What is Aggregate Spend, and How Can It Improve Procurement?

Streamlining your organization's spend management process is one of the fastest ways to curb sprawling maverick spending and gain more financial visibility. Not only that, proper spend management will also help your company build stronger supplier relationships and improve operational efficiencies. Implementing spend aggregation into your buying practice is one of the quickest and most effective strategies for optimizing tail spend.
Successfully bringing the benefits of aggregate spend into your organization requires a mix of the right logistics and the right spend management software. By selecting well-thought-out aggregation initiatives, you can centralize purchasing functions across all departments and locations for financial and brand-boosting benefits.
Let’s examine spend aggregation to see how you can centralize purchasing, cut costs, and align your procurement activities—no matter where and how you do business.
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What is aggregate spend?
Aggregate spend is the practice of consolidating all vendor transactions across an organization into a streamlined system that uses a limited number of suppliers. Spend aggregation may refer to centralizing the purchasing process for several departments within the organization or, on a larger scale, across many locations.
By minimizing the number of suppliers a business works with and reducing the ordering cadence across locations, companies can improve spend efficiency basics in procurement while lowering the costs associated with managing procurement 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, procurement 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 excessive paperwork and related inefficiencies.
Benefits of spend aggregation
When departments fully implement spend aggregation, they see several key benefits that reduce time-consuming activities and save money.
Better spend optimization: Nearly half of CPOs say cost savings remains a top priority. The most common incentive for aggregating spend under management is the potential to reduce costs and improve negotiations with preferred suppliers.
By centralizing the procurement process and using a limited number of procurement partners, the value of each contract significantly improves. Suppliers are generally more willing to offer better pricing to larger accounts that consolidate the supply needs of several locations into singular purchasing activities.
Streamlined logistics: Consolidating the procurement practice across locations has many material benefits. Logistics costs and challenges are greatly reduced when spend categories in all locations are fulfilled by the same suppliers.
Consolidating supply orders in this way 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 supply partnerships into a few high-volume suppliers creates stronger partnerships that result in better bottom-line outcomes. Suppliers can rely on a consistent revenue flow from a single large account, and buyers can count on greater consistency. Building strong vendor relationships can also decrease risk and create resilient supply chains.
Increased procurement value creation: By reducing the repetitive activities and busywork involved in procuring and paying for office supplies from an extensive network of vendors, a company can focus its procurement strategy on generating 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
Building a spend aggregation program helps companies stay organized and maintain a holistic view of real-time spend data. When developing or improving spend data aggregation, follow these steps:
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 stakeholder can smooth your path and increase the adoption of procurement process changes.
2. Centralize your data
The cornerstone of successful indirect spend aggregation is effectively centralizing all known procurement data within your organization. Centralizing data like vendor info and purchase orders through a platform is the most effective way to gain spend visibility into spending activities across business units or locations. Data centralization is also one of the heavier lifts in implementing spend aggregation, so it's important to dedicate a fully invested point person to oversee the implementation of this process.
3. Consolidate your supplier list
Paring down your supplier list is a significant component in aggregating spend across departments or locations. By consolidating purchasing activities to 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 and increase efficiency in decision-making and approvals. This streamlined approach eliminates delays caused by poor coordination or lack of understanding between departments.
5. Introduce risk management
Aggregating spend into 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 partnership agreements (such as only working with vendors with ISO or similar certifications), using a vendor questionnaire to evaluate risk, or improving due diligence processes during strategic sourcing and negotiation.
6. Manage supplier performance
When you only contract with a few suppliers, tracking their performance is especially important. By using supplier lifecycle management techniques, you can ensure supplier performance and contract compliance remain high.
7. Measure and refine the process
Spend aggregation is a multifaceted process that evolves over time. Use the data derived from supplier management and the spend analysis process to continually make improvements and hit benchmarks. Using data analytics highlights cost-saving opportunities, reveals strengths, and surfaces weaknesses within the supply chain while ensuring consistency in the purchasing process across departments or locations.
How to use spend aggregation insights to improve performance
The data in your procurement program has a lot of value regarding your company's current performance as well as ways to improve your program further. Once you have a comprehensive view of spend data, you can use the resulting insights in several ways.
Cost analysis: Aggregated spend data can help pinpoint where companies should allocate resources. Examining spend analytics across locations or departments highlights redundant subscriptions, overlapping services, and high spend outside of policy. With this information, finance and procurement teams can strategically cut costs and optimize budget allocation for improved financial health.
Vendor performance management: Looking at aggregated spend data clues companies into supplier performance by helping them compare costs, delivery times, and quality across different vendors. This comprehensive view of performance indicators empowers businesses to negotiate better terms or discounts with suppliers. Organizations can leverage the insights of company-wide spending patterns and volumes to secure better terms and pricing from the best vendors.
Budget performance improvement: Spend data across organizations helps companies refine budget and forecasting accuracy to hit essential metrics and key performance indicators (KPIs). Examining historical spending patterns and identifying consistent trends or anomalies aids businesses in avoiding financial missteps by assisting them in developing more precise budget allocations that reflect actual needs.
Deduplication: With a complete view of spending, companies can identify overlapping services or products among vendors and consolidate them under fewer suppliers. This streamlines operations by reducing supply chain management to a handful of strong relationships. It often leads to cost reduction through bulk purchasing or loyalty discounts, optimizing both operational efficiency and expenditures.
Contract compliance: By leveraging comprehensive spend data, businesses can highlight compliance issues and deviations from established policies. Detecting potential issues early on helps companies with contract management, financial policies, and regulations, thereby reducing unwanted spend and mitigating risk.
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 strategy. With Order.co, you can centralize suppliers and curate product lists via an easy-to-use ordering system that unifies purchasing. Order.co also supports simultaneous supply orders across locations, streamlines delivery logistics, and helps consolidate 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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