Understanding Spend Aggregation in Procurement

Streamlining the spend management process in your organization is one of the fastest ways to curb sprawling tail spend and gain more visibility into your finances. One highly effective way to streamline is by implementing spend aggregation into your practice.

What is spend aggregation, and how can it benefit your organization? How can you successfully bring your spending into one place when you serve many departments, or even several locations across the world?

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It takes a mix of the right logistics and the right software approach. By implementing a well-thought-out aggregation program, companies can fully centralize their purchasing functions and reap financial and brand-boosting benefits.

Let’s examine spend aggregation to find out how you can centralize your purchasing, cut costs, and bring your procurement into alignment—no matter where and how you do business.

What is spend aggregation?

Spend aggregation is the practice of consolidating all the vendor transactions across your organization into a streamlined system across a limited number of suppliers. Aggregation may refer to consolidating the purchasing process for several departments within the organization or, on a larger scale, consolidating purchasing across many locations.

By minimizing the number of suppliers you work with and reducing your ordering cadence across business locations, you can improve the efficiency of your procurement while reducing the costs associated with managing spend.

Why is spend aggregation important?

Disaggregated spending practices in an organization significantly increase the complexity of the procurement function. By systematizing and consolidating company purchases through spend aggregation practices, your procurement function can enhance value creation and curb sprawling budgets.

Spend aggregation also reduces the logistics involved in procuring goods and paying for company purchases. By reducing the number of suppliers you partner with and creating consolidated ordering across locations, you eliminate the paperwork.

Benefits of spend aggregation

When departments fully implement spend aggregation, they see several key benefits that save money and time for the organization:

Better spend optimization: The most common incentive for aggregating procurement spending is the potential to reduce costs and improve negotiations with your preferred suppliers. By centralizing the procurement process and utilizing a limited number of procurement partners, the value of each contract is significantly improved. Suppliers are more willing to offer advantageous pricing to larger accounts that consolidate the supply needs of several locations into one purchasing activity.

Streamlined logistics: Consolidating your procurement practice across locations has many material benefits. Logistics costs and challenges are greatly reduced when all your locations are using the same suppliers. Consolidating supply orders across locations also creates parity in the quality of goods available at each location. For brick-and-mortar stores, offering a consistent experience across locations benefits the brand.

Stronger supplier relationships: Consolidating your supply partnerships into a small number of high-volume suppliers creates stronger partnerships that result in better bottom-line outcomes. Suppliers can rely on a consistent flow of revenue from a single large account, and buyers can rely on greater consistency. Building strong relationships with vendors often results in lower occurrences of risk and more resilient supply chains.

Increased procurement value creation: By reducing the repetitive activities and busywork involved in procuring and paying for supplies from a large network of vendors, procurement can focus its efforts instead on creating efficiencies at other levels of the organization. This allows the procurement function to succeed as a cost-saving center and a source of value-added performance.

How to implement spend aggregation

1. Find your champions

Spend aggregation is a far-reaching and intensive practice. Procurement departments that implement spend aggregation often encounter obstacles and internal friction. Because spend aggregation changes many of the practices currently in use, having the support of a high-level champion can smooth your path and increase the adoption of changes to your procurement process.

2. Centralize your data

The cornerstone of successful spend aggregation is effectively centralizing all known procurement data within your organization. Centralizing data through a platform is the most effective way to gain visibility into spending activities across departments or locations. Data centralization is also one of the heavier lifts in implementing spend aggregation. Dedicate a fully invested point person to oversee implementation of this process.

3. Consolidate your supplier list

Paring down your supplier list is a significant component in aggregating spend across your departments or locations. By consolidating purchasing activities with a few carefully selected, higher-volume suppliers, you reduce the influx of invoices, associated accounting activities, and legal reviews, while improving purchase pricing and terms.

4. Streamline communications and approvals

By aggregating your purchasing process into a platform and using that platform to communicate with various departments, you can optimize spending by increasing efficiency in decision-making and approvals. This streamlined approach ensures there are no delays due to poor coordination or lack of understanding between departments.

5. Introduce risk management

Aggregating spend into supplier relationships with a few key suppliers requires a high level of trust in those partnerships. If your organization does not already have a risk management program, consider implementing practices to mitigate third-party risk. This may include codifying risk management into your partnership agreements (such as only working with vendors who have ISO or similar certifications), using a vendor questionnaire to evaluate risk, or improving due diligence processes during the supplier sourcing and negotiation processes.

6. Manage supplier performance

When you only contract with a few suppliers, it’s important to track their performance. By using supplier lifecycle management techniques, you can ensure that your suppliers’ performance and contract compliance remain high over time.

7. Measure and refine the process

Spend aggregation is a multifaceted process that evolves over time. Use the data derived from your supplier management and spend analysis to continually make improvements to your spend aggregation process. Analyzing this data will highlight cost-saving opportunities, reveal strengths and weaknesses within your supply chain, and ensure consistency in the purchasing process across departments or locations.

Use Order.co for better spend aggregation

Order.co can automatically improve your purchasing process by combining many spend aggregation techniques into one dynamic spend management. Using Order.co, organizations streamline their supplier lists and curate products from those suppliers into an easy-to-use ordering system that unifies purchasing across your organization.

Order.co supports simultaneous supply orders across locations, streamlined delivery logistics, and consolidated payments to reduce the workload for your accounts payable department.

If spend aggregation is on your organization’s list of priorities, request a demo of Order.co today.

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