The following are excerpts from the 12th Edition India CFO Summit 2022: Importance of Controls & Governance in Spend Management.
Expenzing was the Platinum Sponsor for the 12th Edition India CFO Summit 2022, attended by over 200 CFOs and senior finance professionals. Shabbir Imani, Founder Director Expenzing spoke about the importance of controls and governance in spend management.
I was speaking recently to a group of finance professionals across 16 countries and I asked them two questions – how much has the world changed in the last 2 years and secondly, how much have your processes and systems evolved in the same period? 88% of participants responded that the world changed dramatically or to a large extent in this period. And 74% of the same participants said that the processes and IT systems have evolved only to some degree in response to the global disruptions. The contrast was stark.
Pandemic, supply chain disruptions, and resource churn have impacted businesses globally. After more than 2 years of turmoil, business strategies need to consider disruptions as a norm rather than the exception.
What are the usual responses to ensure business sustenance?
- Increase Prices
- Increase Sales Volume
- Strategic change in spend-management.
Points 1 and 2 have to factor in external elements like economy, competitive environment, and geopolitical circumstances. Point 3 falls right in your circle of control. Hence, it is critical to address that first.
To completely understand the impact, we need to explore the following:
What happens when we practice systematic spend management?
Why is Spend Management is the correct response in uncertain times?
What happens when we practice systematic spend management?
Systematic Spend Management brings agility, resilience, and efficiency to the processes. It makes the systems mature and compliant with better controls and governance.
To explore this, let us consider a few scenarios, the usual challenges, and how systematic spend management can make a difference.
Scenario 1:
Spend begins with establishing a need. Loss of control happens at this first nascent step itself. The greatest challenge in a real-life scenario is to have business users submit a system-enabled Purchase Requisition (PR).
Challenges:
Business Users do not have access to the system. The system is complicated to use. The emails sent to seek approvals for PR are stuck somewhere, with no visibility of compliance to the Delegation of Authority (DoA).
Spend Management:
A system-enabled Purchase Request submitted by the business user takes care of all compliance points. It enables spend management and brings an easy-to-use system, extendable to all business users and approvers. Approvers can then act on the PR, creating a perfect audit trail.
Scenario 2:
Identifying the right vendor can make or break all the efficiency systems. However, after the preliminary evaluation, one takes a leap of faith and signs up.
Challenges:
Despite having systematic evaluation criteria, the vendor selection process becomes a person-dependent task. Organizations depend on a person’s judgment, without available tools for price and quality negotiation. It is difficult to have a comparison between vendors based on excel sheet answers. Instead, there is a very long and complicated process that can increase the overall cost of purchase.
Spend Management:
Person independent, transparent discovery process. Smart & automated RFI / RFQ / RFP processes that include Criteria, Weightages, Evaluators, and Knowledge Management. Competitive tools like Reverse Auctions help to bring prices down dramatically. Bringing vendors onboard the same platform empowers them as partners, increasing vendor engagement and resulting in better service/products. Smoother audits because the system limits possibilities of fraud and ensures compliance with company policies.
Scenario 3:
In many organizations, information chaos ensues every time an invoice lands on the Accounts Payable desk.
Challenges:
Accounts Payable (AP) teams spend a lot of time and effort trying to find answers to basic questions. Who does the invoice belong to? Is it a duplicate invoice? Have the goods/services been received? Who all need to approve the invoice?.. and so on. They also spend a considerable amount of precious time managing hundreds of recurring invoices that have to be paid monthly, within the deadline.
Spend Management:
The system enables auto 5-way check before sending the invoice out for approval. The system ensures that the right people in business and finance approve the invoices. There are tools designed specifically to make due diligence easy for approvers. It is easy to collaborate and manage queries during the approval process. The system establishes a checklist control, nuanced No PO-No Pay rule. It also enables automation of cost allocation, provisioning, cost apportioning, advance adjustment, and applicable taxes like VAT/GST & TDS.
Many more scenarios across vendor enablement, branch and recurring expenses, provisioning and analytics, employee expense and travel management, procurement, and asset management get drastically transformed by spend management.
Why is Spend Management is the correct response in uncertain times?
Spend management helps organizations to manage, control, streamline, and analyze all processes through which spending happens in an organization. That means, not only is there a direct impact on costs but also on how they are incurred.
To make that happen, there needs to be a certain level of process and digital transformation of the Middle & Back office functions (Accounts, Finance, Procurement, SCM, Admin, HR, Audit, etc.).
Instead of being limited to the controls that an ERP brings, the digital transformation brought in by spend management takes you beyond it – being integrated to an ERP, and yet being in control of all spend-related aspects.
Spend Management offers a unique “zoom-in zoom-out” view of expenses. All spending and processes can now be tracked to a GL level. Yet, you can look at a larger picture with trend analysis and provisioning reports. These spend analytics bring a new “predictability” to cash outflow.
This empowers organizations to identify and promote good spends that are key to business growth. At the same time, it is easier to identify and reduce bad spends like money lost because of ad hoc, non-compliant payments, bad vendor contracts, late payment penalties, or duplicate invoice payments.
The system brings in spend controls, governance, and risk management to key functions. This frees up strategists to focus on key business growth initiatives that uncertain times call for.
There is no doubt about it. Spend management with IT as an enabler is the right response in disruptive times.
