Effective vs Ineffective Spend Management Strategies – June 2021
Spend Management is really a combination of a number of key tasks in an organization including the following:
- Spend Analysis
- Spend Planning
- Sourcing
- Implementation
- Management
- Auditing
All six components need to be established to have an effective spend management strategy. The benefits of an effective spend strategy are many but certainly include improved leverage, better pricing and improved profitability.
List below, are the characteristics of both an Effective Spend Management strategy and Ineffective Spend Strategy. Let’s focus on the characteristics of the Effective Spend Strategies as outlined below.
| Characteristic | Effective Spend Strategy | Ineffective Spend Strategy | |
| Mission and Scope | Control up to 130 expense categories | Narrow scope | |
| Cost – Profit Impact | Total spend reduced by 20%+ | Overpay suppliers by 20%+ | |
| Spend Visibility & Plan | Sourcing plan, spend by supplier, category | No plan, no spend visibility | |
| Financial Strategy | Long term pricing- terms, least total cost | Spot buy – focus on price | |
| Category Strategies | Focus on high usage items, processes | Focus on price | |
| Supplier Selection | Corporate – Narrow – Directed | Local – Broad – Uncontrolled | |
| Supplier Base | Narrow – high performing | Broad – no controls | |
| Process – Controls | Policies, Improved control, reduced risk | Lack controls, increased risk | |
| Compliance Audits | Planned compliance audits | No audits | |
| Resources | Highly trained, category expertise | No training, lack category expertise |
If your organization is interested in building a high performing spend management department, contact us today for a brief, no obligations discussion.
Douglas Austin
CEO
StrategicSource, Inc.
