What is Spend Management?- Definition
Spend management is the tried and true practice of comprehensively managing all supplier relationships and company purchasing to identify every dollar spent and get the most out of it. Spend management best practices integrate and automate all spend-related activities from source-to-settle so that buying happens as planned and suppliers get paid in compliance with contracts.
Understanding Spend Management
Spend management is a set of practices that ensure organizations make procurement and sourcing decisions in the interests of both the bottom line and company efficiency. Spend management maximizes value from company spend while decreasing costs, mitigating financial risk, and improving supplier relationships. Spend management is primarily related to procurement and encompasses spend analysis, strategic sourcing, and supplier relationship management. Spend management software helps chief procurement officers and chief financial officers maintain devote visibility.
More addressable spending can be brought under management by taking a big-picture view of spending, driving more organizational value. The value is derived from:
- Greater efficiency – from automating manual, error-prone processes
- Lower supply costs and risks – by knowing exactly what is being bought, from whom, and for how much
- More effective collaboration – between trading partners and cross-functional teams
- Improved productivity – by freeing time and resources to focus on more strategic activities
Why is Spend Management Important?
Investing in a spend management solution can mean the difference between a failing and a thriving company. Spend management helps you pinpoint where exactly you’re losing money and where you can optimize spending habits, reduce risks, and streamline cash flow.
Many of us already have some sort of spend management in place with our finances. Take, for example, the average household – groceries to buy, bills to pay, kids to support – i.e., many expenses. By frequently checking credit card statements and analyzing your household’s spending data, you can identify trends and keep track of how much and when money is going out. This allows you to budget accordingly and ensure that sufficient funds are available at the correct times. Simply put, personal spend management will enable you to live.
The same goes for companies. They need to spend management to stay in business and improve their bottom line. Effective spend management will leverage real-time analytics and insights to drive better decisions, create value, and cut costs.
How does Spend Management Improve Procurement?
Because spend management helps control procurement-related costs, it makes sense that an efficient spend management solution improves the overall procurement process. For example, a company might benefit from a purchasing standpoint by investing in a spend management strategy.
1. Better sourcing opportunities
By mapping out all the costs involved in the supply chain process, you can identify which suppliers yield the most value and which ones are not. In addition, supply chain management becomes more efficient because you have a clearer picture of the most cost-effective vendors.
2. Increased process efficiency
Spend management software eliminates manual processes that take up valuable time and money and optimizes procure-to-pay processes like strategic sourcing and contract management.
3. More spend visibility
Spend management systems provide accurate and timely data that lead to more insightful decisions around procurement. In addition, sprint analytics support forecasting efforts that reduce maverick spend and capitalize on savings opportunities.
4. Better risk management
An end-to-end spend management solution provides the means to assess the market, identify risk factors, and develop plans for navigating around them before they occur and well into the future.