Facing the cyclical trends introduced by market dynamics and macroeconomic influencers, companies encounter periods where recessionary pressures challenge their regular mode of operations. During these critical moments, companies must take decisive actions that will make a lasting impact on their organisation’s spend: they should promptly shift from their high spend patterns and set targets to assist them in reaching their objectives, often including a need to reduce the workforce.
During economic downturns, the common targets most often are to:
- Reduce cost base with short-term impact
- Simplify the supplier base
- Adjust employee spend pattern
The challenges that stand in the way of the employee's ability to deliver on these targets are:
- Lack of holistic understanding of the cost foundation
- Decentralised and non-transparent decision process
- Limited compliance with the spend
- Reactive spend identification
Matching invoices to transactions without purchase orders (even orphaned)
Using T&E cards for corporate spend
The process to achieve these targets often starts with a cross-functional project team from finance, procurement, and IT departments that collaboratively tries to address these challenges. They must come together in an attempt to structure the spend overview on the mandate that overall costs are to be reduced by 5-20%[1]. Due to the structure of existing spend management, this means that the first task is to start from scratch by identifying core or strategic spend as opposed to long-tail or indirect spend. The realistic chances to make the target are to identify low-hanging fruits in long-tail or non-strategic spend with suppliers that can easily be terminated, or subscriptions and other expenses that can easily be cut out.
Unfortunately, this approach requires excessive resources from all the stakeholders involved, and in the end, many organisations realise they do not have a consistent, systematic overview of their spend. This particularly applies to long-tail spend, which tends to be unstructured, decentralised, and usually managed without a transparent system (e.g., via emails, verbal agreements). The process leads to many meetings, discussions, and attempts to push for reduction that are hard to realise as well as to frustrations between different departments as achieving targets becomes an issue.
At the end of the day, achieving such targets cannot be realised without a consistent system overview of all costs, while in the meantime precious resources are spent on the joint efforts. This means that the efforts will leave with little or no true impact on the organisation’s spend and the opportunity to make a lasting change to the organisation’s spend management is neglected.
Organisations should start early and not delay in creating an internal, common understanding until the pressures arise, therefore taking a proactive approach to mitigate the negative impacts of recessionary periods. Start today by reaching out to us. We will show you how Mazepay can help you - by keeping it simple - manage the spend that you cannot control.
[1] Mazepay’s research with CFOs and CPOs from 25 European-based corporates with >500,000 employees.