Spend Under Management: The Ultimate 6 Step Guide
Published on 12/30/21 |
4 min read
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Spend under management (SUM) is the budget your procurement department manages as a percentage of the total business spend. Spend under management is one of the most important metrics a company can utilize to measure the financial health and stability of its procurement process.
SUM is highest in companies with a centralized procurement process. Centralized procurement departments handle most purchasing decisions and operations in a company. On the other hand, in a business with a decentralized procurement, each business unit has its own procurement function.
When you bring your spend under management, your business will find it easier to strategically spend resources, scale operations, and optimally enter into contracts. Centralizing the purchasing process makes sense when:
● Business units purchase the same goods or use the same vendors
● Large-volume purchases maximize cost/benefit
● Item uniformity and standardization is possible across multiple locations
Perfecting the efficiency of spend under management is an ongoing endeavor for any business. Below, we look at ways you can bring addressable procurement spend under the control of your procurement teams.
If you want to bring your spend under management, the first step is to formulate clear goals. Cost savings will be the objective in most cases, but you need to quantify these goals with a target amount and defined schedule.
By using available data, a thorough spend analysis will help you formulate realistic targets. For example, increasing your SUM from 60% to 80% within a year is achievable, provided that all stakeholders are on board.
After formulating SUM objectives, the next step is developing procurement strategies and processes to reach these goals. Coming up with an operational model to implement a centralized purchasing policy involves the following steps:
If you have an existing procurement team, the last step may not be necessary. However, you need to set target dates for each step of the policy implementation phase.
With conventional resource systems, each business unit records procurement information, creating data silos. An insular management system can restrict procurement centralization, as business units don’t have full access to each other’s data systems.
Using procurement-first software is integral to bringing your spend under management. Robust e-procurement software provides a central platform where all stakeholders in the procurement process can access accurate and updated information. SME's should avoid falling into the excel-hell trap whenever possible.
After incorporating high-end procurement software, you can make spend visible. Spend visibility provides all stakeholders with insight into procurement centralization, and they can view the progress towards bringing spend under management.
Making spend visible also ensures transparency across all procurement activities. All role players, including the procurement and finance team, have full access to the business’s purchasing information, preventing double purchases and redundancies. The result is significant cost savings and a lower workload on your human resources.
Shifting the various business units’ purchasing responsibilities to the central procurement team is part of increasing SUM. However, you need to make this process as easy as possible for your buyers, as they need to take on an additional workload.
Establishing a vendor portal where suppliers can add tracking information, pricing, product catalogs, and invoices will help to streamline buyers’ operations. A self-service portal for suppliers will optimize communication between buyers, making reordering, purchase orders, and spend management much easier.
After developing a new procurement policy and a centralized purchasing system, procurement needs to focus on unmanaged spend as an ongoing activity. Unmanaged spend is the impactable spend that doesn’t fall under the procurement team’s control. Unmanaged spend includes:
● Tail spend, which makes up the majority of transactions, but only around 20% of total spend
● Maverick spend, which are transactions falling outside the scope of approved contracts
● Non-procurement spend, for example, forex payments
Integrating a robust and responsive procurement software is essential if you want to bring your spend under management.
Current SCM is the ideal app for third-party procurement projects. If you are a firm providing procurement solutions, get started with Current SCM today, and enjoy a centralized platform for all your procurement operations.
If you need help transforming your operations or organizational support systems, or would like to see a customized demo of Current SCM, contact us today.
