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Spend management is the way in which companies control and optimize the money they spend to cut operating and other costs associated with doing business.

Whether it is the money spent on goods or services for direct (raw goods and materials used in the manufacture of products), indirect material (Office supplies and other expenses that do not go into a finished product) or services (temporary and contract labor, print services etc), a company needs a mechanism by which they are not only able to save money but control costs associated with doing business.

Money to a company falls into two major buckets - revenue and cost. Often in hard economic times when revenue is harder to come by, companies turn to cost cutting initiatives.

Because cost cutting affects a companies bottom line directly, certain types of cost cutting can be the quickest way companies can increase their market value. The typical consensus is that the revenue to cost ratio is 3 to 1 such that in a company needs to bring in 3 times more revenue in order to acheieve the same effect as cutting costs.

For example, a company cuts its operating costs which increases its operating income. This in turn increases net income. An increase in net income leads to a greater earnings per share and ultimately a higher market value (higher market capitalization).

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In the end, however, Spend Managment is about creating longterm and sustainable savings. True Spend Management (and by extent Total Cost Management) is considered by many to be an ongoing cyclical process.