CASE STUDY

Unexplained Losses and Declining Savings? Solving Uncertainty with Spend Management Best Practices for Auto Parts Manufacturers

Jun 25, 2021

What is Spend Management and Why is it Important?

The costs of running a successful company have become increasingly difficult to track, efficiently account for, and manage as industries have expanded at an exponential rate and globalization has transformed the global economy. This has given rise to the evident need for efficient spend management, and encouraged companies to establish processes, structures, and systems to maintain a resilient supply chain at low and well-tracked costs. In the automotive industry, the role of controlled spending has become more necessary than ever before due to the substantial rise in policy changes, consumers’ evolving preferences, technological advancements, and more. The industry is witnessing tremendous change, and this has led to major expenses for growing and established companies as they attempt to adopt and produce more offerings that are in-line with consumers’ preferences. However, the evolving policies across the world, rising demand for innovative solutions, government intervention, and need for novel offerings has contributed to higher spend. Therefore, companies must understand, adopt, and implement spend management best practices to further their business in a cost-effective, sustainable, and successful way.

What are 5 Top Spend Management Best Practices?

Automation: Since the advent of industry 4.0 and smart factories, automation has been the most effective and necessary step for long-term and effective success for companies in any industry. In the automotive and auto parts manufacturing industry, automation provides a wide range of benefits, including reducing human error, minimizing the need of manual labor for repetitive tasks, more streamlined and precise production, and improved efficiency. Additionally, adding efficient automation and software systems provides companies with a clear and error-free approach to data collection, compilation, evaluation, and analysis. These benefits significantly support and promote the accurate, efficient, and necessary use of spend management within the organization.

Centralize and Standardize: To ensure that the spend management practices and processes employed by a business are effective and helpful for the company, CPOs and supply chain managers must ensure that all data collection, processing, and compiling systems are centralized and standardized. Additionally, professionals must identify all sources of spend, ensure that all data being assessed is complete and accurate, and efficiently categorize the procured data. Companies must also integrate updated software, and maintain a controlled rollout to ensure efficiency, and clarity among employees. To properly utilize this data, it must be regularly reviewed, revised, and revisited, so that new strategies, theories, and assumptions are based on current and accurate information.

Establish Processes: Spend management requires clearly outlined roles, responsibilities, and roadmaps to efficiently carry out the necessary processes and ensure that the company maximizes the value to be received from this function. To ensure the same, companies must develop clear strategies that detail upcoming deals and sourcing opportunities, and provides professionals with the opportunity to effectively allocate and implement necessary processes. Additionally, due to the complex nature of procurement, supply chains, and sourcing, expenses can be more efficiently identified, evaluated, and controlled, if different managers are delegated specific categories. This delegation improves coordination of each category and significantly simplifies the process.

Contract Management: The unwavering role of contracts, partnerships, and suppliers in the procurement department cannot be overlooked during this process either, and efficiently handling contract management can significantly support the spend management process. The role, performance, and contribution of suppliers substantially impacts the spend, costs, and savings of a business, and can cause major detriments, or successes, as per the approach. Regular performance reviews, overseeing compliance, revisiting contract terms, benchmarking prices and products, and ensuring that all quality, delivery, and stipulated standards are met can minimize unnecessary losses and added expenses substantially for businesses.

Regular Audits: The role of regular reviews and audits is often overlooked, and companies suffer significant losses due to this shortcoming. As businesses continuously employ new vendors, suppliers, contracts, processes, and strategies, the need for a regular reviewal system becomes increasingly evident. When approaching spend management, regular audits can help assess the accuracy, relevance, and applicability of data. The constant influx of data in the procurement and sourcing departments, requires strict oversight, and detailed speculation, which ensures accuracy, and helps companies mitigate major risks and potentially minimize costs. This practice also helps gain insight into the patterns of spending within the company, and improve decision-making in the future.

Success Story – SpendEdge Advantage

The automotive industry has seen a significant surge in demand, technological advancements, and change over recent years, and companies need to implement every efficient and cost-effective process they can, to minimize unnecessary expenses and improve its overall profitability. As the industry continues to grow, a successful and widely sought-after auto parts manufacturer noticed a significant difference between its expenses from the previous year and current year, in comparison. To gain a more comprehensive understanding, the manufacturer assessed its savings, expenses, and initiatives and noticed a significant rise in unnecessary expense, and cumulatively major losses that went unnoticed. The company sought to tackle this challenge by partnering with SpendEdge, and leveraging our expertise in offering effective advice, and unparalleled guidance regarding spend management. Upon closely reviewing the auto parts manufacturer’s spend management systems, our experts identified various challenges, including a lack of standardization and centralization, dated and irrelevant data, ineffective systems, and non-compliant partnerships that caused further losses. With the data procured, the experts provided the company’s procurement and sourcing department with a detailed assessment of shortcomings, necessary improvements, and potential changes that helped the company significantly increase savings, reduce losses, and improve spend management.

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