Over the course of my career in supply management, I have had the great fortune to work with a large number of highly successful Chief Procurement Officers and procurement organizations that have successfully transformed their operations into well-oiled machines that often manage more than 80% and sometimes more than 90% of total enterprise spend.
This percentage of enterprise spend or spend under management refers to the percentage of total enterprise spend (primarily all direct, indirect, and services spend) that a procurement organization manages or influences. I have been and continue to be a strong proponent of the importance of this metric in understanding procurement performance. I believe that procurement organizations, at any maturity level, should focus on this metric and have a strategic plan to increase it each year. The reasoning for this is clear: CPOs that have the visibility and control over such a significant majority of enterprise spend have an extraordinary opportunity to drive value, be it in savings, quality, innovation, supply assurance, and/or any of the tens of other metrics that procurement can impact, across the larger enterprise.
Without undermining the importance of other procurement metrics (read: savings), at present time, spend under management is procurement’s “gold standard,” a common metric of performance and impact that can be uniformly applied to procurement organizations of any ilk. Applying this metric as a gold or industry standard has great applicability in today’s environment because, by and large, there is a very high correlation between having a high percentage of spend under management and managing it efficiently and effectively. But, as more procurement organizations place more spend under management, that correlation will decrease and the value of this metric will inevitably erode. It will not be a shock when the time comes to move from this standard, it will be a natural progression. Newer, more refined metrics and along with them, newer, more refined maturity models will be needed to help guide procurement organizations as they progress towards operational excellence.
I have been thinking about these new metrics and maturity models for several years and they will become an increasingly important area of focus for me over the next few years. I am looking for interested parties to engage in discussion.
Please contact us if you have any thoughts and/or if you’re interested in collaborating on these topics.
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