How to Improve Your Spend Management Strategy [4 Best Practices]

Whether it’s more targeted marketing campaigns or a leaner production process, finance professionals are always on the lookout for ways to boost efficiency within their organizations.

It's ironic, then, that many finance groups themselves spend far more time than necessary on tedious, manual work that eats up valuable time. In fact, 7 out of 10 finance teams spend over 500 people-hours per year on tasks that could be automated, such as supplier-related inquiries and PO matching.

This isn’t to say these tasks are unimportant. Spend management is vital, to be sure, but the administrative burden of doing so is typically higher than it needs to be. Time that could be allocated to strategic projects is instead spent wrestling with spreadsheets and digital paperwork.

It’s time to look in the mirror. With a robust spend management strategy, you can still keep a watchful eye on expenditures while slashing the time and expense required to do so.

What is a spend management strategy?

Spend management is the art and science of optimizing your organization's spending. It’s more than just tracking expenses—a holistic spend management strategy involves systematically categorizing, quantifying, sourcing, and analyzing procurement data to ensure every dollar spent furthers your business goals.

Spend management extends to the approval process as well, ensuring that high-ROI, low-risk spending gets the green light while other requests are carefully scrutinized or rejected.

The importance of a sound spend management strategy

The right spend management strategy can do wonders for your organization, including:

Enhancing financial health

From major investments to everyday purchases, a structured spend management strategy helps you identify cost-saving opportunities at every level. Protect your margins by wringing maximum value out of every dollar spent.

Improving procurement functions

In the best cases, a spend management strategy can transform a procurement function from a cost center to a strategic asset. The numbers speak for themselves—streamlined processes, reduced waste, and strong supplier relationships are directly correlated with cost savings and operational efficiency. The Hackett Group found that top-tier procurement functions:

• “operate at 21% lower cost than their peers”
• “drive nearly 2X more savings due to spend cost reduction”
• “see 76% lower process costs per order”
• Have a “$6 million annual cost advantage over their peers.”

Preventing consequences of poor management

Without a comprehensive strategy in place, companies are vulnerable to financial disruptions like budget overruns and cash flow issues.

Fueling top line growth

A well-executed spend management strategy can boost revenue while guarding your bottom line. Strategically sourcing the most cost-effective tools and services frees up resources to invest in initiatives that directly produce or accelerate growth.

4 best practices to optimize your spend management strategy

The benefits of sound spend management strategies are undeniable, but they’re not all created equal. Keep these best practices in mind to maximize your return on investment:

1. Implement strategic sourcing

Strategic sourcing is a powerful weapon in a procurement team’s arsenal. Having meaningful, objective data about current contracts and suppliers allows you to:

• Negotiate better terms: With data on current spending patterns and supplier performance in your back pocket, you can negotiate more favorable pricing and contract terms.
• Ensure suppliers meet quality standards: Analyze the data to see which suppliers are consistently missing the mark, and make plans to renegotiate or replace them if necessary.
• Mitigate third-party risk: You can also use this data to hold suppliers accountable for quality standards and mitigate third-party risks. It’s far better to take proactive steps ahead of time rather than react after the fact.

Here’s how you can go about implementing strategic sourcing:

1. Collect data on current contracts and suppliers

First, identify the various sources of your spending data, such as your ERP system, procurement software, and financial management systems. Gather all relevant data from these sources, including purchase orders, invoices, payment information, and contract details. Store this data in a centralized database or platform to allow for easy access and analysis, and standardize it to ensure consistency and accuracy.

2. Establish clear decision criteria based on business needs

Strategic sourcing takes time. Before diving into the data, establish clear decision criteria based on your specific business needs and goals. What are the most important factors for your organization? Is it cost, quality, reliability, innovation, or a combination of these? Defining these criteria upfront will help you make informed decisions that align with your overall strategy.

3. Leverage unbiased external data sources

Once you have your internal data in one place, it’s time to look externally. Look for deep, unbiased outside data sources like Tropic’s Supplier Intelligence that provide industry pricing benchmarks, negotiation playbooks, and insights into supplier performance.

4. Identify redundancies and areas for consolidation

Redundancies are a common culprit of overspending within procurement. Comb through your data to identify redundant or overlapping contracts, similar tools or services being used by different departments, double-ordering for common supplies, and unused or underutilized subscriptions. These are prime opportunities for cost savings.

5. Leverage preferred supplier lists for better pricing and terms

After you’ve identified opportunities for consolidation, make a list of preferred suppliers that you want to maintain partnerships with as well as those that you deem unnecessary for your future.

6. Strengthen supplier relationships

With your preferred supplier list in place, you can focus your time and energy engaging with these partners. Strengthen these relationships via frequent and open communication, collaboration, and regular performance reviews.

7. Focus on aligning to support key business goals

As you analyze your data and identify opportunities for consolidation, keep your strategic objectives in mind. Which suppliers and contracts are critical for achieving your goals? Which ones are hindering your progress? Prioritize those that align with your overall strategy and contribute to your long-term success.

2. Automate approval workflows

Approval bottlenecks are a major headache, slowing down progress and frustrating everyone involved. While you probably can’t carve out time in an approver’s schedule, you can remove as much friction from the process as possible through automation.

Here are some of the benefits of an automated approval system:

• Speed things up: Lengthy approval times are inconvenient at best, and at worst, they lead to missed opportunities. Automation eliminates manual steps, significantly reducing the time between requesting approval and receiving the goods.
• Stay compliant: Besides saving you time, automated workflows ensure that all purchases comply with your established rules and procedures.
• Free up your team: Instead of pushing paper, your team can focus on strategic activities like supplier relationship management and contract negotiations. They’ll be happier with the more interesting work, and you’ll be happier with their increased productivity.
• Gain better visibility: State-of-the-art spend management platforms allow you to monitor the status of purchase requests in real time and facilitate better communication between stakeholders.

Implementing automated approvals with Tropic

Tropic's no-code workflow builder makes automating your approval processes a breeze. Define rules and conditions, integrate with your existing systems, and track approval progress—no technical expertise required.

Some of the tool’s capabilities include:

• Automated routing and notifications: Automatically route requests to the right approver and keep stakeholders informed about the status of purchase requests.
• Comprehensive visibility: Track the progress of approvals from start to finish.
• User-friendly interface: Create and modify workflows easily with an easy-to-use interface and prebuilt templates.

Don’t let approval bottlenecks slow you down. Schedule a demo today to learn how Tropic’s automation solutions can help you put an end to inefficient spend.

3. Track and analyze spend data

Before you can optimize your spending, you need a detailed understanding of where your money is going. Keeping a meticulous record of your spend data leads to a host of benefits, including:

• Better budgeting: Historical spend data, when compared against contracted spend and enriched with supplier insights and price benchmarking, provides a powerful foundation for accurate budgeting.
• Identify low-hanging fruit: Locate areas for optimization within your spending data.
• Data-driven decision making: Make decisions based on what the data say rather than gut feelings.

The good news is these benefits are within your reach. The challenge is that procurement data tends to be messy, living in scattered spreadsheets across your organization. So, before you dive into analysis, follow these steps to make sure it’s clean and well-organized:

Gather and centralize data

First, locate your spending data and bring it all together into a single, centralized location. Ideally, this would be an intelligent spend management platform that can handle large volumes of data and offer advanced analytics capabilities. Avoid the temptation of relying solely on spreadsheets, as they can quickly become unwieldy and prone to errors.

Finally, cleanse and standardize this data so that you can compare apples to apples. This involves removing duplicates, correcting errors, and formatting the data consistently.

Use real-time data

Relying on outdated information is a recipe for inaccurate forecasts and suboptimal decision-making. Strive to leverage real-time data whenever possible. Modern spend management platforms offer real-time data integration that ensure your insights are always fresh and relevant.

Maintain data accuracy

Data hygiene should be a top priority for all procurement teams. It's an ongoing commitment rather than a one-and-done task—continuously refine your data governance protocols, implement robust error detection and correction mechanisms, and make data validation a regular habit.

4. Leverage spend management software

A common misconception is that a spend management strategy is all about cutting costs. The right strategy definitely leads to savings, but they tend to come from organizational efficiency rather than painful belt-tightening that hinders future growth.

But, let’s be honest, spend management is complex. Trying to keep track of internal and external data, nurture supplier relationships, and keep approval workflows humming through a mix of spreadsheets and disparate systems will make your head spin.

A comprehensive spend management platform is the easiest and most efficient way to take back control of your expenditures. From strategic sourcing and automated approvals to real-time data insights and robust analytics, Tropic handles all the behind-the-scenes logistics so you can focus on driving your business forward.

‍Schedule a free demo today and see how the right spend management strategy can turbocharge efficiency in the finance department and beyond.