Spend under management
The share of a company's total spending that goes through its agreed processes, contracts and suppliers.
In short
- It is a procurement metric, expressed as a percentage of total addressable spend.
- Spend outside management usually means no negotiated price, no contract and weaker controls.
- Raising it is often worth more than renegotiating contracts already in place.
Spend under management (%) = Managed spend ÷ Total addressable spend × 100
Addressable spend usually excludes items procurement cannot influence, such as taxes, payroll and regulatory fees. State which exclusions you use so the figure can be compared over time.
Spend under management, often shortened to SUM, measures how much of an organization's spending is actively controlled. Spending counts as managed when it goes through a sanctioned channel: a negotiated contract, a preferred supplier, an approved purchase order or a card program with rules.
What counts and what doesn't
Definitions vary, but managed spend typically includes contracted suppliers bought through proper channels and category spend that procurement has sourced. Unmanaged spend includes one-off purchases from unapproved suppliers, off-contract buying from a supplier that has a contract, and spend nobody has classified at all.
Why it matters
A procurement team can negotiate excellent contracts and still save little if most purchases bypass them. Raising spend under management extends negotiated prices and terms to more of the business, improves visibility and reduces risk from unvetted suppliers. It also exposes the categories no one owns yet.
The hard part is measuring it. It needs a clean view of all spending, including cards and expense reports, classified by supplier and category. Many organizations discover their real figure is lower than they thought once card and expense data are included.
Worked example
Measuring it honestly
A company has $20 million of addressable spend. Contracted suppliers bought through purchase orders account for $12.4 million, and card spend with preferred merchants adds $1.6 million. Spend under management is $14.0 million ÷ $20.0 million = 70%. The remaining $6 million is spread across 1,100 suppliers, which is where the next sourcing effort should start.