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Spend Management: Implementing a Wiser Strategy

By on August 15, 2012 in Expense, Industry Expert with 0 Comments

Written by Preston Smithson, a writer for Accounting Matters – a Financial Management Company.

global business expenseIntense global competition and difficult economic times have resulted in increased pressure on company balance sheets. Increasingly many businesses are refocusing on their core activities and managing cash much more frugally. Naturally this has led to greater scrutiny of procurement spending with vendors which can equal up to 50% of a company’s annual revenue.

New Approaches in Procurement Spending Result in Greater Value

As the pressures from competition and challenging economic times continue to increase, businesses endeavor to realize the optimum value from their procurement spending. Failing to do so could cost a company their competitive advantage. In recent years, some companies have been adopting new approaches which are taking sourcing and procurement to greater levels of value.

Enjoy Greater Value by Transcending Traditional Procedures

These new approaches combine sound, fundamental procurement and financial accounting practices with innovative techniques and a greater leverage of spend and infrastructure. The implementation of these practices represents the next phase in the refinement and improvement of the procurement process. By transcending traditional in-house buying and sourcing procedures that have served commerce for many decades, these smarter spending initiatives gain greater value for businesses by strategically leveraging external capabilities.

Transforming How Procurement is Administered

These innovative approaches are helping to transform the way companies administer their procurement spend. The result is improved financial performance and greater competitiveness in the global market. According to a white paper by IBM, the science of smart spending comprises three general areas of discipline:

1. Understanding Buying Opportunities
Incomplete information often hinders a company from effectively identifying what they are spending and who they are spending it with. Companies can sometimes use third-party providers to gain access to data that would not have been captured in-house. By implementing strong analytics capabilities and stronger, more knowledgeable relationships with global suppliers, insight-driven business decisions can be made resulting in better buying opportunities.

2. Improving Compliance and Spend Management

It is not uncommon for many companies to experience significant “leakage” from uncontrolled spending that takes place through non-PO processes, such as check requests and credit cards. By identifying and analyzing these spending channels and implementing policies and practices that are enforced, significant progress can be made improving spend management.

3. Building Value from the Strengths of Others
The act of leveraging the experience and relationships of third-party providers is one of the keys in helping companies transform the process of procurement. Even large global corporations that have very sophisticated purchasing tools and personnel are finding that they can improve the bottom-line by tapping into the resources of third-party providers that specialize in procurement. By capitalizing on the use of outsourced expertise and infrastructure, superior returns on investment can be realized. By implementing these three innovative areas of approaching spend management, wiser strategies can be integrated into your accounting practices.

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