It’s simple: companies with effective spend management outperform those with more lax practices.

That’s why spend management—an overarching term used to describe how companies track, analyze, and control their expenditures—is critical for business success.

And while it benefits the entire company, it particularly enhances procurement operations.

With that in mind, we’ll explore the top five ways good spend management can transform your procurement strategy and help you drive better results.

Let’s get started!

Makes Procurement More Data Driven

Good spend management transforms procurement by providing the data needed for more strategic and informed decision-making.

In other words, one of the principal goals of spend management is to centralize and organize spend data, making it accessible to all relevant stakeholders within the company.

For procurement teams, this access to comprehensive spend data ultimately allows them to make more informed decisions about supplier selection, pricing models, and future procurement strategies.

However, getting there is not without its challenges.

According to Deloitte’s 2023 Global CPO Survey, the biggest obstacles are inadequate technologies and talent capacity/skill gap.

Illustration: Veridion / Data: Deloitte

Along with another top barrier—conflicting priorities at 41%—these figures highlight that the road to truly data driven procurement is often long and bumpy.

Tackling these challenges requires a holistic approach.

Thankfully, good spend management goes beyond providing accurate spend data:

It also ensures that the procurement team has the right technology, resources, and skills to collect and analyze data, extract insights, and implement a data driven strategy.

As for the technology side of things, companies typically leverage a combination of cloud-based systems, tools, and services.

Below is an overview of the technologies commonly used to ensure procurement has access to all the spend data and relevant information needed for data-driven decision-making.

Technology	What data it provides
Procurement Software	Internal spend data such as purchase orders, invoices, and supplier contracts
Supplier Relationship Management (SRM) and Contract Management Tools	Internal data on supplier performance, risk, and contract compliance (Note: both can be part of a comprehensive procurement software solution)
Enterprise Resource Planning (ERP) Systems	Internal data from other business functions, including finance, operations, and inventory management
Big Data Tools	External data for market trends, supplier monitoring, risk assessments, and benchmarking against industry standards
Spend Analytics Software	Integrates, classifies, and analyzes all of the above data to generate actionable insights for strategic decision-making

With these technologies in place, organizations actually get corporate-wide, real-time visibility into their total spend, uncovering inefficiencies that may otherwise remain hidden.

To achieve this, a combined finance and procurement team needs to have sufficient expertise, skills, and training to distinguish between spend categories that:

• are outside procurement’s control, such as payroll, taxes, and other fixed expenses (non-addressable spend),
• can be controlled or influenced by procurement but aren’t (addressable spend),
• are already actively managed by procurement (spend under management).

As shown below, this classification alone can reveal untapped opportunities for optimizing spend management and procurement decisions.

Source: Veridion

To illustrate, imagine a company where individual departments and business units have historically arranged their own travel services, essentially making these expenses non-addressable by procurement.

However, since these services can be consolidated, management can decide to reclassify travel expenses as addressable spend.

Then, the company can place travel services under procurement’s control, allowing the team to leverage its buying power to negotiate better rates and terms.

For instance, consolidating hotel providers saved Delta Airlines $11 million in just three months.

Illustration: Veridion / Data: Procurement Academy

Another example is when digging deeper into spend under management data reveals that various departments are purchasing identical or similar products from multiple suppliers at different prices.

Again, this is an opportunity to leverage volume discounts or negotiate better terms through supplier consolidation.

Another key benefit of having access to historical spend data is that procurement can use it to more accurately forecast future purchasing needs.

This leads to better inventory planning and demand anticipation.

It helps optimize stock levels, reducing the risk of both overstocking and stockouts, while improving overall supply chain efficiency.

Overall, data and the valuable insights it offers are the very foundation of effective spend management.

When stakeholders have access to comprehensive spend data and feel empowered to extract actionable insights from it, they are able to make better-informed, data driven decisions.

Improves Strategic Partnerships with Suppliers

Spend analysis is a critical part of effective spend management, helping organizations identify key suppliers that offer the best value and negotiate more favorable contract terms.

By consistently evaluating supplier performance based on factors such as price, delivery time, and quality, organizations can pinpoint suppliers that best align with their strategic goals.

These insights lead to more informed negotiations, where companies can secure favorable contract terms, such as longer payment terms or discounts for bulk purchases.

Of course, all this relies on accurately tracking key performance indicators (KPIs) for suppliers and related procurement processes.

To illustrate, here are some typical KPIs to track.

Source: Veridion

By closely monitoring these and other KPIs, procurement teams can identify potential issues with suppliers early and address them proactively.

Naturally, KPIs—serving as input data for spend analysis—also allow them to see which suppliers are consistently providing high-quality products or services, meeting delivery deadlines, and offering competitive pricing.

From there, the procurement team can initiate discussions to negotiate bulk purchase agreements with those suppliers, further strengthening the partnership.

If successful, these negotiations can lead to reduced costs for your company while improving supply chain efficiency.

Suppliers, in turn, benefit from a larger, more predictable volume of orders, creating a win-win scenario.

However, price shouldn’t be the only focus during negotiations.

As CEO of Negotiations Ninja, Mark Raffan, highlights:

Illustration: Veridion / Data: Art of Procurement

By considering factors beyond price, such as risk management and contractual terms, procurement teams can unlock greater value in their supplier relationships.

This could include improving delivery timelines, enhancing quality assurance methods, or fostering process improvements and innovation within the supplier’s operations.

By consolidating purchases with fewer carefully evaluated, high-quality suppliers, your procurement team can foster long-term strategic collaborations that are beneficial for both sides.

This approach ensures suppliers are incentivized to consistently meet and exceed expectations, driving continuous improvements.

In short, good spend management involves KPI tracking, which enables detailed spend analysis.

Armed with these insights, your procurement team can identify the best-performing suppliers and conduct targeted negotiations to strengthen strategic partnerships and optimize costs.

Helps Identify Opportunities for Sustainable Procurement

As mentioned, effective spend management enables companies to track a wide range of metrics and analyze procurement data.

Among other things, this visibility helps procurement teams identify and prioritize suppliers that offer eco-friendly products or align with their company’s environmental, social, and governance (ESG) sustainability standards.

A company’s commitment to these standards goes beyond reducing the negative impacts of its procurement, logistics, and production on natural resources and climate change.

It also enables compliance with increasingly stringent ESG regulations while minimizing reputational and operational third-party risks.

These factors are reflected in the insights gathered from managers surveyed for EcoVadis’s 2024 Sustainable Procurement Barometer.

Namely, they highlighted the top three drivers and key outcomes for their sustainable procurement programs, as shown below.

Illustration: Veridion / Data: EcoVadis

It is worth noting that, in the same survey, only 9% of respondents identified cost savings as one of the top three drivers for sustainable procurement.

This suggests that companies are increasingly recognizing the value of sustainability beyond just financial savings.

So, how does good spend management contribute to achieving these outcomes?

First and foremost, by ensuring procurement teams have the right tools to collect, evaluate, and track ESG-related supplier data.

For example, when searching for new suppliers, it would be best if your team could quickly and easily find sustainable suppliers that align with your company’s ESG goals.

To do this, they would need access to a vast, regularly updated global database of suppliers that can be filtered by different ESG criteria.

This is precisely what our supplier discovery service, Veridion, provides.

Source: Veridion

With Veridion’s AI-powered database and search functions integrated into your other procurement tools, you can ensure that suppliers are screened for sustainability from the outset.

From there, the team can leverage Veridion’s data to further evaluate suppliers against other criteria and assess risks associated with them.

While this helps identify opportunities for sustainable procurement with new suppliers, what about your current ones?

Well, the procurement team needs tools that allow them to analyze spending patterns and monitor supplier performance.

With this information, they can identify suppliers who consistently meet your organization’s sustainability criteria and those who fall short.

This allows the team to take proactive steps, such as working with underperforming suppliers to improve their practices or replacing them with more sustainable ones.

Reduces the Risk of Non-Compliance

A robust spend management system will strive to ensure that all purchases align with company policies and regulatory requirements, thus reducing the risk of non-compliance.

When it comes to procurement, non-compliance can refer to:

• employees not adhering to internal purchasing policies,
• suppliers not complying with contract terms and conditions, and
• the company not being aligned with regulatory and industry requirements.

The consequences of these non-compliances can vary from minor to catastrophic.

For example, supplier non-compliance can lead to everything from small delivery delays and quality issues to comprehensive product recalls, significant fines, and reputational damage.

Similarly, employee non-compliance can be equally harmful, with consequences ranging from increased costs due to uncontrolled maverick spend to multimillion-dollar fraud.

To illustrate the latter, here’s a case where online giants were defrauded for more than $100 million by a fake supplier.

Source: NPR

Such cases of external fraud or internal misuse of funds can be prevented by adopting strict supplier credential verification procedures and purchase approval workflows.

In general, an effective spend management system will include tools and methodologies to detect and prevent various types of non-compliance.

For example, procure-to-pay (P2P) systems can track procurement activities, enforce internal controls, and raise red flags, thereby minimizing the risk of employee non-compliance.

Concurrently, the same solution or an independent tool can be used for tracking and verifying supplier compliance with contract terms.

Simply put, effective spend management reduces the risk of non-compliance by leveraging a well-coordinated ecosystem of compliance-monitoring tools and policies.

Together, they ensure that all aspects of procurement align with internal standards and external regulations.

Creates a Competitive Advantage

We could say that the primary goal of spend management is to create a competitive advantage for the company.

As discussed, good spend management practices give companies real-time visibility into their expenses.

Along with the other benefits we covered, such as improved compliance, it allows procurement teams to quickly adjust their strategies in response to supply chain disruptions or market changes.

This agility helps minimize risks, secure better pricing, and maintain smooth operations, providing a competitive edge over less adaptable competitors.

In achieving this, having access to the latest market intelligence is just as important as maintaining accurate internal spend data.

Source: Veridion

For starters, it enables internal spend data to be benchmarked against market prices and other parameters, allowing the procurement team to ensure they’re not overpaying for goods or services.

This can also help them identify cost-saving opportunities and negotiate better contracts, ultimately boosting the company’s price competitiveness.

Another relevant factor is that market intelligence allows the team to identify risks that new and existing suppliers may not have reported, such as their financial instability, supply issues, or ESG non-compliance.

Source: Veridion

In short, when real-time spend visibility is combined with actionable market intelligence, the procurement team gains access to critical information about suppliers, industry trends, and potential risks.

This empowers them to make data driven decisions, seize emerging opportunities, and respond more quickly to market shifts.

Together, these capabilities demonstrate how effective spend management can help companies create and sustain a competitive advantage.

Conclusion

We hope this article has shed some light on not only how good spend management generates the benefits we outlined, but also what they mean for your business.

It’s clear that, as a comprehensive system of processes, methodologies, and tools, spend management has a crucial role to play in optimizing procurement, reducing risks, and driving long-term success.

Finally, spend management empowers companies to make smarter decisions and stay competitive by making procurement more data-driven and sustainable while ensuring compliance.

And, by embracing these strategies, you can position your company to thrive in an increasingly complex and competitive market, too.