Financial and procurement leaders fear end-of-month (or contract) shocks on company cards and expense reports. Purchases, even when necessary, typically avoid compliance and legal examination. They also hinder spend optimization by lacking bargaining leverage. Managed spend can boost cost efficiency. Spending trends and insights become more visible when spend is under management. But it takes buyer knowledge and preparation.
We’ll address these questions concerning a procurement plan to handle more of your procurement spend today:
- What is Uncontrolled spending?
- Why is it vital to manage spending?
- A business can increase spend under management by what?
- How can technology manage increased spend?
What is Uncontrolled spending?
Your organization’s procurement process doesn’t control unmanaged spend. Corporate cards, expenditure reports, and unauthorised purchases may be used. Unmanaged spend makes it hard for Procurement to track, report, or reduce for needless spend.
Sometimes unmanaged spend is split into addressable spend, which Procurement can control and enhance. Your complete cost may not be procurement-managed, but the procurement department can better control most of it.
Types of spend under management
Spending is varied. Procurement streamlines costs for everything from catered lunches to new SaaS tools.
Several types of spend go unchecked. Increasing these spends under supervision will boost cash performance:
- Tail spend: Small-dollar overhead spending that keeps the organisation running is indirect spend. Supplies, services, travel, and incidentals comprise this category. These purchases are frequently minor, but tail spend can be a major expenditure component. More tail spend under supervision improves cash efficiency.
- Maverick spend: Spending on a corporate card or expense report instead than through procurement. These purchases are often made by employees who think they’re saving money. Many buyers lack the contract or spending context to make decisions. Occasionally, maverick purchases may violate an exclusive or volume purchase agreement with established suppliers.
- Treasury spending: Non-procurement spending like FOREX payments that require currency conversion. Big purchases or off-shore supplier spending are commonly made via these transactions.
Why is it vital to manage spending?
In direct manager-approved spot purchase, unmanaged spend is not always unauthorised. But this form of spending generally reduces the organization’s leverage in pricing negotiations and spend control and analysis.
Reduced costs
Visibility into expenditure helps Procurement monitor transactions and manage costs through volume pricing, negotiation, exclusive supplier arrangements, and inventory management. Clear supplier management eliminates order repetition, wasteful spend, and overhead costs like invoice processing and employee efficiency.
More compliant
With spending controls, procurement ensures contract management. Internal and supplier compliance are required to ensure the organisation meets its obligations. Better contract performance strengthens supplier relationships, resulting in better contract terms, payment flexibility, and more.
Risk reduction
Problematic third-party risk is costly. Revenue is lost and mitigating expenses rise. Controlling spending reduces supplier non-compliance and fraud, lowering the company’s risk. Increased visibility makes fraud unattractive.
A business can increase spend under management by what?
Better budgetary controls are difficult for organisations with unmanaged spend. Implementing better spend control is easier with these best practices.
Formalise buying
Formal purchasing improves expense management. It specifies stakeholder spending category expectations and strategies to meet them. Help Finance, Legal, and Security set expenditure guidelines for all types.
Engage buyers
Staff want to spend responsibly. Poor buyer education often causes unchecked spend.
Once Procurement and Finance formalise the procurement process, make sure staff understand it, have clear standards for conforming to policy, and can get their queries answered. Managing company spend is easier with a clear, practical approach that every buyer understands. To scale with the company, include spending education in onboarding.
Workflows boost visibility.
Standardising intake and approval workflows helps everyone start requests. This gives all important departments visibility and access to approve requests and studies. Procurement collects data for spend analysis, supplier performance monitoring, order tracking, and category management, and Finance approves all expenditure.
Greater strategic sourcing
Preferential vendor lists greatly minimise out-of-process purchases. Also boosts financial efficiency in procurement. Strategic products improve pricing, supply chain resilience, sustainability, risk, and business outcomes.
Measure procurement.
Defining spend goals and tracking KPIs boosts programme success. It lists the procurement team’s and organization’s top goals. Note that this may not save money.
How can technology manage increased spend?
Fast-growing companies with various locations struggle to manage procurement spend. Spend management software lets procurement teams track expenditure, manage compliance, and analyse spend to maximise cash use.
- One platform for all supplier purchases that allows buyers independence while offering vendor counsel and dynamic expenditure limitations.
- Automation for approvals to route purchase requests to reviewers and enable a speedy, compliant buying process
- Line-level general ledger (GL) coding for consistent purchase allocation
- Eliminating human accounts payable with three-way matching, invoice reconciliation, and automated payments
- Spend analysis technologies that improve spend visibility and data-driven decision making
