Go from good to great spend visibility with these 6 tactics
Updated: Jul 22, 2019
What’s the difference between good spend visibility and great spend visibility? Good spend visibility is knowing what you buy, how much, when, where and how. Great spend visibility is having easy access to this data so that you can make faster, better and more informed business decisions.
The first 3 tactics in this article focus on ensuring that you have at least good spend visibility by checking for accurate processes and data. There are likely some improvements that can be made here to save you money, improve workflow and reduce business headaches.
Tactics 4, 5 and 6 will help you level up and get to great spend visibility. This is where your efforts pay off with the ability to improve long term planning and forecasting.
Tactic # 1 Know Who Is Spending
Do you know who is spending in your organization? Good business management means balancing money in with money out. A key part of that is knowing who is spending the company money AND how much they are spending.
Here are some key questions to ask yourself. Can you answer them easily?
Who is allowed to spend the company money?
What level do they sit at?
Are they managers, supervisors or team leaders?
How much are they spending?
When they make a spending decision, is it strategic, tactical or reactionary?
What I’m getting at is are you comfortable with the current control you have over your employees and the costs they are incurring as they do their jobs? Do your employees have a clear direction on who has the authorization to purchase on behalf of the business and up to how much? Lastly, do your employees have the knowledge and guidance to spend the company money wisely and get value for money in their jobs?
If the answer is no to any of the above, then start there. Having the basics in place is the first step to improving your spend visibility.
Tactic # 2 Teach The Purchasing Process
Having staff that understand the correct purchasing process is critical to ensuring that you have adequate spend visibility. It’s important that staff understand they must request and receive authorization to spend before purchasing with the supplier. This is particularly true if you are using an electronic purchase order system. This helps the committed spend get captured in a timely manner. When this happens, it’s easier to budget and pay the invoice on time.
Here’s what happened when Sally quoted and ordered first before obtaining a purchase order.
Sally calls supplier, gets quote and places order with a 30 day lead time.
Supplier delivers 30 days later, on time.
Goods arrive at the warehouse, they contact Sally and request that she enter a PO into the system.
Sally enters PO into system and gets it approved.
Accounting system plans for payment 30 days after goods receipt, and assumes goods are 30 days away. (60 days total)
Goods received into PO system the next day,
Invoice sent to accounting with net 30 terms.
Invoice due in 30 days. (Not the 60 days that the system planned)
Invoice paid on time. 30 days after PO entered into system.
Impact: Supplier was paid earlier than predicted in cash flow forecast and this negatively affected cash on hand balance.
After a quick training refresher, Sally changes her process. Now Sally quotes first, obtains the purchase order then places the order. This makes her manager and the finance manager happy.
Sally calls supplier. Gets quote.
Sally enters PO into system.
Goods received 30 days later.
Warehouse receives easily.
Invoice sent to accounting with net 30 terms.
Invoice paid on time.
Impact: Supplier paid as cash flow forecast predicted. Cash at hand balance is managed properly.
What happens in your organization? Have you noticed any red flags around how your staff order goods and request services? A quick refresher on the purchasing process might be worthwhile.
Tactic # 3 Manage ALL Payment Methods
It’s important to understand how your company manages multiple payment methods for goods and services. For example, do you pay most things by net terms, and also have credit cards available for smaller items? Does your company also have specific barter arrangements setup? This can lead to double payments and inefficient accounting methods.
Make sure you have control over ALL your payment methods, and understand how they must work together.
Put in place a checks and balances system to ensure that you aren’t receiving an invoice for something, paying the overdue invoice on a credit card in the field, and then later paying the invoice same invoice again. Paying twice can happen easier, faster and more frequently than you think.
A quick strategy for covering your bases is to run a match between your suppliers with net terms and suppliers via credit card. Identify any companies appearing on both lists, and ask Accounts Payable to pay special attention to those invoices and credit card expense reports. Get more credit card tips here.
Ensure that any barter arrangements are written down and the terms agreed to by both parties. Include an exit plan, and a date by which both parties must settle all outstanding items, either by goods, services or cash payment.
One of the building blocks of accurate spend visibility is ensuring that your payment methods are working for you. Taking these steps will help you get there.
Tactic # 4 Examine Your Spend Categories
Using spend categories is a useful way to have a big picture overview of where your spend is going. You want to be clear on which category each item falls into. You may have items that don’t neatly fall into a specific category. This can lead to them being continually get overlooked in your analysis.
Take advertising for example. You can easily categorize print spend, radio and tv advertisements. But what about spend on social media? Is this covered in IT spend or your marketing and sales budget? You get to decide where it fits best, as long as you stick with your decision. Put it in with marketing, and you can see the ratio of digital advertising versus traditional methods. Add it into your IT category, and it will be obvious just how much you are spending on social media marketing compared to software and hardware. Take note that understanding your spend categories is completely opposite to understanding the line items in your financial accounts. Each serves a different purpose. Your accounting department is looking to reduce this information down to single line item dollar amounts that can be compared year over year. By contrast, a procurement specialist is looking for insights by expanding this data in order to create opportunities for improvement that are simply not visible through regular financial reporting.
Tactic # 5 Partner With Suppliers
Reach out to your suppliers to help you gain insight into where your money is going. You can ask about how much you are spending, and on what line items. Chances are they will be keen to help.
Often times they will be able to give you data right down to the SKU level. Data that you can pick apart and mine for insights. This strategy works equally well with categories which have a single main vendor, and for categories that are split between a number of vendors.
Until you have your own robust data, this is a great stepping stone to understanding your spend. However, beware the up-sell. Suppliers will see this as an opportunity to point out areas where you aren’t spending and where they believe they can add value. Remember to make your own conclusions here and market test before committing.
Tactic # 6 Improve Your Data
Improving your data is critical to better spend visibility. Truly useful spend visibility that can be leveraged to make better business decisions in the moment is dependent on accurate, consistent data that reflects reality.
How do you improve your data? Make sure that the correct data is being entered in at the level you want to analyse it. Do you need to go down to the SKU level? Probably. Is the extra effort worth it in your business? Only you can decide.
Finding the right balance between the level of data accuracy versus the effort required to get there has long been a struggle for purchasing specialists. However as the global supply chain gets closer to big data, artificial intelligence and automation, the payoffs are starting to justify the effort involved.
Build Out Your Action Plan
There are many ways to improve your spend visibility. There may be one or more tactics that really jumped out at you here. Don’t try to tackle everything at once. Start at the top, and work your way down. The first 3 tactics really set the basics in place, and I highly recommend starting there first. When you are ready, move on to tactics 4, 5 and 6.
By taking action you will see improvements in your spend visibility. This leads to better, faster decision making and more tools that you can use in your tactical and strategic planning. I would wish you good luck, but you don’t need luck. Just put in the effort, and remember, you can always reach out to me if you need help. You’ve got this!