What is Spend Management and How is it Influencing Today's Businesses?
This article has been guest written by Nick Shaw, Chief Revenue Officer (CRO) of Brightpearl – a retail-focused digital operations platform. Nick’s role encompasses global marketing, alliances and sales for EMEA. Nick has written for sites such as Hubspot and G2.
The term “spend management” sounds simple enough, but it’s a little more complex than you might think. Spend management is a process that allows you to see where you’re spending, and where you need to spend, and encompasses a broad range of business operations. It’s central to a business’s profitability and decision-making process.
An effective spend management strategy involves limiting costs and maximising value for money. When selling or acquiring goods, spend management is the only controllable factor.
It's best understood through an example. Let's imagine someone shopping for a family dinner with a spend management strategy in place.
The shopper cannot control how hungry each person will be. Neither can they control the stores changing the prices of items. What they can control is the supermarket they choose to go to, and how much money they spend.
The shopper chooses to go to a cheap store and buys a bag of potatoes. This is because potatoes are cheap and nutritious. Here, the shopper has used a spend management strategy to maximise value for money.
With a solid spend management strategy, businesses are confident in their spending decisions. Spend management leads to decisions based on data, rather than intuition.
Nowadays, spend management is crucial for business survival. This is because it no longer just means recording outward payments. In today's world, spend management is far more integrated and influential than that.
Before going any further, let's dig deeper into the umbrella term, “spend management”.
A Summary of Processes that Constitute Spend Management...
S2P – Source to pay
Source to pay is the process of sourcing, negotiating, contracting, and finally, paying a supplier for their goods and services.
S2C – Source to contract
Source to contract is the set of processes in place which help you decide which supplier to contract. S2C involves assessing options before contracting proceeds.
P2P – Procure to pay
Procure to pay involves requesting and buying a service, but skips sourcing a supplier. P2P covers the buying process of acquiring goods and services.
P2I – Procure to invoice
Procure to invoice involves every step following confirmation of desire to contract. So, for a procurement manager, it might involve reaching out to contractors on behalf of the company.
I2P – Invoice to pay
Invoice to pay is what happens before processing the invoice and making the payment. It involves approving the invoice.
As you can see, spend management overarches every step of a company’s procurement process. The strategy influences a lot of decision making, for both a procurement manager and a business owner.
How is Spend Management Influencing Today’s Businesses?
In the last few decades, technology has changed everything. Businesses have had to undergo digital transformation and re-assess their spend management strategies. Technology has also changed the influence spend management has over a business’s success.
Spend management is no longer thought about as a file full of expense forms or an Excel spreadsheet. Rather, it's a tool that links to risk management, analysed data, and innovation opportunities.
Digital transformation is by far the biggest change in recent years. The rate at which technology develops is out of business owners’ hands. Spend management, however, is within their control. If managed well, spend management will influence a business’s exposure, efficiency, and longevity.
Some Examples of How Spend Management is Influencing Today’s Businesses:
1) Spend management is enhancing a business’s ability to be agile
Amongst other things, the digital age enhances communication and speed of action. Technology allows for a hybrid model of operations. A business can be completely centralised at one end of a transaction and decentralised at the other. This enables flexibility and freedom of choice.
2) Spend management strategy is impacting efficiency
Spend management involves the assessment of each step in a transactional process. It involves deep thought over how something could be more efficient. This thought process means decisions are analytical rather than emotional or impulsive. In turn, this leads to better decisions and more profit.
Digital transformation drives market expansion, but that doesn’t mean that it's a good idea to throw money at technology without careful consideration. You should integrate investing in tech with smart decisions, led by spend management.
Spend management is a strategy that analyses specific areas of a process, such as inventory tracking. It allows businesses to make informed decisions about where technology is necessary in their process.
For example, a spend management strategy may lead to the removal of a human element in a process and the replacement with AI. That decision could improve performance, consistency, and efficiency.
3) Spend management is influencing your business culture
A good spend management structure involves each part of the business. It also needs to involve each employee. Transparency is key. If everyone is aware of the spend management plan, there will be a sense of communal goals. This will improve motivation, employee relations, and communication between departments.
Tips for Creating or Restructuring a Spend Management Strategy
1) Install accounting software
Accounting software centralises and organises a business’s finances. It means having everything audited in one place via an external source. This allows business owners more freedom and comfort knowing all accounting is sorted.
2) Invest in cloud computing
The cloud. The invisibility of it might sound scary. Don't worry, it's a great way to store all your company's software and data. Cloud software stores data on the internet rather than individual devices. With a cloud computing service model, it’s possible to access your company files from any device.
Many businesses use the cloud, from Google to Netflix. Cloud systems are even used to improve the level of service the public sector can deliver to citizens across the UK. See, the cloud isn’t quite as scary as it might first sound.
You Can’t Afford to Ignore Spend Management
To summarise, spend management is integral to every decision made by a business. It is a structure which can support your business in times of economic uncertainty. Not only this, but it’s a key influence on profitability.
In the age of digital transformation, it has become wise, if not completely necessary, to analyse spend management strategy and make informed decisions based on data. Whilst tech is an enabler, spend management is the core to these decisions.
The first question to ask yourself is, where can I improve the efficiency of my processes? The second is how can I do so whilst getting the most for my money?