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Looking to drive savings, optimize efficiency, or improve control? It all begins with one crucial element: Spend visibility.
You can’t manage what you can’t see, and without knowing how your resources are allocated, achieving strategic objectives and financial planning will be an uphill battle.
Whether you’re a startup or early enterprise, procurement or finance professional, there are 8 essential steps to a clearer, more empowered approach to managing your organization's expenditures.
What is Spend Visibility?
Spend visibility is the foundation that sets you up to gain leverage and enable greater cost savings.
More specifically, it refers to how well you understand your capital expenditures as it relates to tooling. In purchasing and procurement, spend visibility captures more elements than simply the amount your organization spends. It’s how you answer questions such as: “Where is our spend going?” “When are our contracts renewing?” and “Do we have unused licenses or duplicative tools we’re wasting money on?”
From streamlining processes to identifying cost-saving opportunities, increasing spend visibility is the catalyst that drives transformative change.
How to Increase Spend Visibility
Let’s use an example to show a tangible application of the steps. Heather is the first procurement hire at a Series C tech company. She reports to the finance team and has been told that her top priorities are:
- Put process controls in place as they march towards an IPO
- Improve their financial position
Historically, purchasing and renewals at the company have been the Wild West. But Heather implements 8 steps to increase spend visibility and chart the path to efficiency.
Step 1: Spend Analysis
Heather reaches out to her accounting team and asks for a download of supplier spend from the ERP system. She uses this data to create a spend analysis. This way, she can see how much each department is spending across different categories and suppliers.
She identifies payment methods such as credit card or ACH and works with Finance to enhance that data with the forecasted spend.
A spend analysis gleans significant insights in the immediate and long term; It’s an ongoing process that can uncover trends, help prioritize projects, and inform strategic decision-making.
For this foundational step, the key deliverable is a list of suppliers sorted by spend. Heather cleans up the data, normalizing it to remove duplicates and prepare for step 2.
Step 2: Collect Contracts
Now that Heather knows where her spend is going, she’ll find the contracts associated with the spend.
She’ll store them centrally so she can reference details efficiently. She’ll pull key contract data, such as opt-out deadlines, from the agreements so they can be managed. Step 4 covers this in more detail.
Tracking contracts isn’t just a nice to have, it’s a prerequisite to effective procurement. And before you can track them, you need to find them all.
But she’s finding that contracts all live in disparate places. She finds some on Google Drive, others live on employees' hard drives, a few are stored in a central SharePoint, and some are discovered in employee emails. And for any remaining, she’ll have to reach out to the supplier for a copy of it.
This step can be frustrating if you have to do this manually, but tools like Tropic can automate the process.
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Step 3: Consolidate Contracts
After Heather finds the majority (if not all) of the contracts, she will store them together in one place. Heather’s company just bought Tropic, which automatically centralizes contracts. Still, if you don’t have a tool yet, you’ll want to create a single source of truth where you can manage permissions to ensure compliance and protect the integrity of your visibility. Group documents into folders and decide on a naming convention that includes suppliers, years, and any additional information you see fit. It’s prudent to partner with legal on naming.
Step 4: Pull and Track Metadata
There’s nothing more frustrating than missing an auto-renewal. Avoid unnecessary spend by tracking upcoming renewals with metadata such as opt-out deadlines.
Which data you pull depends on what is important to your company. Generally, the more metadata you have, the better your visibility. The caveat is this can take a lot of time and manual effort. Tools like Tropic will automate all this, but if you don’t yet have one, the next best thing would be an Excel or Google Sheet where you can share the information but control access and edit permissions.
These are the basic metadata you’ll want to collect:
- Supplier
- Contract start date
- Contract end date
- Opt-out deadline
- Primary owner
- Department
- Contract value
- Average annual value
- Term length
This is a great start but you can also track much more. For example, Heather talks to her internal partners and decides to track payment terms and a few legal terms.
This step will help you take your procurement function from reactive to proactive. And if you really want to be strategic, renewal management can reduce unnecessary spending by automatically notifying you of upcoming renewals and deadlines.
Step 5: Identify Contract Owners & Define Criticality
First, Heather identifies the contract owners, including those who are accountable for the budget and those whom she will collaborate with as she works on sourcing and renewals. Then, she takes some time to understand stakeholder sentiment as a means of defining supplier criticality.
Collecting data regarding the ROI or criticality of supplier spend can be very insightful. Heather sends out a quick survey. By design, the survey should only take the stakeholder a minute or two to complete. She uses a 1-5 scale but also considers having stakeholders stack rank.
Here is the survey she sent out:
- Question 1: You have been identified as the contract owner for SUPPLIER. Is this accurate?
- Recommend a “Yes/No” radial option.
- Question 2: Provide a brief ROI for this spend. What business results materialize as a result of spending money here?
- Recommend a short paragraph.
- Question 3: Please rate the business criticality of this particular spend (not supplier-specific).
- Recommend a scale of 1 to 5. 1 is “Don’t Need,” and 5 is “Mission Critical - Impossible to Operate Without.”
- Question 4: How open are you to evaluating other competitive suppliers?
- Recommend a scale of 1 to 5. 1 is “Very Opposed,” and 5 is “We Definitely Should."
- Question 5: How would you rate the leverage we have with this supplier?
- Recommend a scale of 1 to 5. 1 is “Very Weak,” and 5 is “Very Strong.”
- Question 6: Anything else we should know?
- Recommend a short paragraph.
The responses aren’t perfect (some stakeholders may tell you that all of their suppliers are mission-critical), but this survey does help Heather identify low-hanging fruit. She creates a graph, using one axis to plot how open stakeholders are to considering alternatives and the other to show business criticality with the bubble size changing based on spend.
Step 6: Strategize with Key Stakeholders
Now that Heather knows who the stakeholders and contract owners are, she can discuss strategies for managing the top suppliers with them.
She leverages the 80/20 rule and finds that approximately 20% of her company’s suppliers account for 80% of the total spend. These are the big fish she can focus on to maximize impact without burning out trying to handle dozens or even hundreds of contracts.
Heather collects key data on these suppliers and does a quick landscape analysis. She also familiarizes herself with individual and department goals. She then meets with key stakeholders to build trust, nurture relationships, and strategize next steps.
These conversations are a great opportunity to show how her purchasing and procurement involvement can benefit stakeholders through improved supplier performance, optionality, and leverage. She uses the data collected from survey responses to discuss top suppliers. Heather’s goal is to walk away from these conversations knowing what is going well and what can be improved with each of the top suppliers and a clear understanding of next steps and responsibilities for her and her stakeholders.
Step 7: Meet with Top Suppliers
It’s also important to nurture the relationships with your suppliers. Once Heather has narrowed down top suppliers and met with key stakeholders, she identifies the points of contact and sets up quick calls to introduce herself. She uses these calls to:
- Build a relationship
- Outline her goals and needs
- Get a high-level overview of the service the supplier is providing
- Review some objectives or metrics
Don’t forget to express a desire to work together with the supplier. Establishing rapport will minimize future risk and make anything that does come up easier to work through.
Step 8: Understand Upcoming Budgeted Spend
Just like you need to track your renewals, it’s important to be aware of new purchases that are budgeted during the financial cycle. Heather reaches out to FP&A who can share with her what month the spend is budgeted to start. This is crucial so that Heather can plan appropriately, kicking off meetings with stakeholders well in advance to maximize her impact.
Heather now has a strong foundation of visibility that will allow her to improve control and leverage. She has centralized all of this data. She reviews it regularly and leverages it to initiate procurement requests. She has a pipeline of activities and projects. Most importantly, she’s in control. Her proactive and strategic approach not only gets results but earns her the trust internally and externally as a strategic partner to the business.
By implementing these 8 steps, companies can increase their own spend visibility and set the stage to drive greater control and cost savings.
Take the Final Step
Become an even better partner to your organization through strategic and intelligent procurement. Interested in learning how Tropic can give you unprecedented visibility? Request a demo today.
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