The phrase “Spend Management” is heard often today in the world of Sourcing and Procurement. It even has its own Wikipedia entry. It is often used in place of, or in the same context as “Spend Analysis.” Some might think that the two are interchangeable. They are not. Each has a distinct and separate meaning. Spend Analysis is a more structured and well-defined phrase. Loosely, Spend Analysis should answer three basic and broad questions:
- How much do we spend?
- Who are we buying from?
- What are we getting for that spend, and did we receive what we wanted?
OK, so maybe that’s four questions with the add-on to question #3. But you get the idea. Spend Analysis involves all of the common processes that you would expect – data retrieval, cleansing, classification, interpretation and presentation. The last of these – data presentation – might sometimes be overlooked, but it could be the most important step. It determines what variables…what views of the data…most meaningfully spread the message that the presenters wish to convey. Spend Management is somewhat more strategic (or “holistic,” which seems to be the in vogue word these days). Spend Management involves an assessment of multiple key areas that impact the full Sourcing and Procurement spectrum. It analyzes the technology used, how the organization is structured, the skill level of the practitioners, and the processes used throughout the cycle. These can then be used to compare to Best In Class standards and to identify gaps in the current maturity level as compared to Best In Class. The output of Spend Management is an efficiency and savings roadmap to move the entity to Best In Class. This would include a current state assessment, a vision of the future state, key initiatives, KPIs, timelines, expected results and other measures. Another key facet of Spend Management is that the focus is on strong governance and creating a sustainable savings program. It is less initiative-based but instead seeks to instill a continuous process improvement culture with strong controls. Spend Analysis is actually a subset of Spend Management. A meaningful Spend Management engagement is impossible without a detailed and accurate Spend Analysis program. So the next time you hear the two concepts – Spend Management and Spend Analysis – used interchangeably, you will know the difference. I bet “holistic” will come up in the conversation as well.
Patrick Reymann, Director, Strategic Sourcing Operations, is responsible for building the CorbusSourcing & Procurement practice and applying industry-leading Spend Management best practices for its clients. Mr. Reymann has developed, executed and led Spend Management programs for clients, both commercial and federal, across multiple industries, producing significant savings and efficiency gains.