Spend Under Management (SUM) is a metric in business procurement and financial control, representing the portion of a company’s total expenditure that is strategically overseen by the procurement function. SUM measures how effectively an organization aligns its spending with strategic objectives and established policies. Focusing on this metric helps businesses manage financial resources, improve efficiency, and control costs across the organization.
What is Spend Under Management?
Spend Under Management (SUM) is the amount of a company’s total expenditure that is actively controlled and optimized through formal procurement processes and systems. To be considered “managed,” the spend must adhere to established policies, be sourced through approved vendors, and be covered by negotiated pricing or contracts. This managed spend includes both direct procurement, such as raw materials, and indirect procurement, like office supplies and services.
Managed spend specifically excludes certain non-controllable items that are part of the total financial outflow. These exclusions involve expenditures like taxes, employee salaries, charitable contributions, interest payments, and dividends. Purchases made outside of the established procurement process, often called “maverick” or “rogue” spend, are also not included in the managed portion.
How to Calculate Spend Under Management
Spend Under Management is calculated as a percentage, providing a clear metric for benchmarking and goal-setting. The formula is: (Managed Spend / Total Addressable Spend) x 100. This result indicates the proportion of spend actively governed by procurement strategies.
Gathering the data requires consolidating information from various financial and procurement systems, such as Enterprise Resource Planning (ERP) and Procure-to-Pay (P2P) platforms. Accurate classification of all expenditures is necessary to properly identify the Managed Spend and define the Total Addressable Spend. Data verification is important to ensure the resulting SUM percentage is reliable and reflects the true state of procurement control.
Why SUM is a Procurement Metric
A high Spend Under Management percentage indicates a greater level of control and strategic insight over an organization’s expenditures. This control enables cost savings by ensuring purchases are made through preferred suppliers at negotiated volume discounts. Increased SUM allows the organization to consolidate spending and negotiate better terms with a smaller, strategic group of vendors.
Greater oversight also serves to mitigate supplier risk and compliance risk throughout the supply chain. Managed spend is subjected to thorough supplier vetting and regular performance monitoring, which helps ensure that vendors meet legal and quality standards. Standardizing and streamlining purchasing processes under procurement’s control also boosts operational efficiency across the organization. A comprehensive view of spending patterns provides procurement teams and business leaders with data for better strategic decision-making and more accurate forecasting.
Spend Under Management Versus Total Spend
Spend Under Management is a strategic subset of a company’s total financial outflow. Total Spend represents the entire amount of money a business spends over a defined period, encompassing both controllable and non-controllable expenses. SUM focuses only on the portion of that spend that procurement can actively manage or influence, which is known as Total Addressable Spend.
Procurement teams concentrate on the addressable portion because non-controllable expenses, such as taxes, interest payments, or employee salaries, cannot be strategically sourced or negotiated. By comparing the managed spend to the total addressable spend, the SUM metric provides a clearer picture of procurement effectiveness. This comparison highlights how much of the potentially controllable expenditure is actually being governed by established policies and processes.
Strategies for Increasing Spend Under Management
To boost the Spend Under Management percentage, organizations must implement structured and enforceable purchasing processes. One strategy is centralizing sourcing and supplier relationship management (SRM) to consolidate purchasing power and leverage volume discounts. This centralization involves channeling all expenditure through the procurement department rather than allowing individual business units to make independent purchases.
Developing and strictly enforcing clear procurement policies is another method to reduce unmanaged spending. These policies define approved suppliers, mandate the use of contracts, and establish formal approval workflows. Implementing Procure-to-Pay (P2P) technology automates these processes, ensuring compliance and providing visibility into all transactions. Finally, focusing on bringing “tail spend”—the large number of low-value, fragmented purchases—under formal contracts also significantly increases the overall SUM.
Common Barriers to High SUM
Organizations striving for a high SUM often encounter obstacles that hinder their progress. A prevalent issue is decentralized purchasing, frequently resulting in “rogue spend” or “maverick buying” where employees bypass established procedures and preferred suppliers. This off-contract spending dilutes the negotiation leverage gained through strategic sourcing efforts.
Poor data quality also presents a challenge, as spending data is scattered across multiple systems, making it difficult to gain a single, reliable view of expenditures. A lack of internal compliance and organizational resistance to change can undermine new procurement policies and technologies. If purchasing processes are perceived as too slow or overly complex, employees are more likely to revert to making purchases outside the formal system.