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- October 02, 2018
- Neil Patterson
- Spend Management
Unifying business spend management with technology isn’t just a system implementation. It’s a change program with far-reaching effects.
The very act of connecting the whole source to pay process—procurement, expenses, invoicing, and payment—on one technology platform delivers significant efficiencies and cost savings in and of itself. But there are many ways the value of these cost savings can be realized throughout the company.
Let’s look at the 5 major ways in which a holistic approach to business spend management delivers savings and value, ranging from direct cost savings to more intangible but arguably more important strategic benefits such as increased agility and better decision-making ability.
1. Reduced Cost of Goods and Services
Lowering the overall cost of the goods and services you purchase is the biggest and most obvious opportunity. Savings come from:
- Avoidance of unnecessary purchases
- Savings from lower prices
- Increased capture of early payment discounts
- Reduced payment of duplicate and improper invoices
These all represent hard savings that go directly to the bottom line. Furthermore, these savings can be increased over time.
2. Increased Procurement Leverage
Automating many sourcing, supplier management, contract management, and catalog management activities frees up time for procurement professionals to do more valuable activities. It also gives them easy access to better and more complete data. Those two things together allow them to expand the range of spend they influence to include more purchases in more categories. Savings result from:
- Increased capacity for finding savings opportunities
- More and higher volume discounts
- Lower prices due to improved supplier relationships
- Reduction of costs by avoiding unwanted contract renewals
3. Process Efficiencies
It’s often hard to assign hard costs to process inefficiencies, but once addressed they add up to significant cost savings that can go directly to your bottom line or allow you to reallocate resources to revenue creation or cost-reduction activities. Savings in this category include:
- Reduced PO handling costs
- Reduced invoice capture costs
- Reduced invoice handling costs
- Reduced A/P & Procurement administrative support needs
- Reduced audit costs
4. Mitigated Risk
It’s even harder to assign numbers to savings from things that don’t happen. But, even if risk-associated savings are not included in the targeted savings total for ROI calculation purposes, potential costs of known risks should still be estimated and included in the overall business case. Once your system is implemented, increased visibility into supplier data will typically result in:
- Fewer problems caused by supplier non-performance
- Reduced liabilities caused by supplier non-compliance
5. Strategic Benefits
The hardest benefits to quantify, benefits such as increased transparency into the procurement process and increased visibility into spending and contract commitments may be as important—or more important—than direct savings opportunities because they give executives and business managers more and better information and enhanced controls. They can make better decisions, resulting in:
- Increased financial control
- Increased organisational agility
- Increased workforce morale & productivity
Multiplying the benefits
Many of the savings areas and strategic benefits outlined above have even greater potential when business spend management processes are applied across a large, geographically dispersed organization where no consistency of process nor central view of organization-wide spend has previously existed. These include:
- Ability to effectively take a center-led approach to procurement
- Ability to leverage the buying power of the entire organization.
- Ability to share and consistently leverage best practices globally
Neil Patterson heads up the Xoomworks Procurement Consultancy, Coupa’s largest European implementation partner. Neil has over 30 years of technical and sales experience in the IT industry, including building and selling two venture-funded technology startups.