Maximising spend under management is one of the best ways to ensure you are getting the savings and value you need from your procurement system. At Xoomworks we have helped a large number of companies gain the best value from their S2P implementations. We do this using our XoomTune optimisation service that we provide our customers for 6 months after go-live. Based on real customer insight from many organisations, it benchmarks how well you are delivering against your business goals and provides recommendations on where improvement can be made to maximise the benefits from your procurement systems.
Ensuring spend is made from well-negotiated contracts, using catalogue items with specific pricing, will deliver real savings and empower you when negotiating contract renewals.
Using insights from XoomTune, we focus on how you can maximise spend under management. In particular:
· Have you minimised the proportion of spend made using free-form lines on Purchase Requisitions?
· Are you capturing all the spend against supplier contracts where they exist?
· Are as many of your contracts as possible fixed-term, rather than evergreen?
With this information, you should be in a better position to plan, execute and achieve sourcing events success.
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1. Minimise maverick spending
Get the best pricing for products and services by ensuring spend is made for specific catalogue items within contracts negotiated with your suppliers. Continually updating catalogues and contracts will also help to reduce maverick spending.
When purchases are made using free-form lines on PRs there is no guarantee you are getting the best price for these items and, if the items could be bought under a contract, you may be missing out on volume discounts or other contract benefits.
From XoomTune reports we see that the volume of free-form PRs can range from 2% – 100%; averaging at 66%.
Analysis of the proportion of free-form lines in PRs can identify areas where additional items or services should be added to catalogues or contracts with suppliers. It’s all about maximising the spend under management through catalogues or punch-out facilities so that the best pricing is obtained and other potential benefits, such as volume rebates or discounts are realised.
Even if items are not purchased from a catalogue, it is important to refence any existing supplier contracts to the PR so that the spend is captured against the contract and included in your total
spend with that supplier. This will help when negotiating the renewal of contracts as the true spend volume has been tracked, empowering you to obtain improved contract terms.
2. Fixed-term vs. evergreen contracts
Contracts with suppliers may be evergreen, that is contracts without an expiry date, and fixed term, which expire and require renewal. The latter provides an opportunity to review and renegotiate the contract terms, whereas evergreen contracts may continue in place without any proactive assessment of whether best value is being obtained from the supplier.
One of XoomTune’s quality checks is to look at the percentage of evergreen and fixed-term contracts. Typically only 3 in 4 contracts are fixed term, leaving 25% as evergreen.
As well as missing out on renegotiation opportunities with evergreen contracts, it is likely that less maintenance is done on these contracts, with out-of-date pricing and catalogue items dominating. This adds to the confusion. Frequently bought items may not be included in tiered pricing or volume discount plans, reducing the value of the contract to your business.
Your P2P solution typically provides the facility to issue notifications prior to contract expiry, or when maximum spend levels are approaching. With evergreen contracts, you will be missing out on these reminders to improve existing contracts.
Using the pre-expiry notifications, you can plan contract reviews and renewals in good time. Analysis of your spend with the supplier by category or items can indicate where changes should be made to the contract, for instance adding further levels of volume discounts or rebates, or removing items that are no longer purchased. Spreading renewal dates throughout the year will also reduce review workload peaks, which typically occur at year-end.
Contact us at Xoomworks to discover how we can help to optimise your procurement function.
A few final recommendations for maximising spend under management:
- Review maverick spending in free-form PR lines to identify items to add to catalogues or contracts
- Where possible reference all spend to supplier contracts to capture total spend volumes
- Update contracts to reflect spend patterns to ensure all items are included in volume or value discount/rebate deals
- Minimise the number of evergreen contracts, moving suppliers to fixed-term contracts
- Set up notifications in Coupa to alert you in good time of contract expiry or maximum spend thresholds to facilitate in-depth reviews and renegotiations