Why Spend Management is the smarter way forward

Spend Management has become a necessity for organizations seeking to maximize efficiency and ensure financial stability.

In 2021, the US National Association of State Procurement Officials (NASPO) identified Spend Management as the number one priority for state procurement (1). In the same year, the US National Association of Educational Procurement (NAEP) reported operational agility and strategy, including procurement systems and technologies, as a top priority for higher education procurement (2).

Fully understanding the value of Spend Management is the first step in building a compelling business case so in this section we will outline its key benefits. As you read through them, consider how they apply to your organization and which key stakeholders or decision-makers they impact the most.

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A step-by-step, practical guide to creating a compelling and data-driven business case for a Spend Management solution. 

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Spend Management delivers cost savings

Finance Departments are familiar with operating on a shoestring budget, but in recent years most departments have faced unprecedented budgetary constraints.

Organizations need to find opportunities to maximize savings wherever possible and make optimal spending decisions. Unfortunately, a reactive source-to-pay approach using a manual, paper-based system can make it impossible to realize these aims.

Spend Management streamlines the entire source-to-pay process and delivers cost savings at each point, making it an essential consideration for every organization.

A purpose-built, cloud-based Spend Management solution helps your organization save money in many ways, including by:

• Automating purchase order and invoice processing, significantly cutting manual effort and costs
• Providing the comprehensive spend data needed to optimize purchasing and negotiate stronger contracts
• Ensuring more purchases are made at negotiated prices by making it much simpler and easier to buy from approved suppliers

Spend Management works for decentralized procurement

Are your procurement operations centralized or decentralized? For most institutions, it falls somewhere in between. Some parts of the purchasing and procurement process reside within individual departments or units, even in those institutions that consider procurement fully centralized.

When a decentralized procurement structure is preferred, it’s often due to departmental concerns about a broad sourcing approach. For example, a university IT department may prefer to manage IT-related purchasing for reasons including:

• Software as a service (SaaS) buying requires a highly specialized approach
• A close connection between hardware purchasing and asset management is needed to support the vast amount of hardware on campus
• A misconception that the procurement team will award solely based on the best price and does not have the specialist knowledge needed to select the right supplier for the need

But the cost of a decentralized approach can be both extravagant and hidden. An absence of uniformity in policies and procedures leads to a lack of spend management, contract management, and supplier relationship management, resulting in a lot of unnecessary spending. Add a paper-based or manual procurement process to that and you’ve just discovered an avalanche of inefficiencies. 

A purpose-built eProcurement solution can turn decentralization-related inefficiencies into opportunities by providing centralized control and insight into all steps of the procurement process while still enabling different parts of the institution to manage their own purchasing. 

Spend Management provides visibility and transparency 

In higher education procurement, the old saying, “what you don’t know won’t hurt you,” is wildly untrue. Procurement leaders and their teams are responsible for supporting institutional goals and objectives, ever-changing operational requirements, and efficiently and effectively managing the supplier base. How can you meet and exceed those expectations without process oversight and visibility into spend? What your institution doesn’t know about its spending really can hurt it. 

For example, how does your institution approve, track and manage software purchases and agreements? According to Gartner, the average 4,000-person enterprise spends over $15 million on software annually and 20% of that is spent on software that goes unused (shelfware) (4).

Add to that missed cancellations due to automatic (and unmanaged) renewals, duplicate purchases that do not maximize volume discounts, and missed opportunities for renewal negotiations. You may have just identified millions in potential savings in one spend category alone. 

With all procurement-related activity managed through a single platform, Spend Management solutions provide comprehensive oversight across all links in the procurement chain. Purchases are tracked from requisition to approval, invoice, and payment; it’s clear how much has been spent, on what, and with which supplier; all supplier contracts are managed in a single location, allowing for easy collaboration with colleagues and ensuring compliance. 

The result is a transparent and fully auditable procurement process that empowers institutions with the information needed to reduce waste, identify and deliver savings, and ensure compliance. 

Spend Management minimizes rogue or maverick spend 

Rogue or maverick spend can be a problem in any organization, but in institutions with tight budgets, it’s even more important to maximize savings through on-contract spend. A 2019 report by The Hackett Group revealed that up to 16% of procurement’s negotiated savings are lost due to off-contract purchasing (5).

Rogue spend can become an issue for several reasons. In paper-based procurement environments, the purchasing process can take so long that users often look for alternatives. When using the procurement module in an ERP, suppliers must often be integrated on a time and resource-intensive one-by-one basis, typically leading to a limited supplier selection and the need to look elsewhere to meet procurement needs. 

Purchasing cards (pCards) can also significantly contribute to rogue spend. pCards are popular thanks to the convenience they offer, with research showing that universities use pCards for between 43% and 67% of all purchases under $2,500 (6). But for many institutions, that convenience comes at the cost of rogue spend without upfront approval. 

Spend Management solutions counter rogue spend in a number of ways: 

• They employ user-friendly marketplaces that incentivize on-contract spending by providing easy access to all approved suppliers 
• They make it easier and faster to integrate with new suppliers, allowing for a broader supplier base 
• They can accept pCard payments, making it suitable for low-value transactions while ensuring compliance 

Download the eBook to learn more about making the case for Spend Management

A step-by-step, practical guide to creating a compelling and data-driven business case for a Spend Management solution. 

Download the eGuide

 Sources:

1. 2021 Top 10 Priorities for State Procurement (2021), National Association of State Procurement Officials, https://www.naspo.org/2021-top-10-priorities
2. 2021 Top Focus Areas for Higher Education Procurement (2021), National Association of Educational Procurement, https://www.naepnet.org/page/topten
3. Campus Challenges and Strategic Priorities in a Time of Change (2021), American Association of Colleges and Universities, https://www.aacu.org/research/campus-challenges-and-strategic-priorities-in-a-time-of-change
4. Excess Software Expenditure is Draining Budgets – Choice or Challenge? (2020), Gartner, https://blogs.gartner.com/stephen-white/2020/10/28/excess-software-expenditure-is-draining-budgets-choice-or-challenge/ 
5. Maverick Spend Report (2019), The Hackett Group. 
6. 2017 P-Card Benchmark Survey (2017), RPMG Research Corporation.