Monday 1 October 2012

What is Spend Under Management?

Authored by: Mickey North Rizza

“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 to be 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 controlled.

Sourcing is most frequently the position to bring more Spend under management, while managing it is done by the positions of category and supplier management.

Industry benchmarks suggest best-in-class organizations have anywhere from 75-90% of Spend under management while laggards have 20- 40% under management. Unfortunately, the definition of Spend Under Management is not shared with these benchmark studies. The benchmark numbers also vary if the procure to pay process (as opposed to sourcing) is used as the area to bring more spend under management.

Obviously benchmarks draw attention to the fact that more needs to be done to increase spend under management, however defining and setting the performance metric for the procure to pay or sourcing process is critical to aligning the expectations across the organization. In addition, 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 to greater results, they are just a number.

How do you measure Spend Under Management? How has this measurement and its definition changed year to year?

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