How much of the external buy is coming through your purchasing organization, how much of the spend is truly under control?

There is a difference between just cutting the PO and having a real opportunity to drive the business to the best supplier for the job.

Is your mandate to support ALL external spend, and what is the nature of that support?

Many organizations drive some spend through purchasing just to have PO and receiving disciplines for control/compliance purposes. There is usually spend that is not within the purchasing mandate, things like office leases, professional services, advertising, payroll benefits…

A constructive mandate drives the procurement organization to contribute real value by making sure the organization has the right deals with the right suppliers.

All external spend will typically include non-addressable spend such as employee salaries and expense reimbursements, taxes and other statutory payments. It is a number that can reconcile to the financial statements to ensure credibility. Remove those and you have

Addressable spend, the total spend that could benefit from some form of procurement oversight. Make sure you add in non-AP payments that might include International bank drafts, intercompany transfers (particularly when they are also subcontractors or suppliers), and PCard payments; Remove the spend that is not currently “touchable” by procurement and you have:

Spend nominally under control. This may not be not truly be under management; but it passes through purchasing for control purposes, such as PO and 3-way match receiving. Remove that and you obtain

Managed Spend where procurement sits at the table to determine and deliver the procurement strategy.

Finally, good agreements may not have to be re-tendered every year, so the spend actually addressed in the current year is also worth tracking.

How do you ensure compliance to the policy around spend you are mandated to control? Can only procurement execute contracts on behalf of the organization? Are all invoices obligated to match to a receipted PO? What is the audit strategy on PCard use?

How do you manage risk? What is recognized as procurement risk and how is this measured – employee or vendor fraud, supplier financial robustness, supply continuity, key staff retention, intellectual property protection, reputational risk, geopolitical risk, commodity price risk? How do you value risk management costs against savings?

There is growing evidence that putting all spend through the hands of procurement professionals' saves money and reduces risk. A recent estimate conservatively suggested 6% of addressed spend can be saved when brought under procurement management.