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?