In the world of business, procurement plays a vital role in the overall functioning and success of an organization. One of the key terms in procurement is “Spend Under Management” (SUM). This term refers to the percentage of total company spend that is actively managed according to procurement strategies and policies. Understanding this term and its implications can greatly enhance the efficiency and effectiveness of a company’s procurement processes, especially for small companies that may not have a dedicated procurement department.

It’s important to note that Spend Under Management is not just about controlling costs, but also about maximizing value. It involves a strategic approach to managing company spend that goes beyond mere cost-cutting. This article will provide a comprehensive explanation of Spend Under Management, its importance, how it’s calculated, and strategies for increasing it.

Understanding Spend Under Management

The concept of Spend Under Management is rooted in the idea that actively managing company spend can lead to significant benefits. These benefits can include cost savings, improved supplier relationships, increased efficiency, and more. The term itself refers to the proportion of a company’s total spend that is actively managed according to established procurement strategies and policies.

It’s important to note that “actively managed” does not simply mean “monitored”. It means that the spend is being strategically managed with the goal of maximizing value. This can involve a variety of strategies, including supplier consolidation, strategic sourcing, contract management, and more.

Importance of Spend Under Management

Spend Under Management is a key performance indicator (KPI) for procurement. It provides a measure of how effectively a company is managing its spend. A high percentage of Spend Under Management indicates that a company is effectively leveraging its purchasing power, managing its supplier relationships, and maximizing the value of its spend.

On the other hand, a low percentage of Spend Under Management can indicate potential inefficiencies or missed opportunities. It can suggest that a company is not fully leveraging its purchasing power, that it may be overspending on certain items or services, or that it is not effectively managing its supplier relationships.

Calculation of Spend Under Management

The calculation of Spend Under Management is relatively straightforward. It involves dividing the amount of spend that is actively managed by the total company spend, and then multiplying the result by 100 to get a percentage. For example, if a company has a total spend of $1 million, and $800,000 of that spend is actively managed, the Spend Under Management would be 80%.

However, determining what constitutes “actively managed” spend can be more complex. This can depend on a variety of factors, including the company’s procurement strategies and policies, the nature of the spend, the company’s relationship with its suppliers, and more. It’s important for each company to define what “actively managed” means in its own context.

Strategies for Increasing Spend Under Management

Increasing Spend Under Management can lead to significant benefits, including cost savings, improved supplier relationships, increased efficiency, and more. There are several strategies that companies can use to increase their Spend Under Management.

One of the most effective strategies is to implement a strategic sourcing process. This involves systematically analyzing company spend, identifying opportunities for savings or value creation, developing sourcing strategies, and implementing those strategies. This process can help to increase Spend Under Management by bringing more spend under active management.

Supplier Consolidation

Supplier consolidation is another effective strategy for increasing Spend Under Management. This involves reducing the number of suppliers that a company uses, and concentrating spend with a smaller number of strategic suppliers. This can help to increase Spend Under Management by simplifying the management of spend and increasing the company’s purchasing power with its suppliers.

However, supplier consolidation should be approached with caution. It’s important to ensure that the company maintains a healthy level of competition among its suppliers, and that it does not become overly dependent on a small number of suppliers.

Contract Management

Effective contract management is another key strategy for increasing Spend Under Management. This involves actively managing contracts throughout their lifecycle, from negotiation and signing, to monitoring and renewal. Effective contract management can help to ensure that the company is getting the maximum value from its contracts, and that it is not overspending or missing out on potential savings.

Contract management can involve a variety of activities, including contract negotiation, contract monitoring, contract renewal, and more. It’s important for companies to have effective systems and processes in place for managing contracts.

Challenges in Increasing Spend Under Management

While increasing Spend Under Management can lead to significant benefits, it can also present challenges. These challenges can include resistance to change, lack of visibility into spend, lack of resources, and more.

One of the biggest challenges in increasing Spend Under Management is resistance to change. This can come from various sources, including employees, managers, and suppliers. It’s important for companies to effectively manage this resistance, and to communicate the benefits of increasing Spend Under Management.

Lack of Visibility into Spend

Lack of visibility into spend is another major challenge in increasing Spend Under Management. Without a clear understanding of where and how money is being spent, it’s difficult to effectively manage spend. This can be particularly challenging for small companies that may not have sophisticated spend analysis tools or dedicated procurement departments.

There are several strategies that companies can use to increase visibility into spend. These can include implementing spend analysis tools, conducting regular spend audits, and training employees on the importance of spend management.

Lack of Resources

Lack of resources is another common challenge in increasing Spend Under Management. This can include lack of time, lack of personnel, lack of expertise, and more. Small companies, in particular, may struggle with this challenge, as they may not have a dedicated procurement department or the resources to invest in sophisticated procurement tools.

However, there are strategies that small companies can use to overcome this challenge. These can include outsourcing certain procurement functions, implementing simple but effective procurement processes, and training employees on the basics of procurement.

Conclusion

Spend Under Management is a key concept in procurement that can greatly enhance the efficiency and effectiveness of a company’s procurement processes. By understanding this concept and implementing strategies to increase Spend Under Management, companies can realize significant benefits, including cost savings, improved supplier relationships, increased efficiency, and more.

While increasing Spend Under Management can present challenges, these can be overcome with the right strategies and resources. Even small companies without dedicated procurement departments can increase their Spend Under Management and reap the benefits of more effective procurement.