“Does your business want to improve its spend management?”
Few CFOs would say “no” if asked that question: Spend management is attractive to companies for obvious reasons, as even successful companies face margin pressures. Yet there can also be some trepidation about the effort it will take to reimagine how spending is handled within the organization versus the benefits it will deliver.
Amit Duvedi, VP of business value engineering for Coupa, said it doesn’t have to be that way. Managing spend doesn’t have to mean slashing and burning current practices; rather, it’s all about streamlining and efficiency. Cost savings can be realized by reducing and reallocating wasteful spending.
Duvedi said people tend to lowball the numbers when pitching spend management plans to company leadership because they’re afraid to commit to higher numbers. However, there’s a compelling business case to be made in the hard numbers alone, let alone the soft benefits of better spend management.
In a live discussion with Karen Webster, Duvedi outlined the essentials that any good spend management approach should deliver and how businesses can measure the success of such programs.
Controlling spend doesn’t have to mean giving employees less capital to work with, said Duvedi. One of the greatest benefits of quality spend management is “found money” – identifying funds that were being spent wastefully, which can then be redeployed to more strategically important areas or added to the bottom line.
The key to unlocking “found money” is visibility at the right time, Duvedi said. If wasteful spending can be identified at the time when a decision is being made, then it’s possible to streamline that transaction and deliver greater efficiency with the same number of dollars.
Duvedi named a few areas of risk where cost can be reduced and found money unlocked through more effective business spend management.
In terms of operational risk, he said that a good system helps businesses capture all of their spend in one place at the line item level, enabling them to track spend versus budget down to the dollar and identify wasteful spending before it’s too late.
In terms of control risk, Duvedi said that businesses have an opportunity to consolidate all spending into the “preapproved” category rather than facing the potentially unpleasant surprises of post-approved spend (such as expense reports) and unapproved spend (when an invoice arrives unexpectedly and suppliers must be paid).
The visibility achieved through better spend management breeds reliability and can help prevent disruptions to supply, thus mitigating supplier risk as well.
The “Three As”
Digitization can play a critical role in reducing and reallocating wasteful spending, but it isn’t as easy as businesses think. Duvedi said there’s more to it than introducing technology, even if that technology is rich with features and functionality.
Instead, he said, businesses must look at what he calls “the three As:” automation, adoption and agility. The three As can improve ease of doing business with vendors and partners, he said.
Automation simply means moving from manual to electronic processes. This increases accuracy and helps businesses catch and fix mistakes without increasing staffing.
Automating accounts payable, for instance, means decreasing paper invoices while increasing touchless processing. Many companies still have manual purchase orders, invoices and expense reports, said Duvedi. Reducing paper saves errors and time by cutting back on the number of hands touching the paper in the process.
The second A is adoption. Businesses may think they’ve done their part by deploying new tech – yet without adoption by both employees and suppliers, Duvedi said, that investment delivers no value.
Furthermore, if initiatives are not tied together at the corporate level, that can make it harder rather than easier for employees to spend money in the course of their daily jobs – as well as harder for management to gain visibility into that spending activity.
The ability to complete business tasks via mobile is growing in importance, Duvedi noted. Meeting employee demand with a native mobile capability can contribute to both adoption and the third A, agility – which simply means the ability to make decisions faster in a 24/7/365 world.
When team managers receive a preapproval request, Duvedi said they should be able to view it using the email app on their phone. The message should include all the essentials, such as amount and who’s already signed off, so the team leader can just hit “Approve.”
In short, everything should be as easy as possible for participants, said Duvedi – just like with consumer-facing tech. Suppliers, too, must be able to review purchase orders and convert them to invoices with ease, even if their company doesn’t have a digital process – it should be possible through email.
Otherwise, Duvedi said these points can become a bottleneck and damage employees’ ability to get their job done in an efficient manner, thus harming the effectiveness of the overall organization.
In the same way that startups may crowdsource funding for a new product, Duvedi said Coupa crowdsources intelligence to benefit the entire Coupa community.
In one application of that, individual companies can leverage the analytics to see how they’re performing and benchmark themselves against the rest of the network. Duvedi said this can help companies set reasonable targets.
For example, Duvedi said that best-in-class organizations have increased the percentage of preapproved purchases to as high as 87 percent. Without this intel, most companies would consider that an unachievable goal, since the average percentage before cracking down on spend management is only 20 percent to 40 percent.
Community intelligence can also help companies mitigate supplier risk, said Duvedi. Even if a partner seems to be serving the company well, the experiences of other businesses may reveal that certain suppliers are riskier partners than they appear, giving businesses the intel and opportunity they need to address potential issues before they arise.
The Bottom Line on Benefits
A successful spend management program can reduce processing costs for accounts payable and other transaction types, reduce cycle times between the moment an employee realizes he needs something and the moment he gets it, and increase the percentage of electronic and touchless transactions – while also supporting cost avoidance, cost savings and working capital improvements.
Duvedi acknowledged that getting to that point won’t happen overnight. However, a different approach, such as trying to increase revenue, could not contribute the same bottom-line boost without an even more significant effort, making spend management one of the most efficient ways to achieve this goal.