A Comprehensive Guide To Procurement Spend Management

What is Procurement Spend Management?

In simple terms, procurement spend management is identifying your business needs, sourcing the right vendor, negotiating a contract for the best price, and purchasing the products and services. While it is all plain and uncomplicated, procurement management can make a severe dent in your cash flow if not handled properly. The complete source-to-pay cycle has multiple facets to it, making procurement spend management critical for the success of any organization.

Starting from rigorous research for an ideal vendor, driving hard bargains for the best terms, and tight budgeting, procurement management can be tedious. You can simplify it by automating its workflow using a solution like XPNS, a spend management solution.

Different aspects of procurement spend management include:

• Strategic sourcing to identify, assess, and shortlist suppliers that match your expectations of quality, cost, and reliability.
• Supplier relationship management (SRM) through efficient communication and collaboration that works for mutual benefit.
• Budgeting and planning for systematic allocation of funds by estimating needs to avoid budget overruns upsetting your financial goals.
• Data analysis and reporting track vendor performance and identify cost-saving opportunities to optimize procurement spend management.
• Policy compliance by defining and enforcing consistent procurement policies at the organization level without violating industry and regulatory practices.
• Technology integration through utilization of solutions to automate end-to-end procurement journey through error-free processes.
• Cost negotiation to ensure you get favorable costs and terms by optimizing order quantities and making forecasts regarding market conditions.

Procurement Spend Management Lifecycle

Companies require uninterrupted operations, for which procurement management plays an essential role. It must be structured and devoid of any lapses. Let’s quickly understand the lifecycle of procurement spend management.

Planning the procurement

The first step of the process is to determine your requirements. You can study existing data and make forecasts for future projections to estimate current future order requirements. This is also the stage where you define the specifications of your products or services.

Sourcing for vendors

This is where you go into the market for shopping, loosely speaking. However, you begin by doing a thorough research of available options and request for proposal or information to start the sourcing process.

Negotiating the best contract terms

Once you have a clear idea of expectations vs availability regarding quality, cost, reliability, and innovation, you initiate negotiations to get the best price and favorable terms. This stage requires strong and frequent communication between both parties to properly communicate the shared understanding.

Releasing purchase order

This is the stage where you almost seal the deal by sending a purchase order listing details like product/service details, cost, and terms of the contract. The purchase order will be the document that will serve as the single source of truth for you and the supplier.

Delivery and review of purchase

Based on your purchase order, the supplier will send goods or services along with an invoice and receiving document to legitimize the procurement. It is a critical step in the procurement spend management process where you validate products received, invoice details, and purchase order specifications. These three must match to the tee.

Clearing invoices with expedited payment

After a thorough examination and validation of the invoice, you can process the same for payment disbursal. Quite a few companies delay clearing invoices, which impacts the trust of the vendor in the organization. You must pay the dies without violating the deadline to avoid risking your brand reputation.

Document the invoice and foster a relationship

Procurement spend management doesn’t end with paying off the vendor. It is only the beginning of what could be a mutually beneficial and rewarding partnership. If you want to maximize your vendor’s value by optimizing the cost, supplier relationships will take you a long way. To avoid any unpleasant occurrences or misunderstandings, it is important to record all the documents like purchase orders and invoices.

Conclusion

Today businesses rely on vendors as much as on customers for sustainable growth and profitability. It ultimately makes procurement spend management a critical part of the overall expense management strategy. As discussed earlier, companies will need a robust spend management solution like XPNS, a DIY expense management platform designed to help small and medium-sized businesses centralize their entire expense-related data for better monitoring, planning, and optimization. Some of the core features of XPNS are:

• Scan information from an invoice using AI-based OCR technology
• Use real-time analytics to identify cost-saving opportunities
• Access integrated prepaid cards to manage your corporate expenses.

Learn more about XPNS here.