The Monthly Metric: Structured Spend

Spend analytics show more about a procurement organization than just finances — they can reveal the level of commitment to diversity, the efficiency of logistics operations and how well it manages supplier relationships.

This month’s edition focuses on another such metric, structured spend, which is defined as the level of spend that goes through company- or supplier-hosted catalogs. High performance in structured spend is an indication an organization has more seamless purchasing and is limiting rogue (or maverick) spend. Additionally, it signals the organization has synergy with vendors to enable agility not only when new products and services are introduced, but also in times of supply disruption.

“It’s a great indicator of how companies continue to drive more value out of technology solutions,” says Michael Van Keulen, CPO at Coupa, a San Mateo, California-based business spend management technology platform. “Of course, it starts with business processes and people. It shows a level of maturity for an organization.”

Structured spend is among the metrics Coupa includes in its annual Business Spend Management (BSM) Benchmark Report. The benchmark percentage among the top quarter percentile of Coupa’s customers, which after a boost in 2020, has stayed lofty, indicating that progress was not derailed by the coronavirus pandemic.

That, Van Keulen adds, is an encouraging sign for the coming year, as geopolitical and climate disruptions could lead to increasing levels of supply chain turbulence. “You need to be able to anticipate, react and have good supplier relationships,” he says. “If you don’t, you’re just waiting for a freight train to hit you.”

Meaning of the Metric

Company- and supplier-hosted catalogs — also known as “punch-outs” — are B2B procurement platforms that allow customers to browse and purchase without leaving their own digital infrastructure. In addition to B2B integration, such catalogs enable real-time product and service updates, centralized purchasing and faster order processing.

The process drives control and efficiency, with buyers more aware of product availability and shipping costs, They can also avoid proliferation of items from ad-hoc purchases, limiting rogue spend. “This percentage is relevant and important because it reflects those channels and suppliers that we have agreements with and have vetted from a compliance point of view,” Van Keulen says. “So, those orders go to the right supplier or suppliers.”

According to Coupa’s 2023 benchmark, 67.6 percent of its highest-performing customers’ spend is structured. That’s up from 53.7 percent in 2019; the figure increased to 68.3 percent the following year and has remained in that neighborhood since.

Catalog or punch-out purchases are typically tail spend, Van Keulen says: “Laptops, peripherals and MRO, the kind of stuff that could amount to a significant amount of spend if you’re not careful,” Van Keulen says.

Technology platforms enable procurement organizations and suppliers to integrate digital infrastructures for seamless purchasing and order fulfillment, Van Keulen says. Coupa recommends suppliers build their catalogs with the most up-to-date and highest-quality data: When buyers can find standard items with clear descriptions, specifications and pricing information, they are less likely to make custom orders that can create more complexity.

“Companies that make investments in best-in-class solutions are also often the companies that have the right infrastructure, operating model, governance and people,” Van Keulen says. “Sure, they invested in technology. But technology without the right people and without the right operating model is like an idle sports car. If I don’t know how to drive it, if I don’t have the right mechanics, it doesn’t matter how great of a car it is.”

COVID-19 Lessons for the Future

As with on-contract spend, the pandemic did not take a bite out of the structured spend benchmark percentage. This indicates that procurement organizations — honoring the low risk appetites at their companies — maintained spend focus, even as they scrambled to find supply.

In a case study, a Coupa-hosted catalog helped a property management software company centralize procurement intake and develop better spend visibility and compliance. The more standardized and streamlined processes were especially valuable when COVID-19 sent employees working remotely around the country.

“Those metrics have not deteriorated even during times of high stress in the supply chain and in times that were unprecedented, a word we’ve used a lot for a few years,” Van Keulen says. “To me, that’s a great indication that you’re also managing the relationship with your suppliers. You understand your supply chain and you have built optionality in your supply chain. You may not be doing business with the same suppliers, but you still had contractual relationships and could pivot more easily.”

Procurement organizations should continue to apply those pandemic lessons, Van Keulen says. A high level of structured spend is a sign of maturity and agility — characteristics that are must-haves in a supply chain environment that is likely to remain unpredictable.

“I’m a glass half-full person, but I believe 2024 and 2025 will be interesting years, possibly with more disruption than even now,” Van Keulen says. “We’ve spent the last three years honing our ability to react quickly. So, you need to have that ecosystem where you can very quickly change your governance model, change your business rules, find alternate suppliers and change catalogs if you need to.”

He concludes, “I can’t influence the social and geopolitical climate, what I can control is my own four walls and ensure we have the agility and resilience to react to whatever scenario that is thrown at us.”

To suggest a metric to be covered, email me at dzeiger@ismworld.org.

(Image credit: Getty Images/NicoElNino)