6 Steps to Bring Your Spend Under Management

Effectively managing spend is critical for procurement success. By bringing spend under management, businesses can better control expenses, drive savings, and boost supplier relationships.

Spend under management is the area of spend in an organization managed by the procurement team and AP professionals.

Analyzing how spend under management is handled helps businesses control costs and enhance profitability.

This blog will outline essential steps that businesses can follow to bring their spend under management and enhance procurement processes.

Before delving into the details of spend under management, here are the different components of spend within an organization:

• Addressable (or total) spend
• Spend influenced
• Spend under sourcing

Addressable Expenditure

This is the total amount of money an organization’s direct and indirect spends. It includes all expenditures except for tax payments, charitable donations, dividends, stock repurchases, securities, employee base salaries and bonuses. Note that addressable spending includes all spend that can be sourced, rather than solely the products and services procured by procurement teams.

Procurement-Influenced Expenditure

This category represents a part of addressable expenditure where procurement teams exert their influence by overseeing or managing the sourcing process and implementing procurement processes and policies.

Sourced Expenditure

Sourced expenditure refers to the portion of a business’s addressable expenditure that is covered by formal sourcing strategies, including documented category plans.

Why is it Essential to Increase Spend Under Management?

Increasing spend under management is a crucial goal for procurement. Understanding why this is important can help businesses unlock significant value and efficiency. Here’s why increasing spend under management is essential:

Cost Savings

Bringing more spend under management allows enterprises to leverage their purchasing power, negotiate better terms and reduce overall spending.

Visibility and Control

It provides greater insight into expenditure, enabling better budget management and financial planning.

Risk Mitigation and Compliance

Increasing spend under management enables enterprises to better monitor and manage supplier-related risks, and also adhere to company policies and industry regulations.

Strategic Decision-Making

More data under management enables informed decision-making about suppliers, categories and sourcing strategies.

Process Efficiency

It streamlines procurement processes, reducing maverick spending and improving overall operational efficiency.

Supplier Relationship Management

Increased visibility allows for better supplier performance tracking and relationship development.

Six Steps to Effectively Bring Spend Under Management

Step 1: Evaluate Current State and Set Goals

Start by conducting a holistic assessment of your organization's current spend management practices. Analyze spending patterns, identify areas of maverick or uncontrolled spend and evaluate existing procurement processes and policies. Based on this assessment, set clear and measurable goals for bringing spend under management, such as cutting maverick spend, increasing contract compliance, or achieving cost reduction targets.

Step 2: Establish Data Visibility and Analytics

For effective spend management, you need accurate and comprehensive spend data and cutting-edge technology. Implement systems and tools that offer end-to-end visibility into your business’s spending activities. Utilize spend analytics to gain insights into spending patterns, identify cost-saving opportunities, and prioritize opportunities to improve. Leverage technology solutions that enable data consolidation, cleansing, and analysis to ensure reliable and actionable insights.

Step 3: Implement Procurement Policies and Standardization

Develop and implement standardization and compliance procurement policies and processes across the organization. Establish clear guidelines for supplier selection, contract management and purchasing procedures. This brings consistency and helps eliminate maverick spend. Encourage cross-functional collaboration to gather input from key stakeholders and gain their support in implementing standardized procurement practices.

Step 4: Strengthen Supplier Management

An effective supplier management program is essential for bringing spend under management. Conduct a thorough supplier assessment and segmentation to identify strategic suppliers and optimize supplier relationships. Establish key performance indicators (KPIs) to measure supplier performance and conduct regular reviews and evaluate supplier performance against these metrics. Moreover, strengthening supplier relationships will help improve negotiation power and drive long-term cost savings.

Step 5: Invest in Technology

Leverage procurement technologies to streamline and automate processes. Implement procurement software with spend management tools and contract management systems to enhance efficiency, improve data accuracy, and facilitate data-driven decision-making. Leverage technologies like AI and ML to gain insights, bring automation and effectively cut costs.

Step 6: Monitor, Measure and Optimize

Regularly track and measure the effectiveness of your spend management activities. Measure key metrics like cost savings, contract compliance rates and supplier performance. Leverage this data to identify areas for improvement and optimization. Continue to refine procurement strategies, processes and policies based on these performance insights and industry benchmarks.

To Sum Up

Bringing spend under management calls for a strategic and systematic approach to procurement. By following these steps, businesses can better control their costs, optimize supplier relationships and drive cost savings. It is an ongoing process that needs continuous monitoring, analysis and improvement. With technology, processes standardization, and fostering collaboration, businesses can unlock the full potential of their procurement function and achieve procurement excellence.