So now that you know what spend under management (SUM) is, how would you go about adopting such a framework?
SUM is built on creating a partnership between indirect procurement and operations along five key operating principles across sourcing, contracting, buying, and spend decision-making.
At its foundation is executive leadership with joint operating targets established between indirect procurement and the operating groups they support. The actual SUM model measures the maturity of the organization across these five operating principles. The concepts are simple but the challenge is how to bring them to life in a company.
The first of these principles:
1) Channel spend through procurement technology. Basic procurement technologies bring some benefit through automation, more sophisticated systems extend those benefits by enabling process and policy control. But the real value comes from intelligent procurement technologies that allow the organization to capture data and knowledge, and then transform them into action and positive outcomes. In a world of imperfect data, technology that brings clarity to what, when, who, and how goods and services are bought and the associated results has significant value. According to the Hackett Group, for world-class organizations, there is a “9x payback on investment in procurement processes.” Moreover, so much organizational talent is wasted on collecting information, following up on transactions, handling exceptions, and routinely executing non-value added activities like accounts payable matching. Do you really know what you’re buying at a line-level for parts or by class and work element for services? How many of the organization’s resources are tied up performing routine or non-value added tasks? How much time is tied up in meetings and follow up with suppliers? Is there a way for the organization to see a shared view of the data? Are there suppliers that are still transacting manually with you?
Stay tuned for our next post to learn about the other four principles…
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