One of the reasons procurement has always been a process-driven function is because we are tasked with managing buyer behaviors as much as we are addressing and analyzing spend. Spend is trackable, reportable, and concrete, but it is only a by-product of the behaviors exhibited by distributed buyers and budget owners. Therefore, if we want to see changes in the spending that we manage, then, better understanding buyer behavior is critical.
When we think about those buying behaviors and how they have changed over the last couple of years, it is easy to see why procurement faces such a spend transparency challenge today. As employees went home to work, most companies (rightly) took a ‘whatever you need’ approach to supplying them. That led to a flurry of new, non-standard expense requests and transactions, and it left a data-based mess for procurement teams to clean up.
According to SAP Concur customer data, there was a 15% increase in the ‘other’ expense category in 2020. Not only is that a significant one-year increase, but it also brings ‘other’ expenses to 44% of the total. With ‘other’ purchases approaching half of all enterprise expenses, procurement can clearly recognize that there are new buyer behaviors forming, and even though those behaviors were formed under extraordinary circumstances, they may not end naturally once circumstances change.
Procurement’s chief task is to redirect those behaviors to minimize the creation of new ‘other’ spend while simultaneously cleaning up the spend that has already been identified.
The scope and scale of this challenge naturally elevate automation as an ideal solution, with increased transparency into travel data, expense reports, and corporate cards being the primary objective. ‘Other’ spend is a conglomeration of one-off purchases, each made in isolation. That does not mean, however, that there is no overlap or commonality among those transactions. This is where procurement can apply automation to address specific pockets of ‘other’ spend in the optimal way – for buyers and for the company as a whole.
Since the behaviors driving all that ‘other’ spend are shared by the buyer community, it is likely that there are product types or even new suppliers in that spend that can be sourced using traditional means and thereby lifted out of the ‘other’ category. Automation can quickly identify patterns, allowing procurement to determine the best strategy for categorization, management, and contracting.
There is almost always spend with contracted suppliers that falls into the ‘other’ bucket simply because a purchase went through a corporate card instead of a catalog (for instance). Integrating corporate card feeds and then comparing them to the list of contracted or preferred suppliers can both reduce existing ‘other’ spend and identify opportunities for procurement. Then procurement can educate specific users or groups within the business on how they can easily meet the same needs in the future by simply following established policies, making sure the behaviors don’t become a habit.
What makes ‘other’ spend so daunting is how little procurement knows about what it contains. Establishing policies for handling high volume, repetitive spend – even when the dollar value per transaction is low – is critical, but so is ensuring that the systems in place for supporting those purchases are accessible and convenient for buyers. Not all ‘other’ expenses are the same, and since procurement certainly doesn’t have resource bandwidth to spare, a strategic approach will prioritize the sources of ‘other’ spend that can be addressed in bulk, before moving on to the ‘long tail’ of most fragmented transactions.
To address all the ‘other’ spend created over the last couple of years, procurement will need to follow a two-pronged approach that takes spend and buying behaviors into consideration. This spend, and the behaviors behind the transaction, are connected – despite appearing highly fragmented. But what is the connection?
Technology can help unify spend into one platform and provide the powerful analytics procurement needs to aid business intelligence and inform policy and process adjustments. Plus, it frees up procurement’s time to address the human causes of ‘other’ spend, ensuring that irregular buying habits don’t become the norm.
For more information, read Four Insights Every CPO Should Know About Travel & Expense by SAP Concur.
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