Spend management is an issue for most businesses. Uncontrolled spending creates major problems for organisations of all sizes – regardless of budgets and financial strength.
Generally, most businesses struggle to identify spend culture as a problem until an abnormally high figure appears in company expenses. Often, this will lead to reactive decision making, all-out-panic and chaos in procurement teams.
In this blog post, we’ll look at what spend culture is and how you can use technology to proactively manage company expenditure.
What is spend culture?
Spend culture refers to all factors that influence how a company allocates capital and resources. Although a general concept, the point of spend culture is to focus on why and what you’re spending on.
Maverick spending and cash leakage, two prominent procurement buzzwords, are terms used to describe uncontrolled purchases. In contrast, spend culture defines your organisation’s entire purchasing process – from the need to buy goods or services, through to employees making payments.
There’s an assumption that spend culture is bad for business – it’s actually, quite the opposite. With proactive thinking and the right processes in place, spend culture helps your organisation get value for money.
Overspending and spend culture
Typically, overspending is reported in your indirect spend. This type of expenditure refers to goods or services that aren’t contributing to the bottom line of your business. Most common purchases are buying office supplies, repairs, recruitment and training costs.
Let’s take this example of the United States Department of Defence spending $7,600 on a coffee pot. The initial reaction is to fire the employee who made the purchase or sack the financial controller who let it slip through.
Although it’s natural to think this way, it doesn’t solve the issue. For your spend culture, think about the factors within your organisation that lead to out-of-control expenditure.
To tackle this, you should ask questions like:
- Is there an approvals process in place?
- Are all employees allowed to make costly purchases?
- Is anybody taking note of what we’re spending on?
Generally, if a business overspends it’s because there isn’t a spend management process in place. Often your company will spend on essentials and day-to-day maintenance, but no buying processes and approvals can destroy your spend culture.
How can technology help?
The first step to improve your organisation’s spend culture is to invest in professional spend management software. In the era of digital transformation, there’s many eProcurement solutions available – the key is to select the right software for your business.
Typically, procurement software covers three main components, Purchase to Pay (P2P), Source to Contract (S2C) & Supplier Management (SM).
- P2P – provides a guided shopping experience and ensures buyers purchase from approved suppliers. With P2P software you can set access permissions to enforce procurement policies and ensure spend compliance.
- S2C – automates the end-to-end process an organisation undertakes when sourcing for products or services. S2C software compares suppliers in electronic auctions, enabling you to secure cost savings in your supply chain.
- SM – gives you complete visibility of the information, interactions and ongoing performance of your entire supplier database. Successful SM strategies deliver value and reduce risk from a buyer/supplier agreement.
Many eProcurement vendors allow you to select the modules that match your business needs. However, the most effective way to beat spend culture is to implement an integrated Source to Pay solution (iS2P).
iS2P brings the entire procurement lifecycle under the control of a common system and combines P2P, S2C and SM. Through the automation of the entire source to pay process, you can drive savings and enforce spend compliance.
Now that you’ve selected the right eProcurement software, the next objective is to align your procurement processes to match your desired spend culture. To achieve this, you should consider purchasing approval routes, compiling a database of approved suppliers and internal user permissions.
Positive spin to spend culture
Most of the time, spend culture is viewed negatively. Instead of tackling the issue proactively, businesses tend to enforce saving measures, such as hiring freezes. For your workforce, that can lead to confusion, misunderstandings and pointing the finger at others.
If you implement the right eProcurement solution and define your buying processes, you’ll promote a healthy, long-lasting spend culture throughout your organisation.
Got any tips you’d like to share about spend culture? Send us a message on our contact form and let us know!