Thursday, 26 September 2013

What is Spend Under Management?

Spend under management is a misunderstood term among procurement professionals. “Spend” is the easy part of the definition, but “under management” is left up to the definition of “management.”

Those starting to measure spend under management typically consider it “the spend that is actually touched by procurement (source-to-pay).” More advanced companies consider it “the spend that is covered by a sourcing plan, sourced, contracted and communicated with suppliers.”

Sourcing is typically the vehicle to bring more spend under management, while managing it entails category management and supplier management.

Industry benchmarks suggest best-in-class organizations have anywhere from 75-90% of spend under management and laggards are 20-40%, but the definition of “spend under management” used to determine these figures is not disclosed. The numbers also vary if the procure-to-pay process is used as a baseline for management versus sourcing.

Obviously the benchmarks draw attention to the fact that more needs to be done to bring more spend under management, but defining and setting the performance metric is critical to aligning the expectations across the organization. In addition, the benchmarks are great to set expectations of why your organization needs to change, but remember, benchmarks are just measurements and without definition and change management to drive greater results, they are just a number.

How do you measure spend under management? Has it changed? 


1 comment:

  1. To me i have a feeling that the moment you take trouble to conduct an assessment of how much an organisation has spent in buying/procuring goods, works and services in relation to which department/user has benefited, which category bought, why has it bought, when was it bought, why was it bought and at what cost from which supplier, then you are really making an analysis of the spend.

    The management would then try to make use of the analysis figures in determining the different relationships that may exist for instance between user Vs category, user vs amount, category vs amount, category vs supplier, amount vs supplier among others.

    Its on this basis that management makes objective decisions for improving the overall performance of the function; and that is how management comes in.