Spend Under Management
A Key Metric for Discovering Cost Savings Opportunities
Best-in-Class companies proudly declare 95% of their total indirect spend falls under the watchful eye of Procurement, a metric often referred to as 'Spend Under Management.'
Achieving such a high level of control is undeniably challenging, especially when dealing with indirect spend—due to the diverse group of stakeholders influencing spend decisions. Reaching 100% is often impractical due to a combination of organizational, market and operational complexities.
When searching for cost saving strategies, don't overlook the significance of analyzing your Spend Under Management metric.
Here are some tips to guide you if you're venturing into this for the first time. Thorough understanding of this metric within your company will increase the effectiveness of managing indirect spend and unlock potential cost savings.
1. Track and Document Your Spend Under Management:
Begin with a comprehensive company-wide spend analysis.
This consolidated summary will highlight the managed and unmanaged categories of spend.
Treating Spend Under Management as a key performance indicator (KPI) ensures ongoing visibility and progress tracking.
2. Explore Cost Savings Opportunities in Previously Unmanaged Areas:
Areas to review, may include…
Tail Spend:
While constituting 80% or more of the transactions, tail spend typically only covers 20% of the total spend. Consider whether specific suppliers can efficiently handle the majority of these transactions. Alternatively, explore the option of implementing a purchasing card program to gain better oversight. This is usually an overlooked category that often has hidden opportunities.
Maverick Spend:
Maverick spend, occurring outside approved contracts or established purchasing processes, often results from stakeholders' unawareness of preferred supplier relationships or frustration with current processes. Delve into the underlying reasons to identify opportunities for improvement.
3. Create Executive Awareness:
Elevate the awareness of this metric among your executives.
Their understanding of the challenges associated with unmanaged spend is crucial for initiating improvements.
Transparent communication will pave the way for gaining control over this spend and fostering a culture of informed decision-making.
