Spend management is the method in which companies may optimize and control their budgets by way of what fund are spent. It usually involves cost trimming of those expenses typically found in conducting business. The costs usually appear as operations expenses, or are categorized as “Selling, General and Administrative” (SGA) funds, though they may also be associated with other areas of the business supply chain.
1. Understand the role of financial management. The process of financial management involves holistically viewing the operational and management activities that drive the business. The process may include spend analysis, procurement, sourcing, payment settlement, receiving, ledger accounts and accounts payable. Through understanding the aspects of financial management, businesses may more easily adopt strategies to break down and curtail company finances and spending.
2. Conduct a spend analysis. Regardless of whether a company chooses to perform this task internally, or to utilize a spending management technology solution, it is essential to analyze current spending for any business.
However, using a professional solution will more easily coordinate and organize the activity so that all of the essential components of spending management may be represented properly. Any company can benefit from the spend-data software and management initiative implementations of a competent spend analysis technology solution.
3. Revamp company branding. Sophisticated business environments have recognized the importance of corporate branding as part of an effective overall spending management strategy. This is because so much of a company’s branding informs its level of enthusiasm both inside and outside of the business.
By aligning branding strategies, companies may better simplify and convey its procurement department, which encourages collaboration among employees. When staff is better engaged, there is a much better chance that converting toward a comprehensive spend management program will be more successful.
4. Incorporate supply management automation. Companies that focus on creating efficiencies in their operations processes usually find that it affects their bottom line extraordinary ways. The initial investment of automation for routine tasks not only saves time, but provides more effective and secure business operations.
For example, procurement automation and Internet-based sourcing technologies can offer very successful supply management improvements and savings. The most continuous improvements in spend data management programs rely heavily upon supply management.
5. Analyze and delegate labor-intensive tasks. Many companies continue to rely upon very basic manual spreadsheet applications to classify and analyze spend information. The danger in this is three-fold: 1) human error and 2) the resultant financial chaos, and 3) time wasted with input and correction of errors. It is estimated that as a result, these activities account for from 12% to 15% of the sourcing cycle. They also consume from 30% to 50% of a manager’s time.
In addition, the lack of expertise that managers may have at classifying spend data leaves a fertile ground for miss-classification and further error, at great expense to the company. Decisions are made based upon financial data on a regular basis. No company can afford avoidable financial mistakes. For example, inaccurate analyses usually result in a failure to identify savings, purchasing power and opportunities for improvement. Therefore, it is essential to ensure that the most thorough spend management analysis is conducted on an annual basis.
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