Procurement success in 2023 with our Strategy Course

Spend Management The Ultimate Guide of 2023

Spend management is an important process to reduce losses and mistakes. However, how do you manage your spending?

In this article, we will discuss what spend management is. We will tell you the challenges and benefits of spending management. Also, we will tell you how to improve the spend management process if you already have one in your business. 

After reading this article, you will gain a deeper understanding of what spend management is. Thus, you will know how to effectively implement it in your business. 

Whatis Spend Management?

In the past, many businesses relied on tools like spreadsheets to manage their spending. However, these manual processes are ineffective and cost a lot of effort, time, and money. Thus, businesses switched to automation to solve their cash flow problems.

Spend management refers to the management and the continuous improvement of the company’s spending. It is a set of practices that ensures smart procurement decisions and efficient purchasing. To simplify, it is used to monitor and assess business costs. 

Spend management aims to maximize value from company spending while lowering costs, mitigating financial risks, and enhancing supplier relationships. Spend management usually includes strategic procurement processes such as category management, supplier management, inventory management, and product development. 

Although spend management is commonly executed by procurement, it impacts many internal and external stakeholders of a company concerned with budgeting and planning the company’s future profitability. 

The Significanceof Spend Management

Spend management is primarily used to control and lower expenses where they are not needed. It is used to increase the efficiency of allocating capital to generate higher revenues with lower functioning costs. 

Thus, it is significant as spend management allows business owners to see the movement of capital throughout the system and helps keep track effectively. Additionally, spend management helps you know what, when, where, and how your money is utilized and how you will be able to make the right decisions. 

For you to keep a record of all your spending and which resource is bringing more value or profit, spend management is necessary. Just like budgeting at home, a household allocates a budget in which spending and savings are addressed for the full month.

Ultimate Supplier Plotting Checklist 2023

Challengesin Managing Spending

1. Unclear purchasing policies

The procurement policy is the document that tells the responsibilities and boundaries in using the money of a company. If the purchasing policies are poorly communicated, the procurement department or teams may not know what is expected of them. Thus, these misunderstandings may lead to non-compliance, disapproval, and maverick spending. 

2. Human error

Manual processes in spend management cause many mistakes and errors in data. The susceptibility of errors is more frequent when there is more human input involved. Thus, the more you streamline purchasing, the better the chances of avoiding duplication of effort and human error. 

3. Fear of transparency

Some teams or professionals do not want their co-workers to know how much they spend as they will be criticized and evaluated by a certain standard that can make them uncomfortable. Unfortunately, transparency must never be an option when it is the company’s money that is at stake. 

The Benefitsof Managing Spending

1. Visibility of expense data

It is hard to pinpoint where the problem seems to be in the process when your data is scattered across many excel, emails, forms, and files. This is where the spend management can help you. 

Spend management helps you track viable expense data for future reference. As it establishes a structured collection of data, you will be able to see trends in your spending. Thus, you will determine where to move your money to get the most value out of it. 

2. Prevents maverick spend

When employees have too much leeway to make expenses at will, the chances of purchasing from unvetted suppliers, overspending, and creating a budget hollow are high. 

Therefore, requiring prior approvals for certain transactions may help you mitigate overspending when employees purchase materials. 

3. Eliminate fraud

There are stories where employees use company cards to buy their personal stuff. Of course, they intend to pay it back. However, when no one sees it, they simply decide to pretend as if nothing happened. This issue may snowball which may take the whole organization down. 

That is why having dynamic controls through spending management determines what employees can buy and what is out of policy. In this way, you can prevent fraud and make sure that only what the company needs will be acquired. 

4. Better control of the expense process

There are a lot of things that can go wrong in the expense process with the amount of independence a company gives to an employee. Spend management helps establish detailed oversight rules that expenses need to pass before approval and assists in limiting reckless spending. 

5. Faster procurement operations 

Spend management speeds up the procurement process as employees do not need to manually get approval for every purchase that they will make. Through spend management, they buy from the budget allocated to them and the procurement department checks it for the last time to ensure everything is right before approving the purchase. 

Enhancing SpendManagement Process

1. Know your spending

Of course, you cannot manage what you cannot identify. Thus, the first step is to know the sources of expenditure which encompasses both direct and indirect spending. 

This process involves gathering purchase orders, receipts, invoices, and supplier payment data. There is no room for error in gathering this data and it can be a hard task. Hence, spend management software is a good investment as it records expenses digitally. 

2. Centralize expense data

Once you know all the sources of your expenses, you must collect information and put it in a central database. Automation can help maintain records of spend or put all your expense data in a digital spreadsheet. 

3. Verify the accuracy of data

The accuracy of data must be checked and filtered. This entails steps such as correcting spelling mistakes, removing duplicates, and ensuring that all spending data is recorded in the same currency. 

4. Create spend categories

Expenses come in all forms which is why it is necessary to establish top-level spending categories that align with your company objectives. Putting all of them in their respective categories helps you better understand all the spending information that you collected. 

5. Assess spend data

In this process, you must conduct a detailed spending analysis that will allow you to see real-time visibility of your company’s purchasing patterns and history. Thus, enabling you to have insight into supplier benchmarking and cost opportunities. 

6. Create a strategy

Based on the data that you gathered and assessed, you can now form a spend management strategy. This involves implementing changes that may affect all the stakeholders in a company. Therefore, you must ensure that they are involved in the implementation and decision-making process.

    Frequentlyasked questions

    + What is spend management?

    Spend management is often used to monitor and assess business costs.

    + Why is it important?

    Spend management helps you know what, when, where, and how your money is utilized to make the right decisions regarding your spending.

    + How do you manage your spending?

    The first thing you should do to manage your spending is to know how much money you used in your company. Once you have this data, you can now form a strategy to manage your spending.

    Negotiation Course For Procurement Professionals

    You'll get a certificate after completing the course

    Rated 9.2/10 ★★★★★

    Our clients work at
    We Educate Procurement Professionals – Procurement Tactics
    Share This