In this first of four blogs, we will be introducing the idea of aggregating procurement spend in order to strategically align to your value proposition, doing so through selective sponsorship, centralised data and vendor selection and consolidation.

Preface

With spend aggregation across your vendor portfolio, the procurement office always has the opportunity to deliver increasing value-add to grow and support the business. Through this action, the SRM function can generate improved services from better vendor relationships, introduce stronger contractual agreements, all while ultimately optimising costs.

Vendor spend aggregation is the ability to consolidate and optimise the costs generated and invested into the vendor portfolios of an organisation. This gives the procurement department the power to further develop their cost efficiencies, and grow financially stronger as a company, whilst also allowing them to gain better insight and control of the vendor relations in which are of most importance. This is key in allowing supplier relationship managers to substantially increase the capabilities of managing, reviewing and taking action upon specific vendor relations. This all adds benefits when upholding more value and increasing the finances spent across the supply chains managed on a daily basis by your team.

But sometimes, many in the procurement department can have questionable doubts surrounding the idea of spend aggregation:

• Could I lose control of my supply chain?
• Is there the possibility of lacking job creation?
• What are the benefits in the long run?
• Can it be perceived that there is a loss of margin when initiating this aggregation of spend?

You may be looking to introduce spend aggregation across a wide range of both internal (departmental groups with the organisation) and external (contracted third-parties) suppliers. But this does not change the enablers which determine the value you gain from your spend-optimising proposition.

You could also just be looking to improve your cost base and exceed your targets of value, or equally as important for your strategic alignment, trying to combine the spend between your organisation and another you have recently acquired; spend aggregation can be beneficial for all industries. In addition, spend aggregation can pave the way for more efficient gains of any value propositions that may be appealing to your organisation.

We have seen many cases of people struggling to enable spend aggregation and maintain value across the procurement office, but there are many solutions to tackle this problem and we have the ideology here to support you in doing so. If you are leading projects to enable spend aggregation, you need the full attention of your key stakeholders and leadership team, so what should be your action points to ensure you get their support?

1. Executive Sponsorship

In order to ensure you begin to get the support of your hierarchy, it is essential you make as many, if not all, of the executive board aware of the benefits and outcomes to enabling spend aggregation. This could be the CPO, CFO, COO, CIO or the CEO. This is because they have the authority to make decisions on what is best for the company and influencing their decisions will boost your chances of building a proposition for the values your company could gain from this initiative.

Having the right authorities involved may bring a different proportion of views on the decisions, but at least that way no one can retaliate and go against the proposition. It may also take some influence of a number of C-Level roles to ensure willingness and enthusiasm to enroll the valuable process. Therefore, the weight may be heavier than others in terms of those that are willing, and those that are uncertain or completely against it. This makes it even more important to centralise the idea to all involved in decision-making, take on board everyone’s views and use the benefits of spend aggregation to your advantage over the potential consequences.

2. Data Secured and Stored on a Centralised, One-Repository Platform

One of the toughest challenges the procurement office can face when trying to aggregate their spend sufficiently is when all the data and information based upon the vendor portfolio is disorganised and scattered across an array of different areas. This can range between being stored in a randomised set of excel sheets, email audit trails and storage drives, as well as complex systems which make tracking of the data difficult. If you do not have an overall view of your company’s spend across each of your vendors, along with an audit trail showing confirmation of these running costs contracted, the ability to have control over those costs and build value upon those costs with vendors will be lost.

In terms of the invoices and purchase orders you have in place with these vendors, you must have a link between the access to these accounts payable to your relations and the centralised platform you store vendor portfolios and contractual agreements within. A great example would be to know what purchase orders have been put in place and those that are outstanding to be paid for each vendor category you obtain, which can be set out across the audit trail and across reviews with your vendors.

All of this information needs to be informative and communicated regularly to maintain trust across your vendors. In summary, the need for a central platform for all of your vendors, which is secure enough to withstand any sort of attack. This can then allow you to create reports, queries and analysis based on agreements, discussions and review meetings with your vendors which surround the topic of financial cost management. You can then start to enhance the idea of achieving better value for money with the detailed insights from communications with your vendors, knowing exactly what you are paying for in alignment with the contract negotiations.

3. Vendor Selection and Consolidation Program

In order to ensure sufficient well-being and healthy continuity of your business, it is important to always consider the vendor across the contract life cycle, rather than squashing everything into the benefits for the business against your vendor portfolio.

As they can be considered a trusted partner, and loyal to your business’s strategic aims through long-term mutual agreements, it is important to ensure that you continue your trust in them and begin to involve them more often in order to appreciate and strengthen the brilliant relations you may already have with those vendors. Therefore, those that have delivered exceptional results benefiting the growth and operative capabilities of your company should also be acknowledged across your spend aggregation efforts.

So in order to strengthen relations where it matters most to the strategic growth of the business, it should be considered to put in place a vendor selection and consolidation program. Not only will this help to achieve success in optimising your spend with the most effective contributors to the business, but also helps to strengthen your relations and potentially add to the improved value from focusing on these key vendors. Purchasing in bulk with the selected vendors rather than facing the distribution of spend across a wide range of vendors with the same outcomes will allow you to grow further business-to-business bonds and lower costs substantially, whether this is through reward or loyalty.

Click Here to find out more about the benefits of implementing a vendor consolidation strategy.