At Ardent Partners, we have researched procurement metrics and performance for almost 20 years (Andrew Bartolini started tracking it before he founded Ardent). One of the key metrics we follow is spend under management. We have seen that organizations that manage more of their spend consistently outperform those that manage less of their spend in areas such as delivered savings, compliant spend, and competitive sourcing rates. It also brings other significant benefits such as better spend visibility. But despite this, we have seen no significant increase in spend under management over the last several years.
On average, procurement organizations manage around 65% of the business total spend, a number that has been fairly consistent over time. This means that procurement organizations are not managing more than a third of enterprise spend. However, it is certainly possible to manage significantly more. Our research shows that best-in-class performers manage more than 90% of their spend — a consistent figure in our reports.
But it seems that spend under management is not a focus for CPOs anymore. In fact, it’s not even on the top ten list of priorities. For 2024, the three top priorities for CPOs were delivering cost savings, managing (and/or mitigating) supply risk, and driving digital transformation. To me, this is somewhat a sign of the pressure procurement has been under since COVID-19. Procurement has been forced to react to outside events, such as supply disruptions caused by COVID-19 and various geopolitical conflicts, rampaging inflation, and interest rates. Ironically, you could argue that more savings and less risk would be a result of … managing more spend!
But is it realistic to manage 100% of your spend? Probably not. In any organization, there will always be random, perhaps emergency, needs that are unable to go through the proper channels. Also, at some point you reach a point of diminishing returns when it will not be worth the effort to try and managed the last part of the tail spend.
But let’s take a step back and talk about what we mean by spend under management. Ardent Partners defines it as: “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.” For procurement to influence spend, that spend must fall within existing category strategies and procurement policies. While it might not be practical to have category strategies for every conceivable category of spend, broader policies can be created to cover these (i.e., competitive bids for requests over X amount, etc.). Similarly, such strategies and policies must be either communicated to all end users or somehow automated. And herein lies a big problem. Keeping the entire organization up to date with the latest strategies and policies is a huge challenge unless you keep it very simple like “no PO, no Pay” — even then, there are potential issues that can arise.
What is striking is how procurement technology has influenced the plateauing of spend under management. Traditional S2P suites can only manage so much of your spend. And, even if you have other solutions to manage various categories of spend, it immediately puts the requirement on the end user to know where to go for that specific request. Over the last few years, we have seen intake management and procurement process orchestration (IM&PPO) solutions try to address this issue. Even S2P suite providers are now adding at least IM capabilities to their suites, so it’s going to be very interesting to see if this can move the needle on spend under management.
In any case, at Ardent, we believe spend under management to be the number one metric to focus on for procurement organizations as it will drive increased savings as well as better risk management, compliance, and spend visibility.
So, go out there and manage that spend. If you have any questions or need help strategizing around increased spend under management, don’t hesitate to reach out to us at Ardent Partners.
