Why Strategic Spend Management is Crucial for Your Business Today

Does your business effectively manage all direct and indirect spend? What portion of your spend is actively managed? Do you have any plans to monitor and minimize the remaining unmanaged portion?

There can often be big gaps in spend management. How can you fill these gaps and get the entire spend under active management?

For example, despite having contracts with vendors and agreed terms, internal teams continue to make purchases outside these contracts. Such ad-hoc maverick purchasing often happens in the day-to-day procurement of goods and services.

Many of these small, hard-to-track purchases make up a considerable portion of your spend. This not only increases the overall spend but also adds to non-compliant purchases.

To get a handle on these purchases and fix similar issues, you need to engage in strategic spend management.

But what does this mean? Let’s find out.

What is Strategic Spend Management?

Strategic spend management is a conscious effort to control and improve the way a company spends its money. This essentially means effective management of spend across the end-to-end procurement process.

Whether it’s a sourcing event, contract negotiation, compliant buying or purchase order-based payment approval, it involves comprehensive management of spend in the end-to-end procurement process.

Strategic spend management enables real-time spend visibility and comprehensive spend analysis to help businesses monitor spend down to the line-item level. This is an ongoing process to identify organizational spend that must be brought under management. It also helps optimize spending habits and supplier relationships and mitigates potential risks.

Once you identify unmanaged spend, you can build a strategic savings plan and then take steps to take active control of this spend to realize actual savings.

It’s Not Just About Savings

Strategic spend management isn’t just about procurement and accounts payable. It extends across different teams and functions such as planning, budgeting, contract management, inventory management and supplier relationship management.

Additionally, strategic spend management isn’t just for large enterprises. Small and mid-sized businesses can also benefit by deploying a strategic spend management program across different functions. With such a program, they can better understand where they are spending money and what return they are getting.

How Strategic Spend Management Benefits Procurement

Done right, strategic spend management helps monitor and control procurement-related costs. Here are some ways it can optimize spend and improve the procurement process:

• Improves Sourcing:

Strategic spend management identifies vendors with whom the business spends more money than others. It also aids in effective management of spend with these vendors. Additionally, it helps assess if these vendors are delivering as per the expectation and justify the investment.

• Boosts Spend Visibility:

Strategic spend management provides access to real-time spend data and visibility. Accurate data improves decision-making in procurement. It also supports forecasting efforts, which in turn reduces maverick spend.

• Increases Efficiency:

By automating most of the time-consuming manual tasks, strategic spend management optimizes the procure-to-pay cycle. It simplifies complex procurement processes such as strategic sourcing and contract management.

• Improves Risk Management:

Strategic spend management provides tools to assess market conditions and identify potential risks. It also helps develop plans to prevent and mitigate these risks.

How Spend Management Software Helps

Amid the prevailing uncertainty in the economic environment, investing in strategic spend management technology makes a lot of business sense.

In addition to real-time spend visibility, spend management software offers comprehensive spend analysis that helps users identify savings opportunities and launch new savings projects. It can turn potential savings opportunities into structured projects, with clearly defined milestones and performance metrics.

Additionally, with a savings tracking functionality, users can build, track and manage their savings pipeline by collaborating with different teams and stakeholders in real time. They can also leverage advanced features such as savings and compliance dashboards, performance benchmarking and savings validation capabilities.

Learn how GEP’s strategic spend management program can help your business get more spend under management.