies can rise above the challenges that come with old-school spend management and optimize company spending for both savings and value.
A centralized P2P solution gives companies a set of spend management software tools designed to help them control spending with an eye toward both cost effectiveness and cost efficiency.
Some of the benefits provided by spend management software include:
- Centralized data management and access removes silos, standardizes file formats, and integrates your software environment for better collaboration, communication, and analysis. Complexity drops while productivity rises.
- Customizable process automation streamlines and optimizes all your workflows, with support for contingency-based routing for approvals and automatic spending thresholds to reduce the need for human intervention—and the risk of human error and delays. Faster, more accurate processes lower costs and generate value by freeing team members to pursue higher-value tasks.
- Real-time visibility into spend and full control over spend policies. Guided buying, and full integration with supplier management and contract management eliminate rogue spend, theft, and invoice fraud.
- Powerful analytics which simplify forecasting, budgeting, and reporting, supported by clean and accurate data from diverse sources managed from a single integrated source.
- Logging the entire P2P lifecycle, from the purchase requisition to invoicing, and providing automatic data verification to further combat fraud and one-off spend.
Best Practices for Effective Spend Management
Implementing a centralized, cloud-based spend management solution should be your first step. But you can enhance the benefits it provides by leveraging its capabilities to enforce some simple but effective spend management practices, too.
- Start with spend analysis. All that spend data you’ve been accumulating (and hope to continue accumulating) is a rich source of insights that can help you determine the type and volume of spending you’ll need to do in the future. Better still, real-time visibility into current spending can help you identify potential problems and adjust your spend to solve them before they get out of hand.
Spend analysis is an essential tool in taking control of your spend. It reveals your company’s past spending habits and current spending behaviors while factoring in external business intelligence such as consumer behaviors, market trends and conditions, and global supply chain challenges, you can build more accurate budgets that help you optimize cash flow management while still possessing the flexibility to accommodate the unexpected.
- Smart spending is strategic spending. You need a spending strategy. Once you’ve conducted your spend analysis, it’s time to leverage the insights you’ve uncovered to chart a financial course through the months, quarters, and year ahead.
Prioritize communication with all the stakeholders involved. Collaboration will not only help to ensure accurate forecasting and informed budget-crafting, but boost engagement and ensure everyone is aware of their responsibility to comply with spend policy—as well as how doing so supports the growth and long-term success of your organization.
Make sure your spend strategy includes standardization and reporting protocols for all payment methods—including both physical corporate cards and virtual cards, which are two of the methods most commonly used in rogue spend. Guided buying and other controls will enforce contract compliance, minimize budget variances, and ensure all transactions are captured in real time and don’t get “lost in the shuffle.”
- Practice good data discipline. Centralizing your data is crucial to successful spend management. But you also want that data to be as clean, complete, and useful as possible, so it’s important to:
- Classify all areas of spend appropriately. Examples include materials, rent, payroll, training, marketing, utilities, etc. A fully integrated P2P solution helps immensely in this area, and also supports strategic supply chain development through optimized procurement category management for both direct and indirect spend.
- Secure data while maximizing accessibility. A cloud-based data management platform makes it easy for folks to access, review, and analyze the spend data they need in real time, from any platform or device. Make sure that data is protected by both enhanced data encryption and leveled, role-appropriate access (for example, through the use of single-sign-on (SSO) accounts) and your teams can perform their duties, submit expense reports and budgets on time, and collaborate effectively without creating needless risk due to unauthorized access.
- Squeaky-clean data is best. Effective spend management requires clean data, i.e. information that’s up-to-date, accurate, and complete. Process automation can eliminate human error by automatically populating fields in reports, budgets, contracts, etc. Automatic verification (e.g., three-way matching) can confirm the accuracy and completeness of data, as well as eliminate redundancies and route exceptions for correction.
Spend Control is Your Secret Weapon in Generating Value and Cutting Costs
Everybody appreciates a bargain. And when you have full control over, and real-time visibility into, your spend, it’s much easier to ensure every purchase your company makes is a strategic one. Invest in spend management software. Engage in regular and proactive spend analysis. Implement and enforce spend policies and procurement processes built around value as well as cost savings.
The return on your investment will be lower total cost of ownership, better supplier relationships, and a healthier bottom line.
PLANERGY Gives You Real-Time Visibility into and Full Control over All Your Spend