Spend Under Management (SUM) is the percentage of a company’s total spending actively managed through procurement strategies and processes. It gives visibility and control over procurement activities to ensure compliance and cost savings.
Managing spend under management is crucial, but many businesses struggle with visibility, control, and compliance across all spending categories. This can result in inefficiencies, missed savings opportunities, and uncontrolled vendor relationships.
This article will explain spend under management, its benefits, how to calculate it, and how to increase it. We’ll also explore how modern solutions like procurement software can help improve spend management effectively.
Key Takeaways
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Table of Content:
Table of Content
What is Spend Under Management (SUM)?
Spend Under Management (SUM) is the percentage of a company’s total spending that is actively tracked and monitored by the procurement team. This involves implementing policies and processes to ensure spending aligns with business goals.
Companies can better understand their purchasing behavior by having spend under management and improving negotiation power with suppliers. Additionally, it helps ensure compliance with procurement policies and drives more value from vendor relationships.
Different Types of Spending
To optimize SUM, it’s essential to understand the different types of spending businesses incur. Categorizing spending helps procurement teams identify areas they can influence and improve. Let’s break down the key types: addressable, impactable, and unmanaged spend.
1. Addressable spend
Addressable spend is the portion of a company’s total spending that procurement can actively manage. It includes spending categories open to influence, such as direct and indirect expenses, where procurement strategies can directly impact costs and supplier choices.
2. Impactable spend
Impactable spend is the portion of addressable spending where procurement can significantly impact through negotiation, better contracts, or improved supplier performance. It’s a key focus area for procurement teams aiming to optimize costs and improve supplier relationships.
3. Unmanaged spend
Unmanaged spend is the expenditures outside the procurement team’s control or influence, often occurring in decentralized departments. This type of spending poses challenges as it lacks oversight, leading to inefficiencies and missed cost-saving opportunities.
Why is Spend Under Management Important?
A report by Deloitte reveals that companies controlling 80% or more of their spending can save almost twice as much as those with lower SUM levels. This shows the importance of SUM for improving procurement strategies, strengthening supplier relationships, and cutting costs.
Understanding the advantages of managing your company’s spending is critical to optimizing procurement efforts and achieving cost savings. Below are some of the benefits businesses can gain from having spend under management:
- Improved cost control through better visibility into spending.
- Enhanced compliance with procurement policies and regulations.
- Increased supplier negotiation power, leading to better contract terms.
- Reduced maverick spend and improved budget alignment.
- Greater efficiency and streamlined procurement processes.
- Minimized risk exposure through better tracking of vendor performance.
How to Calculate SUM
Calculating Spend Under Management (SUM) is a straightforward yet valuable process for understanding how much of your company’s total spending is managed correctly. First, gather data on your company’s total procurement spend over a specific period.
Next, calculate the total amount of that spend that is actively managed by your procurement team, such as spending under formal contracts or governed by procurement policies. Finally, use the following formula to calculate SUM:
SUM (%) = (Managed Spend ÷ Total Spend) × 100
The higher the percentage, the better control you have over your company’s spending.
Example:
Let’s say your company’s total procurement spend for the year is $10 million, and $7 million is actively managed. Using the formula:
SUM (%) = ($7 million ÷ $10 million) × 100 = 70%
This means that 70% of your total procurement spend is under management, giving you better visibility and control over most of your spending.
Steps to Increase Spend Under Management
Boosting your Spend Under Management (SUM) can improve procurement efficiency and cost control. Here are the key steps to help you gain better visibility over your company’s spending and bring more of it under management.
1. Centralize procurement activities
Unify all procurement tasks within a single, centralized system to ensure full visibility across departments. This centralization is vital for tracking purchases effectively, forming the foundation for better spend data management and overall procurement control.
2. Develop clear procurement policies
Create comprehensive procurement policies that outline purchasing rules, approval processes, and compliance guidelines. Clear and enforced policies prevent off-contract spending, ensuring your company follows a consistent approach across all departments.
3. Identify unmanaged spending categories
Work closely with stakeholders across the business to uncover spending areas not yet managed by procurement. Once identified, these categories should be brought into the formal procurement process to improve spend control and cost efficiency.
4. Regularly monitor and adapt strategies
Review and adjust your spend management strategy regularly to adapt to changing business needs. Continuous monitoring ensures improvement in your spend control and helps maintain a high percentage of spend under management over time.
5. Implement procurement management software
Invest in procurement management software that automates spend tracking and reporting. These tools make it easier to monitor expenses management in real time, helping your team make informed decisions.
Are you interested in how HashMicro’s procurement system can help increase your SUM? Click the banner below to explore the pricing schemes and learn more about their comprehensive solutions for procurement management.
Gain Full Spend Data Management with HashMicro Software
HashMicro’s Procurement Software is a robust solution for managing and optimizing procurement activities. The software automates purchase requests, approvals, and vendor management to ensure seamless control and transparency over spending.
Moreover, HashMicro offers a free demo and consultation to help you explore how the software fits your business needs. This lets you see firsthand how our solutions can drive efficiency, improve cost control, and enhance compliance in your procurement operations.
Features:
- PO, RFQ & PR Management: HashMicro simplifies managing purchase orders, RFQs, and purchase requests, centralizing the procurement process. This helps businesses track and control spending data more effectively.
- PR Approval Management: Automated PR approval workflows ensure every purchase request is properly vetted. This feature enhances spending control, allowing businesses to approve only compliant and necessary purchases.
- Online Portal for Suppliers: HashMicro allows real-time vendor collaboration. This improves spend management by streamlining interactions, ensuring smoother procurement operations and better visibility over supplier activities.
- Vendor/Supplier Rating: This feature evaluates vendor performance for better procurement decisions. This improves spending data management and fosters more cost-effective relationships with high-performing suppliers.
- Blanket Order Management: Businesses can lock in pricing for multiple orders over time, helping control procurement costs. This improves long-term spending under management by ensuring predictable and consistent pricing.
- Landed Cost Calculation: This procurement ERP accounts for all additional expenses, such as taxes and shipping. It enhances the procurement process by providing visibility into total spending, ensuring accurate expenses management.
Trusted by leading brands such as Forbes, Changi Airport Group, and McDonald’s, HashMicro is recognized for its reliability and effectiveness. The proven track record ensures that businesses can benefit from a credible solution to their procurement challenges.
Conclusion
Strong spending under management is crucial for businesses to control costs, improve efficiency, and ensure compliance with procurement policies. By increasing visibility over spend, companies can make more informed decisions and unlock potential savings.
HashMicro’s Procurement Software is a comprehensive procurement management solution that helps businesses achieve optimal spend management. It automates processes, improves supplier collaboration, and offers real-time spend tracking.
Take the next step in optimizing your procurement process with HashMicro. Experience how the software can transform your spend management and drive your business forward. Sign up for a free demo now!
FAQ About Spend Under Management
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What is the difference between spend management and spend analysis?
Spend management involves tracking, controlling, and optimizing a company’s expenditures to maximize efficiency and cost savings. It ensures that procurement activities align with the business’s financial goals and policies.
On the other hand, spend analysis is collecting, cleansing, and analyzing procurement data to identify spending patterns and opportunities for cost reduction. While spend management is ongoing, spend analysis is typically a specific step that supports better decision-making within the broader management process. -
What is indirect spend management?
Indirect spend management refers to controlling and overseeing expenditures not directly tied to producing goods or services. It includes expenses like office supplies, marketing, and travel, focusing on minimizing costs in non-core areas of the business.
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How to control spend in procurement?
To control spending in procurement, businesses can implement automated approval workflows that ensure all purchases undergo proper vetting. Additionally, procurement software allows for real-time tracking of expenses and ensures compliance with company policies.
