With the demands on procurement becoming ever more urgent, CPOs in nearly all industries are coming around to the value of going digital.
Spend Management Defined
…and after a title like that, it is not unreasonable for the reader to expect, well, some definition at least, no?
In its broadest sense, the definition should be obvious to all: spend management is the management of spend. But that self-referential form of explanation is really of little help.
More specifically, it can be thought of as the catch-all term for a set of techniques, processes and systems that can be deployed in an effort to bring spend under management.
Now, does that mean spend management is a particular methodology that should be executed in parallel to the rest of the operating business, or is it simply a mind set that could apply across the enterprise?
Well, in many respects that depends on who you ask and, indeed, which model is going to work for a particular company, or in a particular set of circumstances.
Certainly, a good part of spend management in either model should be a coherent and meaningful program of spend analysis, or spend visibility. Those two terms are largely interchangeable, but the result is what counts. A detailed and fully rolled-up view of what is being spent, where, with whom and on what right across the organisation. This isn’t spend management per se, but it is very much the launch point for a spend management solution.
With the patterns in plain sight, the next stage is to understand what they mean and to plot a course of action based on that insight.
Complete spend management then must include a good degree of planning and strategic thinking, and this in turn must be actionable. It’s all very well having an intellectual understanding of historical spend patterns and developing strategies for driving value but it is only in the execution of those strategies that results can be achieved.
Whether that is vendor rationalisation through tactical sourcing activities, or renegotiation of existing terms, the core of actually putting spend under management is to set up the vehicles that permit that management to take place, and this means solid supplier relationships at terms and prices that the analysis suggest will lead to maximum value.
So far, so good. But the reality of complex business is that despite the agreed supplier terms and despite even the most watertight contract, when it comes to the actual day-to-day procurement of goods and services, the immediate need and urgency can often lead to ad-hoc “maverick” purchasing. This can become such an issue that what should be tolerable as an annoying but low-level background buzz of non-compliant practice can become the norm, and the strategic plans get drowned out in a roar of ad-hoc static.
Spend management, to be a successful concept, then must quite literally include a large part of the management of spending at the point of demand. This could mean draconian rules and approval hierarchies and immediate penalties for non-compliance. But it could also mean a more organic way of configuring business processes and management practices to make adherence to the plan the easiest path, and make maverick activity just that bit more onerous. Human behaviour can take care of the rest. In theory at least.
Thus, to address the need to put all enterprise spend under management we should look at the entire process, end-to-end. Spend management isn’t about data alone, it’s not even about achievable savings.
Spend management is a method of ensuring inclusion of all steps in a complex process to work towards a common aim of command and control.
Spend management is a goal that can be achieved through the deployment of a software system that facilitates that coming-together of previously ring-fenced activities. Spend management is not the software itself. It can’t be. At least as far as this blogger is concerned.
As the post-war British politician Aneurin Bevan was heard to say on a number of occasions when his assertions where challenged: “This is my truth, now tell me yours.”