What is Spend Management?
Spend management is a process of collecting, collating, maintaining, categorizing and evaluating spend data to reduce procurement costs, improve efficiency, monitor and control workflows, maintain quality and regulate compliance. Spend management affects and manages various activities across the procurement cycle. It includes requisition processing, budgeting, planning, supplier management, contract management, inventory management, sourcing and product delivery. Every organization, regardless of their size and type, can take advantage of Hera to digitize their spend management across departments.
The Spend Management Process
Step 1: Identify sources of expenditure
Sources of expenditure range across the procurement of goods and services. It may also include advertising and marketing expense, insurance cost, business travel etc. Sources of expenditure vary from business to business, depending on the nature of the business. Hence, spend management is an activity that every business must carry out uniquely.
Although identification of sources of expenditure is necessary; identifying and analyzing an exhaustive list of expenditure sources is a challenge. To help overcome this challenge, Hera spend management allows corporations to manage their spend management and procurement activities in one platform. A bird’s-eye view into the spend infrastructure also help identify overlooked savings opportunities.
Step 2: Centralize all expenditure data in a repository
Ideally, the finance and accounting department oversees expenditure data repository. With the help of automation, they can capture and maintain records of spends. Mandating records for audit at regular intervals are simplified with Hera.
While identifying sources of expenditure may have its challenges, centralizing the data into a repository is not easy. Hera spend management solution makes it simple for corporations to capture the data easily. The data is sensitive and critical and hence cannot be accessible and visible to everyone. Hence it is necessary for the organization to appoint a responsible individual or a team who can categorize and process the data and have a unified view of the spending structure.
Step 3: Verify and cleanse data
Since expense data is analyzed and interpreted to make decisions, it becomes imperative that such information is accurate. Validating transaction entries include tallying the data entries with receipts, inventory, communication etc. Cleaning the data includes activities such as removing duplicates, errors, spelling mistakes, and such. Hera has three-way matching algorithms which allows corporation to remove duplicates easily.
Since spend data may not always be accurate due to its manual processing, differences in formats, data fields, etc., standardization is necessary. To do so, establish a format for versatile domains such as currency, dates, etc.
Step 4: Categories the spend data
Spend data comprises various types of spends. These categories and classifications are created depending on an organization’s objectives and operations. It is necessary to keep in mind that the groups prepared by the authorities for this classification should cover all spend to bring them under one view. Based on the information that one needs, data can be categorized in more than one way. For example, IT services may be classified as ‘Types of IT services’ or tagged by its ‘supplier/vendor name.’ Hence, it becomes necessary for an organization to prioritize its needs, which requires the understanding of spend per supplier/vendor or spend per activity.
Step 5: Analyze spend
Analyzing the collected, cleansed and classified spend data will highlight recurring spend activities and other anomalies. It’ll help in calculating aggregates/averages, percentages, etc. Spend management can be done by analysts manually or by technologies such as artificial intelligence (AI) and machine learning (ML). Hera allows corporations benchmark their employee compensation costs or outsourcing costs and derive a cost-benefit analysis by calculating the ROI.
Step 6: Strategize and execute
Execute changes concluded and decided upon based on the project, if introduced from scratch, can be rolled out in phases and spend data can be collected and analyzed department-wise if not organization-wide to test and correct the procedure.
Change management is often challenging activity, and for it to be successful, it requires acceptance and participation of all stakeholders.
Step 7: Forecast to foresee
Data collected can help you forecast events. With spend management, obtaining accurate and regular data is secure and effective. It enables you to track and identify trends in data to forecast spend scenarios and plan for the slacks and booms. Data forecasting depends on the accuracy of the data collected and the ability of the analyst. However, with e-procurement systems that use Artificial Intelligence (AI), categorizing and managing spend data has become simple.