• January 29, 2020
  • 4

Managing spend in your procurement cycle

Managing Spend is a critical part of the Procurement Function. Spending in an ad-hoc manner often results in rush orders, overspend, and excessive inventories. Ensuring a robust, planned, budgeted and technologically equipped process will indeed yield the opposite effect.

The following are ways to Manage Spend before it Starts:

Leveraging RFQs. Ensuring that all major spend goes through a robust Request for Quote Process is an effective way to manage spend and positively affect your organization's bottom line. The key is to hold all persons who are authorized to purchase products and services accountable for going through your RFQ process. It is also important to standardize your RFQ rules, processes, and templates, to get the best results. This should be done even if good relations exist with your suppliers.

Increased Visibility. Ensuring that all purchases receive a high degree of visibility, scrutiny, and fiscal accountability is another way spend can be managed before being enacted. Fraudulent purchases can be eliminated by ensuring purchasing visibility.

Leveraging an Annual Buying Plan. Key components of an Annual Buying Plan include a Forecast or projection of quantities to be purchased, a Process by which products will be procured, a Savings Target, and Cost Reduction Techniques. A budget can be included in the buying plan.

Robust Approval Processes. This is the hallmark of an effective Procurement System and an effective method to control and manage spend beforehand. Only persons on an approved list should be allowed to purchase products and services. The key is that this approved group of individuals have an approved limit, and types of products and services that they can purchase.

Empowerment of Employees from other Departments to make their Purchases: This helps to speed up and simplify the purchasing process, thus reducing the Total Cost of Ownership. It also frees up the time of Procurement Staff to focus on Critical High Spend items that require expert negotiation and other high caliber skills.

Effective Procurement Technology. This is an essential component of managing spend before it unravels. Robust Technology can tie in points 1 to 5, RFQs, Visibility, Buying Plan, and Robust Processes. The key to selecting Procurement Technology involve all users in the selection process as this will reduce resistance to change and increase buy-in. Blockchain Technology can be very effective in reducing fraud and enhancing visibility in your purchasing process.

Spend management is the end-to-end management of enterprise wide spend. It includes all aspects of spend analysis, spend categorization/spend classification, spend data management and spend performance management. Spend management is a continuous and ongoing process directed toward controlling and optimizing a company's spend and effectively improving its bottom line.