Understanding Business Spend Management (BSM)
BSM combines technology and calculative tactics to oversee business expenditures. Highly measured strategies in place often aid in lower spending expenditures and a low error margin. It involves sourcing, contract negotiation, purchase order creation, invoice processing, and other activities related to spending, cash flow, liquidity, and supplier relationships.
The main objective is to monitor, analyze, and streamline spending practices and procedures to reduce risks, improve profitability, and increase effectiveness. In essence, BSM strives to maximize the value of each dollar spent by a company.
The Scope of BSM
While BSM and expense management are often considered interchangeable, expense management is a subset of BSM. Expense management pertains to work-related expenses incurred by employees that the company reimburses. While in contrast, BSM encompasses all company spending, both direct–costs associated with producing a product or service and indirect costs.
BSM here includes procurement, inventory management, office supplies, treasury and cash management, software, marketing, product development, sourcing, invoicing, and supplier management. This comprehensive scope ensures businesses have a detailed overview of resource utilization, enabling smarter decision-making.
Importance of Business Spend Management
Considering the volatile market conditions, unforeseen disruptions in the supply chain, rising prices, and environmental, social, and governance (ESG) requirements have put pressure on profit margins. Conventional spending management systems that rely on solutions are no longer sufficient. These dated methods lead to time-consuming procedures that are isolated from one another.
This results in low staff engagement, high costs for both labor and technology, increased error rates, a lack of oversight, and an inability to accurately monitor performance indicators (KPIs).
Business Spend Management (BSM) tackles these challenges by automating tasks, enhancing collaboration across departments, and offering a platform for tracking company expenses.
Benefits of a BSM blueprint to manage spending
The primary function of BSM is providing decision-makers with accurate and comprehensive data to respond strategically to market changes. So logically BSM helps decrease costs and improve sustainability by integrating ESG data into spending processes to find cost-effective, diverse suppliers, reduce carbon emissions, and enhance supply chain transparency. Consolidated spending data aids in identifying savings opportunities.
BSM also improves employee productivity suggesting to automate processes–thus reducing errors, and freeing employees for more analytical tasks. For example, automating invoice processes accelerates approvals, reducing bottlenecks and strengthening supplier relationships. This also helps CFOs predict cash flows and adjust budgets effectively.
Furthermore, BSM strengthens financial planning by offering real-time visibility into all types of spend, approved invoices, global cash positions, and upcoming payments. Enhanced visibility helps finance teams spot budget overruns and plan for various scenarios, improving overall financial management.
Tell-tale signs of a well-equipped BSM strategy
The primary advantage of implementing a BSM strategy is its ability to provide decision-makers with thorough information to adapt strategically to market shifts. A highly functional BSM strategy aids in cost reduction and sustainability enhancement by integrating ESG data into spending processes to discover cost suppliers, cut down on carbon emissions, and increase transparency in the supply chain.
Centralized spending data helps pinpoint opportunities for savings. BSM also boosts employee efficiency through process automation, error reduction, and freeing up employees for more high-value tasks.
For instance, automating invoice procedures speeds up approvals, reduces bottlenecks, and strengthens relationships with suppliers. This also assists CFOs in forecasting cash flows and adjusting budgets efficiently.
Additionally, BSM bolsters planning by providing real-time insight into all spending categories, approved invoices, global cash positions, and upcoming payments. Improved visibility enables finance teams to identify budget exceedances and plan for scenarios, ultimately enhancing financial management.
How Business Spend Management is used
Businesses utilize BSM by following predefined processes aimed at centralizing all requests, purchases, and tracking activities. It is common for companies to implement BSM during phases of steady cash flow. However, maintaining vigilance and having a well-rounded strategy in place becomes crucial as the company scales.
In the past, businesses relied on manual procedures, where finance departments managed all purchase requests, leading to delays in approvals. Procurement processes were often based on ad-hoc methods, while sourcing operations depended on spreadsheets or ERP systems, resulting in lower adoption rates and operational inefficiencies.
As companies digitize and automate processes, they begin automating accounts payable (AP), invoicing, and core procurement functions, improving category management and spend tracking. Sourcing activities and supply chain management gradually integrate digital tools into their operations. Eventually, businesses achieve completely automated invoicing processes with purchase order matching capabilities, expediting approval processes and reducing errors.
Procurement workflows are streamlined through self service features and automated processes that enhance spend categorization and strengthen supplier relationships. Employing optimization strategies, in sourcing alongside integrated supply chain design tools further boosts efficiency and enhances decision making capabilities.
Implementing a BSM strategy
A successful strategy for managing business spending improves transparency. Empower employees to make informed decisions. To effectively put this plan into action, companies need to evaluate their spending practices to pinpoint areas where they can enhance the purchasing and expense processes.
Creating a workflow that guides employees to follow approved spending guidelines. Establishing a team for business spend management is crucial for fostering collaboration among departments.
This team, consisting of finance, procurement, sourcing, supply chain, and IT professionals, ensures that employees are on the same page regarding practices and monitors progress. Choosing the approach to business spend management is vital for streamlining the purchasing and expense procedures.
Intuitive tools equipped with functions such as analysis, real-time reporting, and visual dashboards promote adoption. Providing staff training sessions on tools and expenditure policies, along with software guides and dedicated team support, boosts employee engagement.
Integration with other business processes
BSM aspects could be integrated with Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), and Human Capital Management (HCM) systems, even dedicated BSM tools, addressing core operating processes and empowering informed decisions, operational efficiency, and growth.
ERP systems streamline core operations but may not cover every workflow. Integrating BSM with ERP extends its value, offering deeper insights into spending patterns and budget allocation.
CRM integration with BSM streamlines marketing efforts, where purchase requests for campaigns initiated in CRM are routed to BSM for quick finance approvals and budget tracking.
Business Process Management (BPM) is an all-encompassing module where all of these functions can be carried out under one roof, as long as there is logic in the workflow. It standardizes and automates workflows, reducing approval times and errors. BPM provides real-time visibility, compliance enforcement, and seamless data flow between systems, enhancing overall efficiency.
Challenges in business spend management
BSM poses challenges that stem from the need to integrate people, procedures, and technology seamlessly. The risk of operating in silos can result in data and processes, a problem that BSM aims to solve by centralizing spending processes and data. This approach promotes collaboration and cost-saving initiatives. Additionally, reliance on processes can lead to errors and miscommunication, resulting in data and subpar reporting.
By digitizing these processes, BSM ensures compliance standards are met while also preventing fraudulent activities. In a globally interconnected market, real-time collaboration tools are essential. BPM helps streamline processes and provides real-time collaboration capabilities, maintaining competitiveness in a digital world.
Choosing the right BPM tool for BSM
Selecting the right BPM tool involves balancing immediate pain points with long-term goals. Businesses should consider scalability, user-friendliness, mobile access, and integration with existing ERP systems.
Evaluating the potential impact on the current tech stack, implementation timeline, consolidation of systems, and available implementation partners is crucial. By addressing these factors, businesses can implement a successful BSM strategy, achieving financial control, operational efficiency, and long-term sustainability.
Since you are already looking in to business spend management why not try a dedicated advanced BPM tool Qntrl to see if it fits your organisational and procurement process needs. Sign up for a demo with us.
Comments