Your organization’s total spend is $1 billion. Your procurement department oversees $800 million of your total spend. Of that, $720 million is under contract. You have negotiated rates with suppliers and have implemented processes so your buyers will buy on those contracts. When you perform a spend analysis, your data says that $648 million of your spend is on contract.
What’s Your Addressable Spend?
If you answered $800 million, you’re selling your organization’s savings potential short. By limiting yourself to the $800 million in spend that procurement oversees, you leave millions on the table. That’s a missed savings opportunity.
Your goal is to get all spend under management so you can maximize your savings. That’s what we mean when we talk about addressable spend.
What is Addressable Spend?
Addressable spend is spend that can be impacted through sourcing activities. Why is it important? While procurement departments track spend under management, this is only a subset of addressable spend.
Your company has implemented a source-to-pay solution and you have your spend and processes optimized to bring you value beyond savings. Your business is booming, you have suppliers under contract with negotiated prices and you have surpassed your goal of eliminating maverick spend and reducing cycle times. You’re saving as much as you possibly can, right? Not so fast.
When you look at the business as a whole, there is a portion of spend that is not accounted for. Addressable spend goes beyond procurement departments and can encompass IT and Marketing spend (excluding wages, interest, etc.). Consider optimizing all these categories of addressable spend, because every dollar counts.
How Do I Know What I Could Be Saving in Terms of Addressable Spend?
Let us help you start heading in the right direction. You can’t save the addressable spend you can’t see. Spend Analytics will help you glean information and insights from your real-time data and analytics from every stage of the source-to-settle process.
Understanding how to do a proper spend analysis can give you the insight you need to get all your spend under management.
Once you have the basic process down, turn to an advanced spend analytics solution to start getting deep insight into where your opportunities for savings lie.