There is a lot of profit potential in spending

The abbreviations CRM (customer relationship management) and ERP (enterprise resource planning) have become ubiquitous in the business world. This is not true of the abbreviation BSM. That is all about to change, though, as Business Spend Management is on the rise. After all, profit is the result of revenues and expenses. The latter category deserves more attention

Business Spend Management focuses on all of an organisation's expenses with the exception of personnel costs. "Within companies, the focus is often on CRM, the revenue side," says Gustaf Tanate, CEO of software company ISPnext. "CRM is there to best support sales. On the procurement side, at most, purchase invoice processing is automated. A broad approach to process optimisation is hardly there. This is strange since investments and the purchase of goods and services together quickly comprise thirty per cent to fifty per cent of the income statement."

Within BSM's philosophy, every employee of an organisation is a spender. They should be served as effectively as possible within the framework set by the company. BSM software digitises all aspects related to spending and unlocks it in an online store. "People are accustomed to placing personal orders through the Bol.coms, Coolblues and Amazons of this world. Similar facilities should also be offered to them in a business environment," Tanate believes.

The online store contains all the goods or services from the suppliers with which the organisation has made arrangements. Therefore, the terms of delivery are known and invoice processing can be fully automatic. "Every order proceeds as contractually agreed."

The ordering platform is not limited to the store's shopping basket. "You have to ensure that employees don't get a 'no,' because otherwise they will start looking for their own channels and addresses without you having a clear view of them. They do need to be able to order things off-contract, but obviously with Finance's approval."

Spend analyses quickly reveal that certain goods are ordered more than once within the organisation. "As soon as volume arises somewhere, that is a signal to enter into an umbrella contract with one or more suppliers. If it's not in the system now, then Purchasing needs to facilitate that or provide good alternatives."

The dashboard displays the percentage of spending that is off-contract. Tanate: “I recently encountered a company where 40% of spending was off-contract. Turning some of that into contracts saved a quick 5% in spending. This is not exaggerated: savings of up to 10% to 15% are very realistic."

Orders through the online store assure the organisation that orders meet the stated contract requirements. This eliminates risks. After all, in the preliminary process, availability and security of supply were established, as well as issues such as compliance and sustainability. "For example, you don't want to purchase materials that were created through child labour. Or maybe you want to impose sustainability requirements on suppliers," Tanate gives as examples. "You can tackle all that in the preliminary stage. By then enforcing that orders only go through the online store, you can actually pay invoices blindly."

Business Spend Management is a holistic approach to all spending. The entire Source-to-Pay process begins with finding and monitoring the best suppliers (Sourcing and Vendor Management) and agreeing and monitoring contract terms (Procurement and Contract Management) and ends with delivery, invoice processing and visibility into all expenditures (Spend Analytics). BSM brings together the functions of Procurement, Compliance, IT and Finance.

"If you bring these processes together online, you can do intelligent business with them," argues Tanate. For example, expenses are visible via dashboards (real-time), such as for the CFO and for Procurement and Compliance Officers. "They can then use this to guide operations," he says.

"If you see that you have 20 different suppliers for a particular product, you can reduce that to three or five. That makes it more manageable, provides better supply conditions and more competitive purchasing prices."

Adjustment also applies to the nature of the suppliers being worked with, which Tanate makes clear with other examples. "Suppose three months ago you did a lot of business with Russian companies. With a BSM platform, you can eliminate all risks within ten minutes, and the user can then select alternatives immediately. Do you work with an installation company? Then the system indicates when their ISO certification expires. You can act on that by either continuing when the certificate is renewed or by offering alternatives. Business Spend Management is a continuous process. What's good today doesn't have to be so tomorrow."

Tanate previously worked for US-based Coupa Software. "They've actually put BSM on the map, especially for the high-end market." With ISPnext, he wants to make the technology accessible to small and medium-sized organisations. "BSM is an assurance of your strategic challenges for macroeconomic as well as regulatory and sustainability. It gives board members and financial employees insight into business processes, supply chain and expenses. Much of the focus has traditionally been on sales, productivity and efficiency. But in spending lies a huge potential for savings."

This article was created in collaboration with Executive Finance.