Prioritizing spend under management can drive more savings for organizations of all types and sizes. It can help lower overall operating costs, boost communication between buyers and suppliers, eliminate uncontrolled and unnecessary spending, and increase company-wide efficiency.
What is spend under management?
According to the Network for Sourcing Executives, spend under management is “the percentage of annual addressable supplier spending utilizing preferred supplier contracts.”
Simply put, spend under management is the total sum of all company spending (both direct and indirect) monitored and managed by procurement, divided by the total impactable spend of a business or organization.
Spend under management can help companies:
- Achieve spend that is controlled, visible, and transparent.
- Ensure that spend is part of a process that can be monitored, measured, and improved.
- Ensure that spend can be forecasted and tracked against budgets and financial forecasts.
- Uncover leverage in the spend data that can be used to negotiate with suppliers (i.e., a business spends a certain amount of money on a supplier’s products, giving them access to special discounts and cost savings).
- Ensure that value is realized—employees are taking advantage of certain agreed-upon contracted prices and discounts, and the company is realizing rebates from spend thresholds
- Unearth opportunities to improve cost savings, process efficiencies, and supply chain efficiencies
Why does spend under management matter for businesses?
Why do organizations need effective spend under management?
Improving spend under management offers numerous advantages to businesses, especially in achieving specific financial goals and reaching certain targets. Here’s why:
- Spend analysis increases visibility by looking closely at spend by locations, categories and suppliers. More visibility allows procurement to take advantage of opportunities for more savings and efficiencies.
- AI and automation can reduce manual tasks and processes. This leads to fewer mistakes caused by human error or slow, paper-based procedures, allowing accounts payable (AP) to spend more time on high-value items, and procurement departments to be proactive and spend time on more strategic tasks.
- Spend under management helps organizations regularly review the performance of their suppliers. Are suppliers reliable? Do they deliver products on time? Do they communicate if and when issues arise? Do they offer special savings and discounts when available?
- Spend under management encourages fast, easy communication and collaboration between departments and employees using cloud-based solutions.
- Finally, spend under management helps businesses track and oversee all their spending. This can identify any unnecessary spending that can be reduced or eliminated
- Improve process visibility and agility when shortages occur. Can help reduce inventory costs that prevent surpluses.
How can spend under management help organizations meet their budget goals and KPIs?
When it comes to procurement and spend under management, ROI isn’t just based on savings, but also financial and operational improvements. Here are a few different key performance indicators related to spend under management that businesses can track:
- PO spend percentage: How much of your organization’s spend is PO-based and pre-approved versus total spend?
- Straight-through processing percentage: What is the total number of invoices that go from order to invoice posting without AP intervention?
- Percentage spend received from approved suppliers: Boost savings and reduce risk by tracking the amount your organization spends with approved suppliers and under contract. .
- Spend on objectives: Track how much money your organization spends on environmental, social, and governance (ESG) goals that benefit your company and the community.
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