PROACTIS Blog

Procurement-Centric View of Spend Under Management Is Only Half the Story

Charlotte Sutton
Charlotte Sutton,
PROACTIS
The problem with all of the commonly used 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 the organisation as a whole has achieved. 
They only measure the procurement process, but ignore its important relationship to the purchase-to-pay process. Both these processes must be tied together to work in harmony in order to achieve meaningful results - actual cost savings with maximum value and minimised risk to the organisation.

An organisation-wide view of Spend Under Management requires; creating value from sourcing events, contract management, preferred suppliers with active supplier development programmes and spend visibility. It also requires capturing value through purchase controls and compliance, and ensuring efficiency with which things are paid for.
 
"Even when half of the combined process is working well, results will be greatly diluted if the other half is not closely tied into it." said Simon Dadswell, Marketing Director of PROACTIS. "For instance: a painstakingly sourced, well-negotiated supplier contract that is never used because of a lack of visibility or good purchase controls does the organisation no real good. Even a well-oiled purchase authorisation system that ensures proper approval of the 'amount' of a purchase, but does not also lead employees to pre-qualified suppliers, or through procurement-involved spot purchase workflows when needed, leaves employees largely on their own to pick suppliers, accept standard supplier terms and purchase with little consideration of risk." 
 
Prudent managers are taking a more useful organisation-wide perspective and adopting new criteria. Maximum bottom-line results are achieved only when an organisation's Spend Control processes are firing on all cylinders, with both source-to-contract and purchase-to-pay processes, operating effectively, efficiently, and most of importantly, integrated with each other.
 
An organisation-wide to Spend Under Management is when purchases meet the following criteria:
  • Made with suppliers that are properly sourced and managed
  • Made with proper purchase authorisation
  • Properly coded for both financial allocation and purchase category
  • Paid with the correct pricing and terms
  • Processed quickly & efficiently by everyone involved: employees throughout the business, procurement and accounts payable
  • Clearly visible to management at all times
For most organisations, a high level of true Spend under Management is only practical with the use of IT support systems. IT systems are required in order to go beyond the limitations of paper-based procedures, manual information capture and spreadsheet data analysis.
 
Most importantly, technology is the only tool that can rapidly connect everyone involved in getting Spend Under Management - procurement professionals, finance managers, operational department managers, category experts, legal professionals, employees throughout the organisation and all of the organisation's suppliers.
 
Good Spend Control and eProcurement solutions create a communication network among all participants combined with an underlying foundation of information about suppliers, items, policies, activities, transactions, organisational structure and more. Together, these capabilities enable Spend Control processes that effectively incorporate:
  • Controls that ensure consistent compliance
  • Convenience that drives broad adoption
  • Efficiency that enables broad adoption