Everything you need to know about spend under management
How much do you know about spend under management? Do you know what it is, and why it’s important to manage it? Do you know how to manage it, as well as tips for increasing it?
If you need extra support in this area, don’t worry! Here at Hudson Procure, we’re experts in all areas of the procurement process. In this blog, we’ll explain what spend under management is, why it’s important, and how to increase it. We’ll also cover other areas of spend that you need to know about. This includes addressable spend, spend influenced, spend under sourcing and tail spend.
Keep reading this blog to find out more!
What is spend under management?
Before we look at spend under management, we need to look at other components of an organisation’s total spend. This will help to put spend under management into context.
Addressable spend
Addressable spend encompasses every penny that an organisation spends with commercial suppliers each year. The only exceptions to addressable spend are:
- Tax payments
- Charitable donations
- Employee salaries and bonuses
- Dividends
- Stock repurchases
- Securities
- Organisational memberships.
All other types of spend, which are outlined below, are included in addressable spend.
Spend influenced
Spend influenced is the area of spend within an organisation’s addressable spend in which Procurement Teams exert some influence. For example, this could be through overseeing or managing the sourcing process and enforcing procurement processes and policies.
Spend under sourcing
Spend under sourcing is the area of addressable spend which is covered by formal sourcing strategies. For example, this could include documented category plans.
Spend under management
Finally, we have spend under management. This represents the area of addressable spend that is fully managed by procurement professionals. This includes everything from the supplier selection process to negotiations on pricing and contractual terms.
Generally, it can be assumed that an organisation’s spend under management largely consists of preferred suppliers, managed by procurement professionals.
Why is spend under management important?
There are many reasons why spend under management is so important for organisations. For example, developing your spend under management can:
- Improve efficiency
- Reduce costs
- Encourage collaboration between the supplier and the buyer
- Improve procurement productivity.
It’s also useful for communicating procurement’s value-add to your organisation’s Management Team. They can then use this information to measure the effectiveness of procurement within the business.
Tail spend
It’s important to increase spend under management to avoid the risk of tail spend.
Tail spend is the term used for small value purchases within an organisation, usually outside of a contract. Sometimes, tail spend can also be referred to as ‘rogue spend’ or ‘maverick spend’.
Generally, tail spend is caused by other departments within an organisation, outside of the Procurement Team’s knowledge. This could include ad-hoc spending to support a contract, such as:
- Software
- Office supplies
- Marketing services
- Print and packaging services
- Uniforms and apparel
- Travel
- Signage and display services
- Facilities.
Organisations need to monitor and control their tail spend to avoid cases of fraud or non-compliance. To manage tail spend, organisations should consider the following tips:
- Identify tail spend within the organisation
- Streamline your procurement processes
- Work on your procurement data.
How to increase spend under management
It’s important for organisations to increase spend under management in order to reduce costs, moderate risks, and add value. Here are some ways to do this:
- Streamline processes through automation, such as purchase to pay systems
- Review spend categories to improve transparency and visibility
- Continuously evaluate supplier performance
- Keep track of unmanaged spend.
Let’s recap…
Addressable spend encompasses every penny that an organisation spends with commercial suppliers each year, including spend under management. This represents the area of addressable spend that is fully managed by procurement professionals. This includes everything from the supplier selection process to negotiations on pricing and contractual terms.
Generally, it can be assumed that an organisation’s spend under management largely consists of preferred suppliers, managed by procurement professionals.
There are many reasons why spend under management is so important for organisations. For example, developing your spend under management can:
- Improve efficiency
- Reduce costs
- Encourage collaboration between the supplier and the buyer
- Improve procurement productivity
- Reduce tail spend.
Finally, to increase spend under management, organisations could implement the following objectives:
- Streamline processes through automation, such as purchase to pay systems
- Review spend categories to improve transparency and visibility
- Continuously evaluate supplier performance
- Keep track of unmanaged spend.
How can Hudson Procure help with spend under management?
Procure Consult
With Procure Consult, we offer support with tender management and ad-hoc procurement consultancy. Our expert team will manage the end-to-end procurement process or offer assistance with any stage, as and when required.
Procure Health Check
With Procure Health Check, we’ll conduct a full review of the strategic and operational procurement processes within your organisation. We’ll identify the areas that need improvement and help you drive greater value from the procurement process.
Procure Analyse
The purpose of Procure Analyse is to conduct a high-level analysis of your spending activity. We’ll help you understand your current strategic purchasing behaviour and highlight areas that can deliver greater value. Procure Analyse is also offered as part of Procure Health Check or as a standalone service.
Procure Outsourcing
With Procure Outsourcing, we deliver a range of procurement solutions on an outsourced basis, completely bespoke to you. This can range from delivering multiple tender projects as a package to delivering the full procurement function of your organisation.
Procure Post
Are you trying to find a supplier for your project? Post your tendering opportunity onto any of our 11 sector-specific portals for FREE with Procure Post!
Housed by our sister company, Hudson Discover, our portals host thousands of tendering opportunities for organisations of all sizes. For an additional cost, we’ll even help you identify your requirements and find the most suitable suppliers for your business.
Get in touch for a consultation and find out how we can help your business drive greater value from procurement.
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