An organisation-wide definition of Spend Under Management would therefore be purchases that meet the following criteria:
- Made with suppliers that were properly sourced & managed
- Made with proper purchase authorisation
- Properly coded for both financial allocation and purchase category
- Paid with correct pricing & terms
- Processed quickly & efficiently by everyone involved: employees throughout the business, procurement and accounts payable
- Clearly visible to management at all times
This broader view of Spend Under Management is far more useful to the organisation than the narrow procurement-only view. It recognises the enormous potential benefits that can be created by procurement for the organisation in terms of savings, efficiencies and minimised risk. But it also recognises that those benefits can only be actually captured to the extent that all of the criteria outlined earlier is met.
Any narrower or more disjointed view leaves loopholes that cause leakage of those benefits. Working towards this view of Spend Under Management focuses an organisation on leveraging the full power to be gained by closely tying together ‘source-to-contract’ and ‘purchase-to-pay’ processes, systems and information.
What Does it Take?
Getting a high percentage of Spend Under Management as we have defined it here is an organisation-wide effort. Like any important initiative, it requires management focus and commitment, a process to drive change, and continuous tracking of the results that come out of that effort.
The good news is that the process of increasing true Spend Under Management need not be a ‘big bang’ type of project so many organisations have had to endure for, say, ERP implementation. It can be a very step-by-step approach that involves very doable increments and yields measurable results at each stage beginning early in the effort.
It’s also important to recognise that no organisation starts with a ‘blank sheet of paper’. Nearly all organisations have some level of Spend Control processes in place today to build on, as well as core financial and operational systems.
The basics required are:
Organisational Focus and Commitment
- Joint champions in finance & procurement
- Active senior management sponsorship
- A common understanding of the key elements of Spend Control among procurement, finance and operating departments
- Active relationship management by procurement with both business stakeholders and suppliers
An Approach that Targets Early and Incremental Results
- Identification of areas with the biggest savings potential
- Proactive, sustained change management
- Ongoing tracking of results to show value
A Drive towards Best in Class
- In many organisations… adoption of a centre-led ‘category management’ approach that involves all stakeholders, and leverages cross-functional resources to maintain expertise and capacity
- Continuous improvement of all source-to-contract and purchase-to-pay processes
- Expansion of focus to all spend categories, from ‘top 20%’ to ‘tail spend’
To learn more, download our white paper, ‘Spend Under Management: Take a Broader View of Enterprise Spend Control’