Procurement 101The Nicely Strict Business Spend Management Approach

Last Updated: 24 January, 2020

Definition of “Nicely Strict Business Spend Management”

 

This is a modern Strategic Spend Management approach that is based on achieving complete control over procurement without hindering employee performance and the efficiency of the business workflow. It has always been very challenging for most spend managers to keep ‘strict’ control over spending while at the same time be ‘nice’ – without imposing complicated procedures that would choke the flow of their work. Having said that, one must note that the outcome of succeeding to overcome this challenge would be very rewarding. Luckily, you decided to read this article today, which will help you understand this modern approach to spend management and how to implement it into your processes right away! 

 

The first thing we will look at is …Nice vs Strict

 

Nice is a manner that is linked to being smooth and easy-going, so it makes people comfortable and feeling oh so good.

 

Strict is an attitude that is usually linked to being difficult and rigid, which tends to make people stressed out and feeling very frustrated. 

 

They’re simply two forces moving in opposite directions, just like plus and minus or positive and negative, so how can we make them work together in harmony? 

 

Looking around us we’ll find that the whole universe works on an extremely precise balance between two opposite forces. The movement of the planets, the stars, the rain, the airplanes and more, they all work according to special formulas regulating the relationships between two opposite forces. This tells us that achieving the right balance is possible and that’s usually the way to obtain the best outcome.

 

Wait we’re getting out of hand, how does this relate to spend management??

 

In order to apply this universal law to spend management, we need to first identify the negative items and the positive ones in this context.

 

On the strict (negative) side we note;

  • Do not allow overspending in general.
  • Do not allow overspending under each item/category.
  • Do not use new suppliers that we haven’t used before. 
  • Do not allow overpaying for any purchases.

 

On the nice (positive) side we can list;

  • Purchases are received at the right time and in the best quality.
  • Easy to follow procedures to avoid waste of time and effort.
  • Improved relationships with vendors with minimal issues.
  • Seamless communication between departments when buying items/services.
  • Everyone has insight and is updated with the status of all their orders. 

 

Can you now see the contrast and how it could be really challenging to get the sides to meet? It’s common that employees do not shop around as much as they should to get the item they need at the right time and in the best quality – so they end up paying more than they should. It’s common that employees also would “unintentionally” buy things that aren’t needed if no strict procedures were in place to prevent maverick spending. So, how can we achieve a good balance between these two polar sides?

 

The following are some effective financial tools being used in procurement accounting to help mitigate the issue:

 

  • Approvals: predetermined workflows designed to ensure that required approvals are granted quickly and avoid bottlenecks during the process.
  • Budgets: a powerful financial tool that sets a cap on what can be spent within a period of time. It starts with an overall number and goes down into details to set numbers for each department, project, category, etc. 
  • Purchase Orders: a document that explains the products or services being purchased, at what price, from who and where to be delivered to. 
  • Spend Analysis: collecting data about every purchase and presenting them in detailed reports to notify management of purchasing analytics and draw their attention to any leaks that may be allowing money to slip through unnoticed. 

 

Although we all agree that these are very effective tools for mitigating overspending and overpaying, they can also cause major delays, confusion, and frustration among employees.

 

Fortunately, there is a solution! 

 

Spend management software also referred to as “procurement management software” is the best solution to offer organizations of any size all the tools they need to achieve a nicely strict business spend management process. You just need to find a flexible software to easily configure it according to your unique procurement process. It also needs to be simple because who has the time to learn and teach complicated software – they’re called “solutions” for a reason, you don’t need another cumbersome task on your to-do list. Finally, the software needs to be affordable because what’s worse than pitching an idea to management to spend a lot of money in the hopes to help save money…one day.

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