Spending to save: the importance of continued investment in procurement
Spare a thought for Rishi Sunak. Having set out spending plans amid 11.3% fall in GDP, (the biggest contraction in 300 years) he Government’s Spending Review last month saw the Chancellor forced to layout in stark economic terms, the impact of the past 12 months.
The particular political paradox he’s facing is that the pandemic is requiring him to spend further, despite the enormous debts already chalked up.
It’s a situation likely to be mirrored, to an extent, by many businesses as they look ahead to 2021. Huge losses have hit multiple sectors over the year, yet to dig our way out of the economic black hole, the chances are further spending and investment will be needed.
So how does spending to economise add up?
Intelligent spending helps you save
Procurement and finance teams are usually the first to feel the effects of a downturn. Yet whilst austerity brings its challenges, it also provides huge opportunities to leverage efficiencies.
Some of the main go-to tactics for achieving cost savings are contract renegotiation and supplier consolidation. On a smaller level though, managing a greater breadth of spend, and eliminating maverick or bypass purchases also has the potential to achieve significant savings.
So focusing your attention on tail spend can be lucrative. With savings around the 10% mark to be made just by actively managing this area of spending, it’s a C-suite opportunity promising quick returns.
However, achieving these greater efficiencies requires a streamlined process and doing this manually is unlikely to see you realise your true savings potential. This is where the “spend to save” dichotomy comes in. Smart investment in technology at this early point can reap dividends for the months and years to come.
It’s interesting to see this mindset reflected in the latest Gartner Spend Survey which shows that regardless of financial pressure, 47% of CPOs are still determined to retain budgets for technology - in recognition of the savings this type of investment can make. Automation is now recognised as a clear way to deliver cost savings, efficiencies and better outcomes. Digital transformation is changing the procurement landscape for the organisations who are taking steps in that direction.
Spending in areas which will benefit your organisation longer-term is smart spending, whatever the economic environment. So looking at investment in technology which improves or automates processes is particularly key.
Not only do these tools save time for procurement teams but - more critically - they provide visibility of spend data in a way that’s simply not achievable with manual processes. Having the tools available to demonstrate spending across the buying process makes it easier to spend more wisely. So if you don’t currently have this visibility, investing in technology to gain these insights is always a great move - even in a crisis.
How to automate for better spend control
Typically, in recession, licensed software is an area ripe for cost savings. But with a much greater movement towards software as a service models, these cuts don’t have the impact they once had.
With the pay as you go model of outsourcing to cloud infrastructure, companies can buy tools and services quickly, easily and cost-efficiently without having the huge upfront investment costs of running technology like this in house.
Digital solutions for buying goods is relatively easy. The explosion of online marketplaces for B2B sales such as Alibaba and Amazon Business has effectively provided organisations with self-service online catalogues for goods purchases.
Procuring services is more difficult. Yet according to our own survey, 39% of teams say services account for half their tail spend. It’s hard to standardise services - and this makes sourcing, comparing and selecting them that much more complex.
Automation using intelligent technology is likely to hold the answer. And it doesn’t have to be a huge investment. Whether it’s the use of RPA tools to speed up the admin around buying services or leveraging the power of a digital procurement platform, you’ll be joining a new generation of companies already seeing the benefits or investing in better procurement solutions. On-demand software platforms like Maistro’s offer the purest type of procure-to-pay solution without the burden of long 2 or 3-year contract tie-ins.
So yes, there may be some dark days ahead, but there is also light at the end of the tunnel. Huge advancements in technology (with very affordable cost models) ins enabling companies to optimise the procurement process with better quality data and increased spend visibility. Automation of routine tasks frees teams up to focus on the more value-add strategic elements of their role - important in a depressed market.
Viewing technology as an enabler, or opting into full “procurement-on-demand” services is the most direct route to cost savings, particularly when used to control tail spend.
To read more of our exclusive tail spend insights and find out further details on how to automate for control and cost-savings, take a look at our White Paper.