The Economy Digest | 7 Steps to Optimize Spend Management
Finance Planning

7 Steps to Optimize Spend Management

7 Steps to Optimize Spend Management
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Spend management refers to the process of collecting, collating, managing, categorizing and evaluating spend data. It can help improve efficiency, regulate compliance, reduce procurement costs and monitor and control workflows.

Spend management affects various activities around the procurement cycle, such as supplier management, inventory management, contract management, requisition processing, planning, budgeting and more. an optimized spend management process offers a lot of benefits to organizations.

Optimizing the Spend Management Process

Here are some ways to optimize the spend management process

1. Identifying expenditure sources

Expenditure sources are across the procurement of services and goods and include rent, licenses, salaries, utilities, marketing and advertising, training, insurance, and more. However, these sources can be different in different businesses depending on their nature which makes spend management activity unique for every business. Identifying these sources is an important yet challenging task. To make it easier, you can take the help of automation or ask a team of department heads.

2. Centralizing expenditure data

After identifying all expenditure sources, all the information must be collected in a central database. Automation is a great way to maintain records of the spend data. It is also important to mandate records for audit at certain intervals. This data is critical and must be handled responsibly. The organization should appoint an individual responsible to handle it and it must not be accessible to everyone.

3. Verifying data

The collected and stored data must be cleansed. It means that any duplicates and mistakes must be removed, maintaining the data in a single currency. It is important to have cleansed, verified and accurate data since this data is analyzed and interpreted to make important business decisions.

4. Creating spend data categories

Expenses can be of many types. It is important to categorize the data into various spend categories aligned with the organization’s objectives and operations. It makes it easier to analyze data and keep it maintained neatly. Data can be categorized under employee salaries, marketing expenses, supplier contracts and more.

5. Analyzing spend data

After categorizing, the next thing to do is analyze the data. Analyzing the classified data helps give real-time visibility into the organization’s spending patterns and highlights recurring spend activities. It also helps calculate averages, and percentages to quantify cost savings and differences.

6. Defining a strategy and executing

Based on the collected, sorted and analyzed data, you can make an effective strategy for spend management. This can include implementing and executing changes that affect all stakeholders. Therefore, it is necessary to include the stakeholders in the decision-making. It is a challenging process and needs the acceptance and collaboration of all stakeholders to be successful.

7. Forecasting

The collected data can also help you forecast the future. When you get reliable and accurate data from spend management, it becomes easier to identify cost-saving opportunities and you can estimate the future impact. It gives your important insights needed to adapt to changes in supply and demand, helps you be better prepared for the future, and improves supplier relationships.

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