Spend visibility for greater stability

Karen Airey of Basware outlines the how and why of spend visibility for organisations that want to regain and maintain control of their business.

While the individual circumstances have varied, there’s no doubt that most UK banks have experienced their fair share of turmoil recently. Among the many lessons learned across the board has been the importance of maintaining visibility of all spend-related activity, across the entire organisation.

Monitoring spending across an organisation happens at many levels but it is a key area in which both Finance and Procurement teams can benefit from working together. After all, the two departments share common goals – the need to achieve rapid savings, the need to monitor and control external risk factors, and the need to take full advantage of technologies and processes enabling greater transparency and opportunity. What’s more, the metrics company directors and shareholders measure investments by, perfectly mirror the types of process and technology investments that procurement and finance can make together.
As such, when negotiating outgoing payments, and gauging the visibility of spending across the organisation, keeping the channels of communication open and sharing information between Finance and Procurement can ensure that resources are efficiently allocated and cash flow is not compromised.

How spend visibility helps
Analysing an organisation’s spending habits can traditionally be a time-consuming and resource-intensive process. However, an effective spend visibility programme brings with it several benefits, not least of which is the increased stability it can provide to business operations, budgeting and planning through clarity of where resources are being allocated.  Visibility across spending, processes and performance can form the basis for increased efficiencies across all these areas, helping to identify both bottlenecks and opportunities for change.

What’s more, the additional information that such a programme provides can go a long way towards shaping compliance strategies, inventory management, product development and even IT implementation.

Spend visibility also plays a vital part in managing supplier relationships and supplier risk. For example, monitoring where spending occurs across the supply chain i.e. how much is being spent and with who, is a vital element in minimising supplier risk. Once organisations have identified where their money is going, and evaluated all their suppliers for possible delinquency or failure (usually by using business intelligence tools and trade data), they can then streamline operations by removing these potential liabilities and identifying more reliable alternatives.

Once it is formalised, implemented and up and running, a systematic, scalable and efficient spend visibility programme frees purchasing professionals from the routine of data gathering and analysis to focus on their core competencies of negotiation and supplier management.

What to consider
Although the value of visibility across an organisation’s business operations cannot be doubted, fewer firms have effective, formal spend visibility programmes in place than would make sense in the current economic climate. The challenges to setting up an effective programme and choosing a suitable solution can be intimidating and, in a period of increased belt-tightening when it comes to budgets, committing to investment in new systems may not be highest on the business agenda. However, it is important to take a holistic and long-term view to overcoming these obstacles. Improving processes and implementing sustainable changes in the short term will stand a business in good stead regardless of what economic conditions arise in the medium and long term.

That isn’t to belittle the considerable challenges businesses are likely to face when analysing their spend processes. Aggregating the relevant data alone involves collating information from a variety of dispersed sources, probably in inconsistent formats, often with no automation. Once collected, the data may not always be meaningful or even complete for the use it will be put to. What’s more, once the data has been processed, the, usually, manual nature of the collection process makes it difficult to repeat on the regular basis required for the smooth running and maintenance of information-based decision making.

As such, any solution for data gathering and subsequent analysis needs to successfully address and solve as many of these challenges as possible, while still remaining relevant to the organisation’s core identity and functions.

How to do it
As with many business strategies, comprehensive planning is one thing but delivery is everything. Just as there is no one-size-fits-all solution to other industry-wide concerns, how a spend-visibility plan is implemented and the required outcome is delivered will be highly dependent on the individual organisation and its unique needs and challenges. A variety of factors can impact the final choices made on which solution works best, including cost and speed of roll-out, as well as the internal resources an organisation is willing to commit to setting up a whole new process.

Roughly speaking, visibility solutions can be one of a few types:
• Manual Analysis – as the name suggests, a manual approach analyses physical information such as paper invoices, POs and other spend-related documentation to determine how and where funds are being allocated and paid. Unsurprisingly, this choice is usually cheaper than others, making it especially suitable for smaller businesses, but the data collected is often not necessarily comprehensive or fully accurate. In addition, as a time- and labour-intensive process, it is not ideal for providing immediate information or alerting you to impending issues, nor is it ideal for regular reporting
• Outsourced Service – in this case, businesses outsource the classification and rationalisation of all the relevant data for a fee. Once the relevant information has been submitted, the vendor takes responsibility for any required software installation, processing and reporting of feedback. The key advantage to this approach is the speed, expertise and efficiency that comes from using a specialist vendor, allowing organisations to stick to their core business areas. The obvious potential concerns are for transferring data externally or the implications of what happens to data if clients have to end relationships with specific vendors. However, if these can be suitably assuaged, many businesses find this solution particularly effective
• Self Service – again, as the name suggests, businesses can choose to bring the spend analysis process fully in-house, installing and operating appropriate software solutions that allow them to collate and examine their data and draw their own conclusions. In most cases vendors of these solutions provide implementation and training at the outset, meaning that beyond the initial set-up cost this option is, relatively speaking, one of the most cost effective. Controlling the spend visibility solution centrally also brings the additional benefits of timely reporting, easy access to information for urgent requests and supplier visibility, as well as improved monitoring of contract terms and ultimately, minimised supplier risk

Whichever solution a business selects, it is important to maintain a sense of perspective on what such a spend visibility programme can realistically deliver. The optimum choice will be one that ticks as many of the necessary boxes as possible but 100% visibility is still highly unlikely – or not necessarily even possible.

Other factors to consider
• Who to work with – with a variety of vendors to choose from, it is critical that companies do their research thoroughly and develop a clear understanding of what tools are on offer, what value these tools can add to business and what they will need to provide to make them work. The right vendor partner cannot be chosen on price or product alone, but rather a combination of these factors along with a generous measure of market reputation and service-related factors. Once a vendor has been appointed, discussing service levels and clarifying expectations on both sides is a key element at the start of the relationship
• What is really involved – whichever option a business chooses, whether partially or fully outsourced or conducted inhouse, resources will need to be committed from the client’s side, in order to make the strategy work effectively. It is important to factor in the additional time and money that might be involved in implementing a system as well as managing and maintaining it. As discussed, this investment will have to be included in TCO and ROI calculations, but it is vital not to be short-sighted about these costs or their long-term benefits either.
• Scalability – M&A, growth and expansion are always factors. It is important to implement a strategy and solution that, while they may be scaled to your business in tougher times, have potential for upward mobility if the need arises. That isn’t to say the best solution is the largest in scope, but more to emphasise the long-term nature of any effective spend visibility strategy.

Indeed, there’s no reason why a spend visibility strategy should be limited solely to times of recession or used only as a recovery tool; it will always make business sense to know where payments are being made and received as well as to and from whom, especially from a security and fraud prevention point of view. The technology available can and will play an instrumental role in changing and improving the processes by which organisations manage their money – but more important will be the shift in corporate culture required to successfully bridge the gap between old practices and new.

How Basware can help
Basware is the global leader in purchase to pay solutions offering a portfolio of products and services that automate business-critical financial processes and deliver value by providing compliance and control, as well as fast return on investment. Basware provides technology, insight and advice to companies around the world that are looking at changing the way they do business.

For more information on tools that assist with managing the procurement process and optimising spend visibility, visit www.basware.co.uk.