A buyer's dedicated purchasing channel is a seller's dedicated sales channel -- representing an opportunity for more transactions and a continuous revenue stream, often from a larger buyer with elevated spend.

Companies who issue Requests for Proposal (RFPs) for online commerce are often seeking a dedicated purchasing channel in order to buy from approved vendors, track and control spend, and implement automation and integration that make transactions easier.

A buyer's dedicated purchasing channel, meanwhile, is a seller's dedicated sales channel -- representing an opportunity for more transactions and a continuous revenue stream, often from a larger buyer with elevated spend.

The only catch is that you've got to track it.

The big company issuing the RFP for a dedicated purchasing channel does so because it wants the ability to see, control, and manage its spend and there are several arrangements that accomplish that.

An RFP that calls for PunchOut eprocurement integration seeks integration between the seller’s ecommerce storefront and the buyer’s own procurement system so that spend is tracked and purchasing approvals are built in. An RFP that calls for a company store also seeks a dedicated channel with an approved vendor and tools for visibility, budget control and more.

Another way to create a dedicated transaction channel with spend management is a cost center, an increasingly automated tool that is used for allocating spend, reporting spend, and enforcing who is allotted spend and how much across a range of considerations.

Here, we’ll explore some of the features that are commonly considered when buyers issue RFPs that require cost centers or cost center functionality and how you, as a distributor or fulfillment house, can meet the requirements to win the RFP.

In any arrangement of dedicated spend and purchasing, there are likely to be requirements about how much spend is allotted, how it’s tracked, how limits are enforced and how it’s invoiced. RFPs often call for cost center functionality which acts as an automated spend management and enforcement tool. Frequently, the cost center arrangement will require automated and integrated accounting as a consequence.

What is a Cost Center and Why do RFPs Ask for Them?

The cost center provides a defined, enforceable budget at the company, individual, or item level, as well as a single point of visibility for the overall spend of the program.

Cost centers at their basis are a spend management tool and RFPs call for cost centers because the RFP issuer wants a way to track its spend with the company to whom it awards the RFP and also enforce how much spend is devoted to the winning bidder.

Cost centers are a department within a business to which costs can be allocated. A budget is assigned to the cost center and as employees purchase, the spend is allocated to the cost center. The cost center provides a defined, enforceable budget at the company, individual, or item level, as well as a single point of visibility for the overall spend of the program.

The cost center at a minimum will act as a spend reporting tool. More likely, the cost center will be used for budget enforcement as well. Certain employees may be allocated certain amounts of the spend and rules can be enforced about what to do when the limits are reached, whether it’s to stop transactions or to pay overages with something other than the cost center budget.

For example, an imprinted apparel distributor may provide uniforms and marketing items for a large brand like a hospital network through an ecommerce website or company store. The hospital network wants to be able to track its uniform and marketing costs and may also want to limit how much each employee or buyer spends on marketing and uniforms. It may also want to know how much is spent on uniforms and how much is spent on marketing. Cost centers provide the visibility and enforcement.

The cost center serves as a budget for the brand’s spend with the distributor, including visibility and budget enforcement included.

RFPs Call for Varying Cost Center Enforcement Levels

Brands are devoting spend to their cost centers but it wants control over who spends how much for what items. It’s most often not unlimited spend. The cost center may be required by the RFP to support permissions configuration to control who can purchase. The RFP may also require credit holds that prevent buyers from exceeding their limits with net terms, COD, or other arrangements that permit after-the-fact payment.

Cost centers provide a range of spend enforcement levels. The cost center may act as simply a soft reporting tool without true enforcement, as a hard cap that sets a limit on how much buyers can spend with the distributor, or somewhere between.

• Low enforcement/Reporting tool only: At the minimum, a cost center is a reporting tool. A brand may have unlimited spend with the distributor but at the same time it wants to track that spend, including overall spend but also likely individual spend and spend for item types. A low enforcement cost center used as a reporting tool would simply provide data on how much was spent by whom for what.
• Full enforcement/Hard cap: At the other end of the spectrum for cost center enforcement is a hard cap where the buyer is allowed to spend their stipend, voucher, per diem, or other periodic allotment but only that allotment. With any level of spend enforcement, credit holds become necessary either at the company level, the individual buyer level, or both to halt purchases once defined allotments are exhausted. The cost center continues to track spend as a reporting tool but adds holding functionality to make sure spend isn’t exceeded for individuals, item types, or the company as a whole.
• Medium Enforcement/Soft cap: The middle ground of cost center enforcement includes spending limits that may be exceeded. For example, buyers may have a stipend, voucher, per diem, or other periodic allotment of spend from the brand to use on the ecommerce website or company store. The cost center would continue to report on the spend but would also track how much of the allotment is used. With medium enforcement, the allotment may be allowed to be exceeded, such as by using a payment card or other method outside of the cost center to cover overages.

Cost Center Levels of Control and Visibility

An RFP may call for combinations of spend allotment, tracking, and enforcement at individual, department, or company levels.

As a spend management tool, cost centers can control how much is allotted for spending at an ecommerce storefront or company store, who receives the allotment, and how often.

An RFP may require that individuals, departments, or the company is allotted a certain amount of spend for a given time period. The cost center may, for example, need to refresh an individual’s spend by $500 each momth.

Some cost centers need spend controlled and tracked at a company level: an overall budget for spend at the ecommerce storefront or company store. The RFP would require the cost center to track spend companywide.

Other cost centers control spend by item. For example, the brand may have separate budgets for uniform spend and marketing spend. In this case, the RFP would require the cost center to track spend by category, as well as potentially companywide.

Other RFP issuers may want cost centers that control spend on an individual-buyer basis, such as when each buyer or employee is provided an allotment for the ecommerce storefront or company store. In this case, budgets need to be defined, tracked, and enforced at the employee or buyer level. The cost center may also need to enforce which employees can spend on which categories.

An RFP may call for combinations of spend allotment, tracking, and enforcement at individual, department, or company levels.

Cost Centers and Consolidated Invoicing

Rather than pay for each small order as its placed by potentially hundreds of employees across dozens of facilities, the RFP issuer may prefer to pay in one sum at the end of the month or on another regular interval.

Since the employer is not directly managing the day-to-day, order-to-order spend, the RFP requiring cost centers may also seek require the ability to batch orders for invoicing purposes.

Rather than pay for each small order as its placed by potentially hundreds of employees across dozens of facilities, the RFP issuer may prefer to pay in one sum at the end of the month or on another regular interval.

Consolidated invoicing becomes a valuable tool for the seller. The seller is able to combine all of the smaller invoices into one large invoice at the end of the month or the end of another time period, and provide that to the employer, allowing the employer to pay once per month instead of dozens or hundreds of times for smaller orders.

The buyer meanwhile receives a higher level few of the spend, rather than scrutinizing a series of one-off smaller transactions.

Why Automated Accounting is Pivotal for Cost Centers

It’s a lot of tracking at a granular level. It’s nearly impossible to consider managing the cost center manually.

An RFP may require a cost center to act as an enforcement tool or just a reporting a tool. It may also require the cost center to allot, track, and/or enforce spend by individual, department, company, and/or item type. The RFP may also require the cost center to include consolidated invoicing that adds up all the purchasing at the end of a time period into one comprehensive bill.

It’s a lot of tracking at a granular level that may include hundreds of individuals and dozens of facilities, with varying levels of spend allotment and enforcement. For spend enforcement in real time, meanwhile, the tracking will need to occur at near real-time.

In order for the cost center to perform its job as a spend tracking and spend enforcement tool, it’s nearly impossible to consider managing the cost center manually. Besides the manual management inviting errors and absorbing great amounts of time and labor, the cost center would almost never be up to date and therefore spend enforcement would almost always be behind or faulty.

An RFP for a cost center might not specifically call for automated, integrated accounting – but it’s effectively a requirement. Tracking the spend across so many individual transactions and then enforcing spending caps on a real-time basis would be nearly impossible manually.

With automated, integrated accounting, transactions are registered the moment they are initiated and completed as data flows in from order management and operations. In effect, accounting is performed nearly automatically as a result of processing orders so that spend is continually tracked and enforced, fulfilling the spend management control that the seller sought in the RFP.

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