A Quick Primer on Managed vs. Unmanaged Spend
Wednesday, 24 Aug 2016
The definitions are simple. Any demand for goods and services that management wants directed toward preferred suppliers is considered managed spend. Demand for goods and services that are left up to individual discretion is considered unmanaged spend.
Field Marketing Manager
Cost conscious enterprises convert unmanaged to managed spend in order to get better value from suppliers. These companies receive better overall terms by being very important to a few suppliers rather than unimportant to many.
How do they do it? Many of these successful organizations manage their spend with the help of automated purchasing systems.
In order to gain a clearer understanding of just how this happens, let’s break down the mechanics of how unmanaged spend can be difficult to spot and managed spend can save companies money.
Even with good purchase policies in place, off contract spending often happens. Goods and services are purchased without considering potential vendor discounts, budget constraints or even need. T&E spending, for example, is an area that is very hard to control with the many transportation, lodging and meal options available.
Manual processes result in inconsistent invoice coding practices, thus making it difficult to identify off contract spending. Clear visibility into total spending by product or service is lost. Unfortunately, a lot of employee time is spent initially entering, then tracking and correcting poorly recorded data.
Paper invoices, expense reports and credit card statements are stored in filing cabinets. All that detailed expenditure information is trapped, when it could have provided new purchasing strategies and statistics if it had been captured by an automated purchasing system.
Whether your enterprise is one office or many, multiple vendors are vying for your business. By managing spend you focus your purchasing power and gain the leverage you need to negotiate with suppliers for the quality and pricing you want. Purchasing systems can help give you the visibility you need to control and direct spending.
By automating requisitioning, approvals and reconciliation, purchasing data is transmitted quickly and is accurate and consistent on all financials, including invoices, inventories and budget analysis reports, greatly improving reporting capabilities.
By using spend data from purchasing systems to analyze purchasing trends, corporate expenditures can be accessed and reviewed regularly to aid in further vendor negotiations, to monitor budget compliance, and to keep overspending in check.
Managed spend utilizes sourcing techniques, purchasing systems, and spend analytics to ensure long-term and sustainable value. And the biggest benefit of all? You have much more control over that bottom line!