What Are the Best Spend Optimization Strategies for Businesses?

The list is long 

When you're in charge of a business, the list of things to take care of is definitely long.

People to work with, purchases that must be made, processes to implement, customers to keep happy…

Yes, long indeed.

But there's one thing that connects each point to the other.

Everything costs money 

It's how businesses work after all, you need to spend to earn.

But there's no need to spend mindlessly. 

Actually, not being careful about where your company's financial resources are going could risk your stability.

That's why optimizing your spending habits is so critical.

‍

What's Spend Optimization?

You could see it as the practice that helps you make smarter financial decisions.

Spend optimization is a process designed to improve the way a company's money is allocated. 

Let's say that your budget is always running tight, wouldn't it be useful to understand the reason?

Well, that's what spend optimization is for.

It gives you the opportunity to analyze your current spending habits, learn about potential inefficiencies, and set strategies to find the most effective opportunities from your business's purchases.

‍

Is Spend Management the same as Spend Optimization?

They do sound familiar, right?

Spend management, however, is a different concept; it works as a series of steps businesses follow to gain visibility and control over financial flows. 

Are you spending as expected? Does that transaction match with a specific purchase?

Spend optimization, on the other hand, goes a bit further and works beyond the facts to make things better.

For example, for the question: Are you spending as expected? Spend optimization would add: What can you do to make sure that's the case? 

‍

Spend management is about the “what,” and spend optimization is about the “why” and the “how can we do better?” 

Ideally, you want both working together because managing spend keeps things in check, and optimizing spend helps you grow.

‍

Why Should You Care about Spend Optimization?

Boost profitability 

It's a unique feeling 

Knowing that you are increasing your revenue as a company is pretty good.

Well, this is one of the key direct benefits of optimizing your spending patterns.

Perhaps the only thing you need to give your finances that extra boost begins by cutting unnecessary costs and redirecting your funds to projects or activities that really matter.

It helps you to discover inefficiencies 

When you are making purchases without really noticing the impact it has on your operations,  it's easy to fall victim of an endless cycle of mistakes and poor management 

How much are you truly paying for that new software? Are you putting too much effort into an unreliable supplier? Are you spending the right amount on your purchases?

Spend optimization is important because it provides you with visibility into possible errors that could end up costing you more than money in the long-term 

You can make better decisions.

‍

When you are running a business or in charge of a key department, making decisions might be a complex matter. 

Whatever you choose, you know it's going to have consequences for your operations and the people working with you 

And doing it blindly?

That's risky 

When you have an accurate view of where your money's going and why, you can quickly respond to change and adapt with the confidence of doing it right.

Negotiate better deals

With data on your side, you can walk into your next supplier meetings ready to have more productive conversations. 

You’ll know which suppliers are delivering value and which ones aren’t, so you can renegotiate contracts or explore new partnerships from a position of strength.

‍

5 Strategies for Spend Optimization 

Okay, so spend optimization is indeed serious business.

But what exactly do you need to do to reap all the benefits? 

Start with an analysis of your current situation.

Ask yourself this question: Can you solve something you aren't aware of?

Not so much, right?

The first thing you must do when it comes to developing a solid spend optimization plan is to pause and pay attention to your current spending habits across your company. 

Gather data from all of your departments, double-check your systems, and review the performance of your suppliers and the contracts you signed. If everything is perfect, then there's nothing to worry about 

The problem?

Nothing is really perfect, so there's a chance you'll find some surprises, like recurring expenses that don't make sense, or paying multiple suppliers for the same services. 

‍

A well-done spend analysis sets the foundation for discovering negative trends and highlights the room for possible extra wins.

‍

Rethink the way you are sourcing.

‍

A good price, a cheap price, isn't always going to be the smartest choice, yes, in procurement costs matter, but that's only a part of the puzzle 

To really choose a supplier the right way, you have to go beyond superfluous aspects and consider the TCO among other things, see the purchase from an holistic point of view that considers factors like reliability, flexibility, customer support, and even alignment with sustainability.  Doing this sets the foundation for selecting a true partner that's more than ready to grow alongside your company. 

‍

Rely on technology

Because why not?

Managing procurement processes and all the expenses associated, manually can be a pain in the back for your team; the more information they have to handle, the easier it becomes to make a mistake that could derail your operations.  Spend management tools like procurement software are an excellent way to centralize all your spend data, automate daily administrative work, and forecast important trends so you can be better prepared. 

Need to improve your approval route? 

The software can handle it for you.

‍

Work on your relationships

With your suppliers 

Supplier relationship management doesn't end when you decide to sign a contract with a new supplier. 

Actually, this is when the real work should begin.

Keep communication flowing at all times, make a habit of setting performance metrics, and constantly go over the results. Have conversations with your suppliers that go beyond the traditional: your order has been delivered. 

If you work with your suppliers as you'd do with any other key business partner, you can guarantee that they'll be there for you when it's needed.

‍

Make it part of your culture 

Spend optimization works best when it’s everyone’s responsibility, not just the finance team’s. That means fostering a company culture where people think critically about spending and feel empowered to speak up when they see inefficiencies.

You can do this by making spend data more visible across departments, rewarding teams for cost-saving ideas, and communicating the “why” behind budget decisions. The more people understand how their actions impact the company’s financial health, the more mindful they’ll be

‍

Are There Any Challenges with Spend Optimization?

Like any change worth making, trying to follow a spend optimization strategy comes with a few potential problems along the road. 

The key is knowing what to expect, so you can plan ahead, stay flexible, and keep things running even when something doesn't go according to plan.

That being said, and regardless of your industry, there are some common issues you might face.

‍

Data is not updated 

What's the point of relying on a data system if nothing makes sense to your current reality?

Picture this: One team uses spreadsheets, another uses a tool no one else has access to, and trying to figure out what that invoice was for seems like a complete nightmare.

Without a centralized view of spending, it’s almost impossible to get accurate insights.

The solution?

It's easier than you think

And yes, it involves technology. 

Using digital tools truly simplifies keeping track of your processes and outcomes.

Resistance to change 

People get used to doing things a certain way, even if it’s inefficient. So when you start introducing new tools, workflows, or approval processes, don’t be surprised if you get a little pushback.

Now, when this happens, and there's a chance that it will happen, you need to put a strong emphasis on your communication plan. Gather your team for a meeting, discuss with them the problems you've been having so far, and present spent optimization as the solution that will bring benefits for everyone.

‍