Spend Management Fundamentals: What It Is, Process & Best Practices 

Learn what spend management is, its core processes, and best practices to improve procurement efficiency and reduce unmanaged spend. 

Introduction: from Spend Visibility to Strategic Control 

What is spend management? A simple enough question, but in reality the term is used differently according to who you ask. 

Many procurement leaders use “spend management” in a narrow and tactical sense to mean getting spend under management, i.e., ensuring that purchases go through approved suppliers and processes to control costs, prevent maverick spending, and achieve negotiated savings and procurement cost reduction. This sense is often linked to KPIs like “percentage of spend under management.” 

Others use the term more holistically, encompassing the full source-to-pay ecosystem. In this case the term refers to a comprehensive set of processes for monitoring, controlling, and optimizing a company’s expenditure to reduce costs, reduce and mitigate risk, and improve efficiency. In this broader view, it’s about managing all expenditure strategically, and aligning spend to business goals, risk, and value creation. 

To some extent, this difference depends on the roles and responsibilities of the persons you ask and the size of the organization. Those with management responsibilities for directing spend through approved channels and on the eProcurement platform, maintaining catalogs, and enforcing purchasing policy (with job titles such as Procurement Operations Manager, Procurement Systems Manager, Manager of eProcurement, P2P Manager, Procure-to-Pay Lead etc.) will tend to take the narrower view. Their most important KPI is spend under management. 

Roles that are more strategic in focus involve monitoring and analyzing how spend management drives compliance metrics, savings capture, supplier optimization, and procurement efficiency. Typical job titles here include Spend Analytics Manager, Procurement Data Analyst, Category Operations Analyst. 

The third set of stakeholders sit at the interface between procurement, finance, and compliance, and include the CPO or Head of Procurement. At larger organizations there might also be a dedicated Procurement Compliance (or Governance) Officer. These senior managers work with finance and audit to ensure policy adherence and separation of duties. They enable strategic control of the organization’s total direct and indirect expenditure. 

Procurement technology managers (the actual job title may differ) support all of these roles, overseeing the source-to-pay platform that provides the relevant technology from eProcurement through supplier onboarding and spend analytics. 

Why is “spend under management” so important?  

All of the functions and roles described above are equally important, even though they each have a different focus. However, “spend under management” is generally regarded as the foundation metric for effective spend management and, by extension, for procurement’s contribution to financial governance and performance. It represents both control (the negative side: prevention of waste and risk) and opportunity (the positive side: value creation and efficiency). 

Spend under management refers to the portion of an organization’s total spend that is actively managed by procurement under approved policies, contracts, or systems. It is often expressed as a percentage of total addressable spend (excluding non-discretionary items like taxes, monopolistic utilities, emergency purchases, interest payments, charitable donations, or statutory fees). To be “under management” the spend has to go through official channels (such as the eProcurement platform or mandated procure-to-pay processes), according to negotiated contracts, and subject to category policies. An organization will never get 100% spend under management but should seek to minimize the exceptions  

For most organizations addressable spend is roughly 60–80% of total external spend, depending on the industry. Exceptionally, organizations in certain sectors that are highly regulated (such as pharmaceuticals) or have strong governance (such as higher education) can reasonably expect to exceed 80%, whereas organizations in sectors such as the creative industries, professional services, construction, and decentralized manufacturing tend to fall below the 60% threshold because of fragmented spend, project-based procurement, or local autonomy. However, in all these cases a mature digital infrastructure will help to maximize spend under management. 

Spend management drives operational efficiency and compliance 

Getting spend under management is a necessary first step but it’s not an end in itself. The next steps involve moving from control to continuous improvement by adopting a set of best practices. Spend management drives operational efficiency through a combination of process standardization, data visibility, automation, and behavioral alignment across the organization. Here are some of the key levers and best practices that organizations can use to achieve efficiencies and compliance:  

Process automation and standardization 

Digital spend management platforms unify requisitioning, approvals, sourcing, contracting, and payment under a single P2P workflow. Efficiency gains include fewer manual touchpoints and approvals leading to faster cycle times; automated matching (PO–invoice–receipt) leading to reduced errors and rework; standard templates and guided buying, leading to consistent purchasing behavior; and lower administrative overhead, which means procurement staff can be redeployed to take care of strategic work. P2P systems can cut the average purchase order processing time from days to hours, while reducing transactional cost per order by up to 60–70%.  

Spend consolidation 

Getting spend under management enables an organization to identify opportunities to consolidate spend by category, supplier, and business unit. They can more easily identify duplicate supplier and contract overlaps and take evidence-based sourcing decisions instead of ad hoc buying. Other benefits include better forecasting of demand and cash flow, and simplified reporting for finance and audit, as there is reduced need for reconciliation from multiple sources. 

Supplier rationalization and integration 

A spend-managed environment supports active supplier management, reducing the number of redundant vendors and fostering deeper collaboration with strategic ones. Fewer suppliers to manage reduces the onboarding and administrative burden (for example, with fewer invoices to process) as well as reducing delays and disputes. 

Compliance 

As noted above, organizations in industries where regulatory compliance is important tend to have high levels of spend under management. They need spend management systems that embed policy and approval hierarchies into the buying process. This in turn brings efficiency gains: there is less need for after-the-fact policing or manual audits, automatic budget validation means fewer exceptions to handle, and there is reduced risk of rework, returns, and corrective actions. Employees are guided to approved catalogs; non-compliant spend is flagged automatically, avoiding corrective paperwork later. Organizations in sectors with weak external compliance are advised to introduce and enforce their own policies. 

Cross-functional integration 

Spend management facilitates collaboration between procurement, finance, audit, operations and other functions. A single spend dataset shared across departments enables tighter coordination between budgets, sourcing, and payment. Efficiency gains include improved working capital management, for example through early-payment discounts, smoother month-end closing thanks to clean data flows and faster decision cycles. 

Core components of the spend management process 

To perform spend management effectively, and to gain the efficiencies listed above, a few things have to be in place: 

Spend analytics 

Spend analytics refers to the systematic classification and analysis of spend data to provide visibility and insight. It doesn’t inherently require artificial intelligence, though AI is increasingly being used to enhance it. The overarching purpose is to create the factual foundation for, among other things, sourcing strategy, supplier consolidation, and savings tracking. It typically starts with data extraction from ERP, P2P, and finance/accounts payable systems, its cleansing and reconciliation, and then reporting across various dimensions (spend by category, supplier, cost center, region, etc.) Analysts look at trend and variance analysis via dashboards to get a better understanding of what an organization buys, from whom, at what price, and under which terms. 

With AI, spend analytics is moving from merely descriptive (“what happened?”) to diagnostic and predictive (“why did it happen?” and “what will happen next?”). 

Sourcing, category & contract management 

Armed with the information and insights generated by spend analytics, category managers can make better decisions about how to reallocate spend to achieve an optimal balance between consolidation of spend to achieve savings and risk mitigation. This in turn can be fed into sourcing strategies.  

Effective spend management also creates the data visibility needed to ensure contracts are being used as intended, delivering the savings and compliance they promise. For example, analytics might reveal fragmentation of purchases across different suppliers because of maverick spend at local level. Central procurement can then step in to enforce on-contract buying, thereby ensuring that savings originally negotiated are fully realized and other efficiencies (such as fewer invoices) are achieved. 

Supplier performance tracking 

By merging spend data with supplier KPIs (for example performance metrics about on-time delivery, quality, and cost trends) procurement can get the information and insights that will inform contract renewal negotiations and enable supplier development.  

Best practices for effective spend management 

Organizations that maximize spend under management and leverage this effectively for spend optimization share the following traits, regardless of sector or size: 

Mature digital infrastructure  

It is essential to have a single version of the truth to provide comparable and reliable figures on spend.  

Centralized policy enforcement 

There may be pressures locally to go off-contract to meet delivery deadlines etc. However, off-contract purchases can be minimized first, by implementing user-friendly eProcurement tools that make it easy to comply with procurement policies, and second, by establishing standardized catalogs and supplier lists. 

Strong finance–procurement alignment 

Procurement and finance must collaborate to draw up shared and aligned goals with KPIs on savings, compliance, operational efficiencies and cost avoidance. This often necessitates a change of business culture with an emphasis on cross-functional teams identifying areas where they can have the greatest impact. 

Automation to control unmanaged spend 

Automation can minimize manual effort in spend management, for example by flagging off-contract purchases. Many organizations are now building on such capabilities with the introduction of natural language processing, machine learning and artificial intelligence to automate and enrich spend analytics. Advanced tools can be used for the automated classification of unstructured spend data, for example, or to identify possible procurement fraud. Diagnostic tools can predict future pricing or supply chain disruptions that will impact spend. Moreover, conversational analytics allow procurement professionals to query spend data in natural language. 

Benefits of spend management 

Finally, let’s run through the principal benefits of a robust spend management strategy:

Improved visibility and control over organizational spend 

Getting spend under management enables consolidation of spend across business units, cost centers, systems, and supplier bases, reducing fragmentation and data silos. Embedded workflow rules and approval logic enforce policy compliance at the point of purchase, rather than relying solely on post-facto audits. And better alignment with financial controls (budgets, delegated authorities, audit trails) helps mitigate risk and supports governance. 

According to a benchmarking exercise carried out by CPORising in 2022, the average enterprise had 67.4 % of its spend under management. A year later best-in-class organizations reported an impressive average of 91.5% spend under the management, showing that high visibility and control is feasible, although as noted above, there is huge variance between sectors. 

Increased savings and reduced maverick spend 

By routing more spend through approved contracts and suppliers, organizations can capture negotiated discounts, volume leverage, and other favorable terms. As more spending falls under procurement control, the baseline for savings opportunities widens further. The discipline also helps in savings leakage control — ensuring that negotiated benefits are actually realized in downstream transactions (not just on paper). Reducing maverick spend also means fewer “leaks” of money that escapes procurement’s influence or oversight.  

Research from Ardent Partners suggests that enterprises realize savings of between 6% and 12% on every new dollar of spend placed under procurement’s control. 

Stronger supplier performance and risk management 

With more spend under management, procurement can focus on fewer, higher-value relationships rather than managing a broad “long tail” of low-visibility suppliers. Rigorous supplier qualification, performance scoring, risk assessments, and monitoring become more practical and effective when spend is concentrated. Contract compliance tracking ensures that suppliers deliver on agreed KPIs, service-level commitments, and quality standards. And reduced exposure to unknown or uncontrolled suppliers mitigates risks such as financial instability, regulatory noncompliance, supply disruption, or reputational harm. 

In cross-industry research, organizations claim that “teams with high levels of managed spend are better able to leverage spend, mitigate supplier risk and bring more strategic value.” 

Enhanced decision-making through real-time analytics 

Real-time spend management reporting enables procurement and finance to see spend trends, supplier performance, category shifts, and emerging cost pressures. Decision-makers can use analytics to prioritize sourcing initiatives, rebalance supplier portfolios, or adjust buying behavior proactively. With data-driven insights they can uncover hidden opportunities or anomalies (such as price outliers, growth in tail-supplier activity) that would otherwise go unnoticed. The feedback loop from analytics to action (such as resourcing and renegotiating) accelerates continuous improvement. The Hackett Group has published comprehensive reports on how spend analytics can enhance decision making and deliver a significant return on investment. 

Final thoughts 

Spend management needs to be approached at both tactical and strategic levels so it makes sense to implement a modern solution like JAGGAER, which supports end-to-end spend management with automation, analytics, and supplier collaboration tools, and integrates with third-party systems.  

Spend management is the connective tissue at the heart of any digital source-to-pay (S2P) ecosystem. It provides the unified visibility, control, and intelligence that make the whole system effective, ensuring that every stage, from sourcing and contracting to payment, is connected by accurate, actionable data. Operationally, spend management delivers efficiency and compliance by automating workflows, standardizing approvals, and reducing maverick spend. Strategically, it provides the data and insight foundation for higher-value outcomes such as category and supplier optimization, risk management, cost forecasting and working-capital improvement, as well as continuous performance benchmarking.