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A Guide to Spend Under Management

A Guide to Spend Under Management

Spend Under Management (SUM) is a crucial procurement metric that measures the percentage of an organization's total spend that is actively managed and optimized by procurement professionals. Effectively measuring SUM is vital for businesses as it provides control and visibility into their financials, leading to improved accuracy, better decision-making, adherence to regulations, and reduced manual labor. Implementing effective spend management practices helps organizations control costs, mitigate risks, and drive value through enhanced supplier relationships and negotiation power. Embracing SUM is essential for long-term financial success and organizational stability.

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Key Takeaways:

 
  • SUM is a critical procurement metric that reflects the proportion of an organization's total addressable spend actively managed and optimized by procurement professionals.
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  • Effective SUM implementation is essential for financial control, risk mitigation, and value creation through improved supplier relationships and negotiations.
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  • Benefits of efficient SUM include better financial accuracy, increased visibility, informed decision-making, regulatory compliance, and reduced manual labor.
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  • Best practices for spend management include budgeting, tracking and monitoring expenses, establishing clear policies, analyzing spending patterns, automating processes, and maintaining strong supplier relationships.
  • Implementing SUM positively impacts key roles within an organization, such as the CFO, CEO, finance teams, procurement teams, and the company as a whole.
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What is Spend Under Management?

Spend under management is a procurement metric that refers to the percentage of an organization's total spend that is actively managed, monitored, and optimized by procurement professionals. It encompasses strategic sourcing, contract management, supplier relationship management, and spend analysis. A higher SUM percentage indicates a more efficient procurement process, as it demonstrates the organization's ability to control costs, mitigate risks, and drive value through better supplier relationships and improved negotiation power.

Companies must actively improve spend under management if they want to succeed financially over time while developing a well-rounded strategy when it comes to managing resources and related expenditures. According to the Hackett Group, the best companies average 97.3% of total spend under management. Through frequent audit processes set up through SUM policies, companies can remain competitive while still staying within budget allocations–which ultimately ensures organizational security in the long-run.

Why is Spend Under Management Important?

Spend under management is extremely important for businesses as it enables them to have control and visibility into their finances. This process helps ensure that company resources are spent correctly — for example, by reducing maverick spend — and efficiently. There are a number of additional benefits companies can achieve through implementing SUM processes. 

Improved Accuracy

Multi-layered spending control systems provide accurate checks and balances, which can be tailored to fit different business needs. By making sure all expenses are managed properly, a business can drastically reduce its costs while increasing the likelihood of success. Splitting projects into more manageable tasks helps refine the accuracy of financial planning and improves overall budgeting effectiveness.

Full Spend Visibility

Consistently monitoring inbound and outbound costs provides intelligence on how money is being allocated, allowing companies to identify areas plagued by maverick spend or make more intelligent investments. Increased spend visibility improves financial reporting gives organizations insight on how well they manage their spend against budgeted expectations year over year. 

Better Business Decisions

Having key performance metrics tracking tools in place can also lead to better budget decisions, ensuring capital is reinvested back into the business strategically instead of blindly. Furthermore, when employees are given access to spending monitors, this encourages corporate responsibility among individuals by allowing them to easily track their department-level spendings within guidelines set by management.

Adhere to Regulations

Spend under management ensures businesses are using their resources effectively while adhering to compliance regulations such as Sarbanes-Oxley (SOX) requirements and Internal Revenue Services (IRS) guidelines more productively than ever before. Implementing flexible strategies that don’t limit potential for growth are also essential for any organization looking for growth opportunities within strategic markets when dealing with complex financial operations like enterprise software purchasing. 

Reduced Manual Labor

Enabling automation of spend management can prove invaluable for increasing productivity not only in cost savings but time savings as well from reducing manual effort locked up in the mundane task of having someone physically crunch numbers until all hours of the night on a regular basis.

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What is Unmanaged Spend?

Unmanaged spend occurs when procurement options are not thoroughly examined or taken advantage of, resulting in unnecessarily higher costs than expected or open-ended budgeting that can lead to overspending by departments. Any preventable expense, such as failed purchases due to lack of planning ahead, falls under the unmanaged spend category too. 

This makes it crucial for leaders to continuously track their organization’s spend patterns while guiding employees in matters related to procurement strategy. In order to reduce unmanaged spend, companies must analyze and address underperforming subcategories throughout their operations where cost saving opportunities may exist due better negotiations or leveraging existing contracts more extensively.

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Spend Under Management Best Practices

For businesses to stay competitive and profitable, it's essential to understand the best practices when it comes to managing their spend. Companies need to adopt best practice purchasing processes that ensure they use the right suppliers at the right prices while maintaining a high standard of quality and delivery. Implementing effective spend under management processes can help businesses achieve these goals and save money over time. 

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Budget Aggressively 

First and foremost, companies should develop a strategic plan for their budget. This plan should be based on the company's overall objectives and goals, as well as its forecasted financial performance. By carefully considering all of this information, companies can ensure that they are adequately accounting for their expenses and allocating resources appropriately.

Track and Monitor All Expenses

Keeping track of all expenses is key to spend under management. By monitoring spend, businesses can identify areas that can be cut or close unnecessary spending, taking control of the budget and allocating funds strategically. Additionally, tracking transactions regularly also helps in avoiding significant losses due to theft or any discrepancies with suppliers.

In addition, categorizing expenditures into buckets such as “fixed” or “variable” costs can help businesses get a better understanding of budget allocation with greater detail and accuracy. Fixed costs are those that are necessary for operations such as rent or utilities, while variable costs arise when decisions are made such as marketing activities or office supplies. Properly mapped out indirect spend categories such as these will enable more informed decision-making at both the individual and organizational level about what is worth investing into versus cutting back on in terms of spend management. 

Establish Clear Policies and Procedures 

Setting clear procurement policies and procedures for the purchasing process from the start helps businesses ensure consistent spending practices across departments. Having a well-defined strategy for managing company funds minimizes risk and encourages accountability among staff members. This also avoids instances of overspending or unauthorized purchases, successfully communicating expectations to employees before any purchasing decisions are made.

Analyze Spending Patterns 

Understanding past financial decisions is essential when adjusting budgets down the line. Analyzing spending patterns within an organization enables informed decisions when it comes to budgeting in the future and reworking existing strategies whenever necessary. Regularly auditing internal processes allows managers to quickly spot areas where costs still need cutting without compromising operations or quality assurance standards.

Automate Processes 

Streamline purchasing transactions wherever possible by leveraging automation solutions like e-procurement tools which make it easier to track orders, compare supplier quotes in real-time, manage contracts with vendors, standardize supply chain processes and create true visibility into financial data at each stage in the buying cycle which would lead to more accurate budget projections into the long term future.

Supplier Relationships

Regularly assessing supplier performance provides an effective way for companies to evaluate who they are working with and determine if there are potential savings from switching suppliers or attaining better deals through renegotiations. It's important for businesses to keep track of changes in supplier services, price ranges, customer service experiences, customer feedback, etc., which should then factor into their choice when it comes time for a renewed contract period. It's also beneficial for companies to establish a relationship with suppliers who share their commitment toward sustainability initiatives as doing so will often result in mutual benefit over time.

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Benefits of Spend Under Management for Key Roles

CFO

For the CFO, effective spend under management allows them to gain insights into what their company is spending on which services. It gives them a real-time view into the budget and identifies areas of potential savings, waste and inefficiencies. This ability helps the CFO create an optimized spend pipeline that can result in significant cost reductions.

CEO

For the CEO, they are able to have more visibility into the company’s bottom line with an accurate view of where money is being spent. They can also make informed decisions about future investments, liquidity needs, and long-term strategies for budgeting and controlling expenses.

Finance

For finance teams, implementing effective spend under management enables them to scale accounts payable operations efficiently by automating processes like invoice approvals and payments. It eliminates manual tasks thereby improving productivity, accuracy, and financial compliance as well as reducing fraud exposure.

Procurement

For procurement teams, having their data unified in one system improves speed, accuracy and transparency across their departments with automated email notifications when changes occur along with advanced analytics on supplier performance for negotiation optimization. Companies with efficient purchase to pay processes experience significant cost savings from consistent use of preferred suppliers.

Company-Wide

Company-wide effective spend under management strengthens operational discipline at every level making sure all stakeholder spending is tracked down to its ultimate destination saving both time and money through improved cash flow and decision making. A reliable system will give companies access to accurate spending data neither too forward nor backward looking but rather as a living stream giving a focused view of today's current financial position, procurement performance while also ensuring strong internal controls are in place preparing it for increasingly complex regulations.

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Spend Under Management with Zip

Zip is a powerful tool that helps teams manage their spend more effectively. With real-time visibility into the purchase and vendor request pipeline, it's easy to ensure that all purchases follow the correct approval flows and cut down on redundant vendors. This ability can help drive savings and streamline operations, freeing up finance and procurement teams from the burden of manually tracking cross-functional approvals.

Zip provides an intelligent and intuitive front-end to your ERP or procure-to-pay system, making it easy for users to initiate or approve requests without the need for extensive training. It automatically creates purchase requests or purchase orders at the right time, and provides requesters with visibility into the open PO amount and PO number, without needing a license to your ERP or P2P system.

By leveraging Zip, teams can achieve better spend under management, ensuring that they have control over their procurement operations and are able to make informed decisions that drive savings and efficiency. To see how Zip can help your team, book a demo today.

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