Procurement and Basic Spend Management - Spend Management 101

Spend management is fundamental for every successful business. It prevents unnecessary spending and helps organizations establish and maintain data accuracy while upholding thriving supplier relationships.

Every procurement professional must have a handle on spend management. We dig into the basics of spend management and analysis, helping you understand its importance in driving your business profitability and minimizing risk.

Spend Management 101 – What Should you Know?

First of all, there’s a difference between spend analytics and spend management. Many people mistake the two as interchangeable, but this isn’t the case. According to Sievo, “Spend data management is the process of collecting, sorting, and managing spend data,” and spend analytics “is the process of collecting, cleansing, classifying, and analyzing spend data through either dedicated software or one-off spend cubes, specifically.”

Secondly, every procurement professional must have a deep and functional understanding of ROI and how to find it. A company’s ROI is that formula that allows the organization to evaluate its investments to make sound judgments on how well a particular investment is performing compared to others. Ultimately, ROI indicates how well your company is being managed. Without knowing exactly where you are and how you are doing, you can’t grow and move forward.

Finally, we want to highlight the importance of understanding how everything works together. While it is true that most organizations already have some sort of spend management program in place, procurement must understand all of the moving parts of spend management so that they can then know how to strengthen it.

Involving All Stakeholders in Spend Management

For your organization to thrive in spend management, it’s critical to keep investors in the loop and involved in your strategy. Make sure you get visibility into all the data your stakeholders have collected. You must have access to clean and classified data. To get started, find all your stakeholders and make sure you’re asking the right questions.

Ask yourself:

• What are we buying?
• How much are we paying, and how much have we purchased?
• Who is doing the purchasing, and who are we purchasing from?
• How often are we making these purchases, and are we getting what we were promised in the product or services upon delivery?
• How does the data we are collecting compare to previous years?

What Spend Categories Should I Use?

Also known as taxonomies, a spend category can simply be described as the common sense grouping of similar expenditure products or services—like the spend category of “information technology,” which could include IT software and hardware.

Unfortunately, many systems are a mess because of miscategorized and unorganized taxonomies. To avoid becoming a statistic yourself, make sure your company’s level one categories are set correctly and clearly. It’s crucial that there are no ambiguous terms that leave room for error.

For example, if you have “professional services” and “IT services” as categories, make sure there is a clear division and concrete understanding of both things, including how they differ from one another. For instance, if you have “IT” but have both parts and services, make sure it’s clearly defined.

If you don’t have access to clean data that is properly classified, you will never have reliable spend analytics.

Set Spend Management KPIs

While this seems like it would be a no-brainer, it’s crucial procurement is careful and intentional about its KPIs. Consider your operations at the moment. Do you actually have the data you need to set, measure, and act on KPIs?

If not, we can help. Start by reading our article on setting stellar KPIs in 2022. Make sure you begin with the basics. Supplier spend KPIs is a solid place to start at almost any organization. Although it does require effort and diligence, KPIs will help you see what needs to change in your spend management.

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