PROACTIS Blog

"The Yin & Yang" of Spend Control

Charlotte Sutton
Charlotte Sutton,
PROACTIS
The problem with most definitions of 'Spend Under Management' is that they measure only what has been done by the procurement function – i.e. the spend that they have influenced, not the results of the organisation as a whole has achieved.

Most definitions measure only the Source-to-Contract process, but ignore its relationship to the Purchase-to-Pay process.

PROACTIS uses the term 'Spend Under Management' as much more than just the traditional Procurement-only measurement (i.e. spend 'influenced' by procurement). We see it as an organisation-wide measurement of spend that is truly 'under management' from beginning to end, performed efficiently, and visible throughout. As such it is a very meaningful measurement of the results from an organisation's Spend Control efforts.

All processes have to be tied together to work in harmony in order to achieve truly meaningful results – actual cost savings with maximum value and minimum risk to the organisation.

Source-to-Contract is all the procurement processes required to create best value in a sustainable way. It includes strategic sourcing and contract management processes that ensure maximum value and cost savings. In addition, supplier management processes that ensure the smooth flow of goods and services while minimising any possible risk to the organisation.

Purchase-to-Pay is all the organisational processes associated with capturing the value created by procurement. It targets daily purchase activity in a way that enables staff to get what they need to do their jobs as quickly as possible, while at the same time ensuring their purchases are properly authorised, and that they are buying from preferred suppliers against contracts wherever posisble. It also includes efficient invoice processing that reduces the cost of AP operations while ensuring only valid invoices are paid; and that results in timely supplier payment that takes maximum advantage of desirable payment discount terms.

If just half of these processes is working well, results will be diluted e.g.
  • A painstakingly sourced, well-negotiated supplier that is never used due to a lack of visibility or good purchase controls does the organization no real good.
  • Even a well-oiled purchase system that ensures proper approval of the ‘amount’ of purchase, but does not lead employees to pre-qualified suppliers, or through procurement-involved spot purchase workflows when needed, leaves staff largely to pick their own suppliers, accept standard supplier terms with little consideration of risk.
You need all the processes to be "firing on all cylinders" in order to capture the value created by procurement and ensure that spend is fully under management. In addition, to benefit from spend visibility and information required to keep everything on track and identify incremental opportunities for additional cost savings.
 
 
 
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