Vendor Spend Aggregation: Raising value for the business (Part 2 of 4)

In our second blog, we will be introducing the idea of aggregating procurement spend in order to strategically align to your value proposition, doing so through compliance, collaboration and communication.


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 optimizing costs.

Vendor spend aggregation is the ability to consolidate and optimize 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 organization) and external (contracted third-parties) suppliers. But this does not change the enablers which determine the value you gain from your spend-optimizing 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 organization 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 organization.

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. Compliance and Governance

In order to ensure you keep the aggregation of spend in alignment with your targets, you should always consider setting up policies and procedures in which ensures people are optimising the spend effectively and prevent breach of spend which could potentially damage your value. This can include being done across the internal departments so people know exactly what they can spend on, including permissions, whilst also ensuring you are able to financially protect the purchasing orders and invoices which are owned to your vendors.

All of this will prevent ‘rogue spending’ behaviour, which refers to a company or employee purchase which does not meet the purchasing policies of other third-parties or areas of a large organisation. This compliance and governance can be seen as a strategically good aspect for your organisation in many ways. First of all, it can prevent you from being undermined by third-party vendors, tackling damage to your reputation by showing you are in control of your spend, preventing your program from crumbling or causing costs towards your relations also. The establishment of these firm controls which must be strictly complied against also can be enhanced by initiating centralised control over the authorisation of purchase orders, and therefore prevent the risk of any reckless and unthought payments from being made to your vendors.

In extreme cases, you can also make rogue buying and similar behaviour a condition of employment. Not only just this show strict compliance towards the standards of payments going out of the business, but it also prevents any other challenges you may face from disgruntled or mismanaged employees trying to attempt to use the organisation’s income for unsuitable payments elsewhere, which are not related to the company.

  1. Collaboration and Transparency

In order to effectively manage and emphasise value across the company’s expenses, it is important to be able to collaborate and be transparent with your SRM team and the vendors they take ownership of. Rules, supplier relationships and conditions of the spend have to be accounted for when communicating internally to discuss the expenses your leadership team wish to commit towards external services or products. Without doing this, you put your spend aggregation program in jeopardy, just swooping in and not bothering to negotiate spend across selected suppliers will not work.

That is why in pulling together the strategic spend and final decisions, you need to have a collaborative solution where you can track and finalise reviews between your team in order to know what your spend is ready to negotiate with future or current suppliers. This includes the collaborative work of analysing key performance indicators of your current vendors, market intelligence of potential future vendors, and consistent risk assessments on the potential costs to the business from each vendor whether they are existing or an outlying potential.

Strategic collaboration will take into account the specific needs of the business, and therefore help also refer back to our third point within part 1 of this series based on selecting and consolidating your vendors. In terms of external collaboration, this will help to allow you to review and track the vendors and the actions they must fulfil or take away from any recent reviews you may have held with them, and if they are carefully selected as an important aspect of the business’s growth, you may also want to include them in larger decision-making processes. This will only grow the relationship you are trying to sustain and help to contribute towards the aggregation of spend if your organisation is loyal and has trust in the most important vendors. Inclusion of the people that matter most for key decisions is always better than exclusion, whether internal or external, in order to jointly satisfy the needs for aggregating your spend and improving value.

  1. Actioned Responsibility

Communicating actioned responsibility is a vital area in which allows you to enable the aggregation of your spend comfortably across the business. Calling out the strategic aims of your organization, and the responsibilities of others to ensure value for money is key to establishing the program and the positive impact it can have.

In order to assure everyone related to this change that it is beneficial to the company’s growth and stability, you must maximise the communications you put across to those employees with concerns over the implementation of spend aggregation. Therefore, you will be able to show your employees that you are confident that the program will tackle these concerns, and inevitably save the company money for the benefits of each and every department within your organization. Once you have put across your communications to those concerned, you can start to build strategically around the roles and responsibilities which must be fulfilled on a daily basis in order to make the spend aggregation a success. This will only uphold or even increase the value you gain from establishing an effective methodology around the supply chain, and therefore improve all relations and costs which may be held accountable between your company and their third-party vendors.

The roles and responsibilities should be considered and organised appropriately across the procurement office, in order to maintain the value of your supply chain across the supplier relationship management function, as well as ensure there is collaborative efforts that we mentioned in point 5 between all departments of your organisation. The main focus should always be to achieve value and optimise costs across the relations you hold internally and externally, a huge drive for change for cost-containment initiatives.

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Colin Woodford
Managing Director, Consulting
Nick Francis
Managing Director, Consulting

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