Overhead cost control, reduction and compliance with agreed budgets—They’re on every organization’s agenda, yet few have the processes and solutions in place to achieve them. In this blog we look at the issues and the solutions.
Getting overhead under control.
Whether it’s a new calendar year or a new fiscal year (or both), now is the time to make your spend control and reduction resolutions, and put the steps in place to make them a reality.
Of all the factors necessary to achieve budgetary control, three will play a major role:
- Operational departments being accountable for controlling their budgets, including spend
- Building in real overhead cost control at the onset when entering a purchase request
- Visibility into the real cost drivers and how decisions can impact costs
Accountability: Make cost containment everyone’s goal.
Giving department managers responsibility for their purchase orders while providing them with the essential tools for budgetary control will achieve two things: minimized frustration and maximized cost containment.
Decision makers will always be able to intervene if purchase orders exceed set thresholds, and/or to maintain control of overhead costs.
This allows buyers to focus on doing what they do best: generate the greatest added value for the organization; facilitate implementation for complex procurements; negotiate with suppliers; gap analysis in the purchasing families to be covered by referencing; and maintain supplier certification or complementary documents.
Depending on where the organization and its decision makers are in terms of P2P process maturity, handing over accountability may require a change in management effort. It’s best to start gradually and expand control as best practices are assimilated.
The need for an integrated solution for overhead cost control.
For spend management to be effective at the operational level, managers need to have total visibility across budgets, commitments and performance. This requires a solution that allows budget monitoring and control from initial purchase request through purchase order, receipt creation and invoice matching.
Modern P2P solutions are ahead of the curve when it comes to empowering these workflows. The ease of use also speeds adoption across users.
That means buyers can quickly establish a purchase request, compare products and prices, and ensure compliance with company purchasing policies. With features like visual alerts that highlight similar products at lower prices or notify if thresholds are exceeded, buyer behavior automatically moves in line with optimal spend and cost control requirements.
Those in charge of receiving/fulfilling orders can also ensure delivery conformity with the initial request, reducing the risk of overbilling. In case of dispute, buyers or supplier account managers may assist them.
With the right P2P solution, managers responsible for authorizing purchases have access to all information needed for approval or revision. Not just compliance with procurement policy and budget impact, but also visibility of the destination of ordered goods and services.
Quality control, from reporting to commitment management.
High-quality data generates high-quality results, from order to delivery, AP and external data sources. Increasing data quality through a P2P solution that triangulates data from multiple sources to offer many advantages:
- Establishes sufficient control by linking the requisition to the proper budget (project, department, activity)
- Ensures proper accounting integration of requisitions, receipts, invoices and more
- Limits supplier accounting restatements due to data entry errors, and ensures automatic reconciliation between order and invoice
- Enables management to make much more informed decisions and understand real cost drivers
Above all, high-quality information updated in real time can be leveraged with reporting capabilities integrated into the P2P solution to provide adequate control tailored to each user in the process. Real-time production of targeted KPIs (key performance indicators) will:
- Drive the budget
- Influence buying behaviour
- Anticipate the net results
- Measure process efficiency and ensure rule compliance
In the long term, operational departments can be made fully responsible for their own budgets. Given the right information and process managing them, each department will be better able to meet – or exceed – the budgetary objectives that have been set for them.
* Better budget planning and execution help organizations improve spend management and promote greater control and visibility. Contact us to learn best practices to sustain your company’s economic growth.