What is Business Spend Management (BSM)?

In this guide, the procurement experts at DeepStream explore the key principles, processes and technologies that drive effective business spend management – and discuss how procurement leaders can leverage these capabilities to drive tangible business value.

By adopting a holistic business spend management strategy, procurement teams can cement their role as strategic partners in supporting a company’s financial health and competitive position.

What is Business Spend Management?

Business spend management (BSM) refers to the processes and technologies used by companies to control, optimise and minimise their spending on goods and services necessary for their operations.

Some key aspects of business spend management include:

Spend Visibility and Categorisation

‍Gaining a comprehensive view of a company's spending across all categories and vendors.

Spend Analytics‍

Analysing spending data to identify optimisation opportunities, negotiate better contracts and implement cost-saving measures.

Procurement and Sourcing

‍Streamlining the purchasing process to maintain compliance with policies, obtain the best prices and manage supplier relationships.

Expense Management

‍Automating and standardising the processes around employee expense reporting, approval and reimbursement.

Accounts Payable

‍Optimising the accounts payable function to provide timely and accurate payments to vendors.

Contract Management

‍Centrally managing vendor contracts to leverage negotiated terms and maintain compliance.

The goal of BSM is to give companies greater visibility and control over their spending – with the aim of reducing uncontrolled spending, negotiating better procurement deals with suppliers and ultimately improving their bottom line.

Effective and successful BSM relies on the use of specialised software, data analytics and well-defined processes.

BSM Meaning

There are several reasons why the term ‘business spend management’ gets its name, including:

Focus on Business Spending:

The primary purpose of BSM is to manage and optimise the spending that businesses incur in their day-to-day operations, like procurement of goods and services, employee expenses, vendor contracts and more.

Holistic Approach:

BSM takes a comprehensive, enterprise-wide approach to managing spending, rather than focusing on isolated procurement or accounts payable processes.

It encompasses the entire lifecycle of business spending — from requisition to payment.

Emphasis on Management:

The term ‘management’ signifies that BSM involves active strategies, processes and technologies to control, optimise and minimise business spending, rather than just passive tracking or reporting.

Distinction From Consumer Spending:

The term ‘business’ differentiates the process from the tracking or reporting on other relevant financial data, such as consumer spend.

Benefits of Business Spend Management

Below are some of the key benefits of implementing an effective business spend management programme:

Increased Spending Visibility and Control

‍A BSM strategy provides a centralised view of a company's spending across all categories, vendors and business units, enabling better visibility and control over expenses.

Cost Savings and Optimisation

‍By analysing spend data, identifying savings opportunities and enforcing procurement policies, BSM helps companies reduce uncontrolled spending and negotiate better deals with suppliers.

Improved Compliance and Risk Management

Spend data monitoring ensures purchasing activities adhere to company policies and regulatory requirements, mitigating compliance risks and potential fines.

Enhanced Efficiency and Productivity

‍An effective BSM strategy automates and streamlines procurement, expense management and accounts payable processes, improving operational efficiency and freeing up resources for more strategic initiatives.

Better Supplier Relationships and Negotiations‍

Comprehensive spend visibility and analytics enable companies to make data-driven decisions when engaging with suppliers, leading to more favourable contract terms and pricing.

Increased Financial Control and Reporting

‍A BSM framework provides robust financial controls, audit trails and reporting capabilities, improving transparency and decision-making at the top level.

Organisational Agility and Responsiveness

‍By enabling real-time visibility and control over spending, BSM helps companies quickly adapt to changing market conditions and business needs.

Potential Challenges in Business Spend Management

A successful BSM strategy can boost cost-efficiency across business operations and minimise waste – however, there are several potential challenges businesses may face when rolling out a BSM framework.

Below are some of the potential pitfalls to be aware of and how to navigate them:

Data Integration and Quality

‍Consolidating spend data from multiple sources, systems, and business units can be complex and require significant data cleansing and normalisation efforts. To mitigate this, companies should invest in robust data integration and cleansing processes, leveraging data management tools and establishing strong data governance.

Change Management

‍Transitioning from decentralised, manual spend management to a centralised, automated BSM approach often requires overcoming company resistance to change. Developing a comprehensive change management strategy, including effective communication, training and incentives to drive user adoption, is crucial to address this challenge.

Lack of Executive Buy-In‍

Securing long-term commitment and sponsorship from senior leadership is crucial for the success of a BSM initiative – but can be difficult to obtain. Clearly explaining the strategic benefits of BSM and securing sponsorship from senior leadership through detailed business case development can help mitigate this challenge.

Supplier Compliance and Cooperation

‍Enforcing compliance with procurement policies and processes can be challenging, especially when dealing with long-standing supplier relationships. Establishing clear supplier engagement protocols, leveraging supplier portals, and incentivising compliance through contractual terms can help mitigate this challenge.

Technological Complexity

‍Selecting, implementing and integrating the right BSM software and tools can be a significant undertaking, requiring intensive IT resources and support.Conducting a thorough needs assessment, selecting the right BSM platform and providing effective implementation and integration with existing systems can help mitigate the technological complexity challenge.

Business Spend Management Strategies for Procurement

For many businesses, procurement is their greatest expense –sourcing the raw materials, products, technologies and other resources needed to perform effectively.

When it comes to procurement, there are several business spend management strategies to consider:

Centralised Procurement:

·      In this approach, the procurement function is consolidated at the enterprise level, with a central team responsible for managing all spend across the company.

·      This enables standardised processes, policies and technology, improving visibility, control and leverage over supplier relationships.

Decentralised Procurement:

·      This approach involves individual business units or departments managing their own procurement activities and supplier relationships.

·      Provides more autonomy and flexibility at the local level but can lead to fragmented processes and reduced enterprise-wide leverage.

Hybrid Procurement:

·      This approach combines elements of both centralised and decentralised models.

·      It typically involves a central procurement team setting the overall strategy and policies, while business units maintain some autonomy in execution.

·      This can balance the benefits of centralised oversight and control with the flexibility of local decision-making.

Category-Centric Procurement:

·      In this approach, procurement is organised around specific spend categories or commodity groups, with dedicated category managers responsible for overseeing those areas.

·      This allows for deeper expertise, strategic sourcing and supplier relationship management within each category.

Strategic Sourcing:

·      This approach focuses on identifying, evaluating and selecting suppliers based on a comprehensive, data-driven analysis of a company's needs, market conditions and supplier capabilities.

·      It aims to establish long-term, collaborative relationships with key suppliers to drive cost savings, quality improvements and innovation.

Collaborative Procurement:

·      This approach emphasises cross-functional collaboration between procurement, finance and other stakeholders to align procurement activities with broader company goals and priorities.

·      It can lead to more strategic and value-driven procurement decisions.

Automated Procurement:

·      This approach leverages technology, like e-procurement systems, to automate and streamline procurement processes, from requisition to payment.

·      It can improve efficiency, visibility, and control over spending while reducing manual effort.

Business Spend Management with DeepStream

DeepStream's eProcurement software streamlines business spend management by digitising and automating procurement workflows.

Key features include:

·      Centralised supplier evaluation.

·      Actionable spend insights.

·      Seamless communication.

Empower procurement teams to focus on strategic initiatives that drive value, align your processes with existing business practices, make informed decisions through data-driven insights and maximise savings with transparent supplier bidding.

Experience the benefits of a digitalised, collaborative procurement environment and unlock new opportunities for cost savings and operational efficiency.

Request a demo to transform your company's business spend management today.

Frequently Asked Questions

Q: What Is the Difference Between Spend Management and Spend Analysis?

A: Spend management is the holistic process of controlling, optimising and strategically managing a company's spending. Spend analysis, on the other hand, is the specific activity of collecting, classifying, and analysing a company's spending data to gain insights and identify opportunities for cost savings and process improvements.

Q: Why is Business Spend Management Important?

A: Business Spend Management is important because it enables companies to gain visibility and control over their spending, identify cost-saving opportunities, negotiate better terms with suppliers, maintain compliance with procurement policies and optimise resource utilisation, all of which contribute to more strategic decision-making and financial performance.

Q: What Are the Two Categories of Spending in Business?

A: The two main categories of spending in a business are direct spending – which includes costs directly related to the production or delivery of a company's products or services, like raw materials, labour, and manufacturing overhead – and indirect spending, which includes costs not directly related to production, like administrative expenses, utilities, travel and marketing.

‍