Effective vs Ineffective Spend Management Strategies – June 2021

June 01, 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.