Ever wonder why many companies view indirect procurement as a non-strategic back office function? Maybe it’s that indirect practitioners often focus too narrowly on measuring cost savings from indirect spend sourcing initiatives and lose sight of how those initiatives impact core financial metrics such as total cost of ownership (TCO), operating profit, working capital, and cash flow, among others. Therefore, adopting a well-structured indirect spend management framework that establishes that connection can bring real value to the business. The concept of Spend Under Management (SUM) provides exactly that framework. Through the next four blog entries, we’ll outline the framework in greater detail.
What is SUM?
SUM is an enterprise initiative, impacting and driving the spend under management in each BU/P&L, touching every category and supplier who supplies a product or service, and with a goal of achieving 85%+ enterprise SUM. Past research from analyst firms like Aberdeen identify that companies can achieve a 5% to 20% cost out savings for each new dollar of spend brought under management. This can result in millions or even tens of millions in cost savings that can be either reinvested or dropped to the bottom line as realized savings impacting EPS.
Moreover, SUM is much more than a traditional sourcing framework. It emphasizes the use of intelligent technology, actionable data, and robust processes to meet business objectives. It also considers often overlooked non-pricing levers such as ensure adherence to contract terms and pricing, purchase order compliance, effective demand management, and supplier performance management – where leakage most often occurs.
More in our next post…
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