To deliver effectively against the objectives of improving supplier performance, improving ROI and reducing costs, one of the first challenges a procurement team must overcome is addressability of services spend.
What is addressable services spend?
There are number of definitions, but simply put, it's is the percentage of an organisation's spend that can be impacted by the procurement team. Usually this means, the spend is controlled by a framework, contractual agreement or statement of work and presents an opportunity for reducing cost or increasing value.
How procurement can increase addressability of services spend
Increasing addressability of spend has a number of components:
Getting granular control of spend under management
Market feedback, as discussed in our recent webinar
, shows that it's common for procurement and finance teams to be "aware of total services spend but have no visibility or control over the detail of specific engagements or with individual suppliers".
In order to increase the addressability of spend, procurement teams first need to be able to identify and understand the real value of its services spend down to an individual supplier and even milestone level.
In short, just because you are aware of the spend, doesn't mean it's addressable.
Reducing rogue spend
Following the principle that you can't control what you can’t see, procurement teams can increase the amount of addressable spend they can impact by reducing the spend that exists outside of their remit.
There's a number of reasons why rogue spend happens:
- When a business' existing procurement system (which may be extremely effective at controlling spend in other categories) becomes incompatible, slow or cumbersome to work with.
- Individuals believe they are saving money by hunting down better deals.
- Individuals are not aware there is a process for sourcing a particular service.
Of course, eliminating rogue spend
creates more opportunities for procurement to impact both cost savings and value performance.
Is all services spend addressable spend?
An important consideration when looking to increase addressable spend, is that not all spend is addressable.
As Spend Matters alludes to in their article
exploring the language of economic value, addressable spend can be interpreted in two ways:
- Any spend going to an external service provider is addressable
- Supplier spend where procurement has the potential to make an impact – either saving money or delivering additional value
Regardless of your interpretation of the language, it is arguably more important for today's lean procurement teams to be focused on the latter.
And to balance the desire to increase the scope of their impact, with the need to stay lean and efficient, procurement teams need to rely on technology to play a fundamental role.
Technology's role in addressability of services spend
So as discussed so far, there are 3 main principles to increasing addressability of spend. And technology can provide a platform for procurement teams to scale and deliver performance:
Increasing visibility of all services spend
"Usability is an absolutely key factor in the success of a services procurement platform. If people don’t use it, you don’t get the data and the whole setup falls short."
Only by using the right technology as a fundamental part of services spend management will an organisation, its operations and procurement teams fully adopt a services spend management platform and ensure all spend is visible.
Get a detailed, granular, understanding of return on investment
Technology enables procurement teams to manage, at scale, a diverse supply chain and get an understanding of performance down to an individual milestone level.
Through real-time reporting and automated workflows, a relatively lean procurement team can effectively understand and identify opportunities to make significant impact on cost-savings and increasing value.
Prioritise procurement's focus on the opportunities to make an impact
Using technology, like Zivio's SPX
score, procurement teams can easily compare real supplier value and performance across multiple categories to simultaneously identify and prioritise opportunities to increase and optimise their impact on addressable spend.
Want to improve your control over addressable spend?
Discover how a best-in-class services spend management platform can help your team to identify and optimise your organisation's addressable spend – book a demo today