Managing organizational spend, especially across multiple departments and locations, is no easy feat.

Analyzing who you’re spending money with, identifying trends and anomalies, and managing contracts is time-consuming and challenging in and of itself.

Now add the need to consolidate purchases, identify cost-saving opportunities, and build supplier relationships beyond transactions, and you have a mammoth task.

That is exactly what spend aggregation is about.

In this article, we’ll explain this practice a bit more, analyze how you can benefit from implementing it, and what tools you can use to turn it from a challenge into a breeze.

Let’s dive right in.

What Is Spend Aggregation 

A lack of visibility into company expenditures, maverick spend that’s gotten out of control, and a procurement function that is less than efficient—are some of the issues organizations are struggling with.

Those are the issues that spend aggregation can help minimize.

Spend aggregation is all about combining the purchases from across the organization and working with fewer suppliers in order to get the best deals and reduce the costs associated with spend management.

Illustration: Veridion / Quote: Order.co

Let’s say an organization has multiple offices all over the country, with each location responsible for purchasing its own IT equipment.

Chances are that they’re going to end up purchasing equipment from different suppliers, based on what each location believes is the best choice for them. 

And you may think that, as long as all the computers and printers work as they should, this isn’t a big deal.

But in reality, this organization is:

• dealing with a fragmented procurement process,
• missing out on bulk discounts, and
• handling a bigger administrative workload than needed.

You have to admit that this is a big deal after all.

If, however, the organization chooses to consolidate the purchasing process and minimize the number of suppliers for IT equipment, these issues become a thing of the past.

That is the power of spend aggregation. 

Benefits of Spend Aggregation In Procurement 

Aside from the fact that it can help you mitigate the issues we just mentioned, aggregating spending within your organization carries a plethora of other benefits.

Let’s explore them in more detail.

Optimizes Organizational Spend 

For starters, spend aggregation can help your organization optimize the way it spends money, minimizing wasteful spending and maximizing the bottom line in the process.

When your procurement activities are centralized instead of siloed, it becomes easier to consolidate your purchases and negotiate better deals with a select few suppliers.

Tehseen Ali Dahya, former President and CEO of Verian Technologies, a provider of purchase-to-pay solutions, explains that further: 

Illustration: Veridion / Quote: Inbound Logistics

So the bigger the company spend, the bigger the benefits of aggregating it. 

But here’s the catch: if you want to reap this benefit, you first need to have complete visibility of the spending activities across your entire organization.

As it turns out, this is often easier said than done.

According to a 2021 study commissioned by Oversight, more than 50% of the surveyed finance and procurement leaders report that the office of the CFO doesn’t have the insights into spending necessary to optimize it. 

Illustration: Veridion / Data: Oversight

On top of that, only 28% of them say that their organization has a single view of all of their external spending.

These numbers tell us that it is exactly this first, key step—gaining visibility into the organization’s spending patterns—that poses a big challenge on the path to successful spend aggregation.

Luckily, the solution is pretty straightforward: investing in a spend management solution.

You’ll be able to identify money-saving opportunities only when you have a single, comprehensive view of spend across all the departments and locations. 

And when you think about it, it makes perfect sense.

After all, how can you identify which supplier of office paraphernalia offers the best value for money and negotiate a bulk discount with them if you don’t even know how many such suppliers different departments are purchasing from?

Streamlines Logistics 

It’s no secret that decentralized purchasing can give individual departments and locations bigger autonomy over purchasing decisions and make the overall purchasing process more efficient.

However, it can also lead to issues such as fragmented logistics.

When individual departments purchase the same sort of goods from different suppliers, you get unnecessarily high shipping costs and uncoordinated delivery schedules.

Here’s another example to paint a fuller picture of the financial ramifications this can cause.

A chain of restaurants might be preparing to launch a new menu item for which a special blend of spices is key.

Some locations procure the necessary spices from South America, whereas others get them from India.

But, due to the Red Sea crisis, the locations getting their spices from India are experiencing high prices and delivery delays. 

Source: The Hindu Business Line

This, in turn, will make it impossible for all locations to launch the new dish at the same time, disrupting the chain’s marketing strategies and leaving a significant amount of money on the table.

Now, don’t get us wrong: we’re not saying you should avoid supplier diversification.

In fact, having a diversified supplier network is a great strategy for mitigating procurement risks.

However, in our example, the different locations aren’t using different suppliers to minimize the blow of potential ingredient shortages.

Rather, they’re operating as individual entities, each with their own set of suppliers and without a top-level strategy that will enable them to work together in a logistics-related crisis.

This is another instance where spend aggregation can save the day.

When you take a holistic approach toward procurement across all departments and locations within your organization, the challenges that come with the delivery of goods and services are minimized significantly.

In the end, not only will you know that the quality of a specific type of part or product is consistent across the board, but you will also ensure a better price and timely delivery across locations.

Helps Build Stronger Supplier Relationships

We know it is more difficult to build deep connections with suppliers if you’re working with thousands—or even tens of thousands—of them.

Luckily, working with tens and hundreds of thousands of suppliers seems to be the norm only for giants like Procter and Gamble and Walmart.

This number is usually significantly lower for average companies. 

Illustration: Veridion / Data: FigBytes

This is not to say that companies should start increasing the number of suppliers they work with in order to meet this average. 

We’re just saying that it is easier to build strong relationships when there are less of them.  

It appears that many companies are becoming aware of the importance of prioritizing good supplier relationships over the sheer quantity of suppliers.

This was certainly the case for CIRCOR, an industrial valve manufacturing company from Massachusetts. 

Sumit Mehrotra, their former VP of global supply chain, explains that the company had 5,011 suppliers when he joined in 2013.

By 2014, thanks to the efforts to consolidate vendors, they managed to downsize to about 3,752.

On top of that, CIRCOR aggregated their spend data that was scattered across more than 18 ERP systems the company was using.

This provided them with a clear view of spend and helped them develop strategic partnerships with key suppliers. 

Mehrotra explains: 

Illustration: Veridion / Quote: Supply Chain World Magazine

This example underscores just how beneficial spend aggregation can be for establishing strong, mutually beneficial relationships with your suppliers.

So, take a good look at who your organization is spending money with, and weed out any suppliers that aren’t contributing to its success.

That way, you’ll know you’re working only with consistently great vendors, and they’ll know that they can count on your business, inspiring them to offer you the best conditions.

Using AI for Spend Aggregation

Throughout this article, we mentioned that consolidating spend data is the first step toward successful spend aggregation.

Naturally, this poses the question of how your organization can do that in the most accurate and efficient way.

The answer is clear: with the help of artificial intelligence (AI).

The good news is, AI goes beyond just consolidating and classifying spend data—it can also help you predict future spending patterns and risks, as well as detect any irregularities.

Let’s explore how.

Spend Data Consolidation 

This is the process of collecting, cleansing, and categorizing spend data.

As such, it is fundamental to spend aggregation, providing you with a holistic view of the organization’s expenditures.

It serves as the foundation for successfully consolidating all vendor transactions.

According to the Capgemini Digital Procurement Research for 2020-2021, 82% of the digital procurement solutions included in their study offer the feature of spend data consolidation from multiple sources.

However, at the time of the research, less than 50% of them could automatically organize spend data into categories using AI and ML.

Illustration: Veridion / Data: Capgemini

KPMG’s more recent survey of procurement and outsourcing executives has revealed that 96% of them have already made progress toward implementing generative Al in their operations.

This growing importance of AI indicates that AI and ML-powered spend data consolidation and categorization are bound to become core functionalities.

And for good reason, too.

Relying on trained AI algorithms to handle the time-consuming and error-prone task of gathering, consolidating, and classifying data from all the systems your organization is using will leave you and your procurement team with more time for value-added tasks.

What’s not to love about that?

Predictive Analytics

You can also use AI and ML to make your spend aggregation more strategic and ensure you’re spending money only with the most reliable suppliers.

If you combine historical spending data and trained AI algorithms, you can predict potential supplier-related risks before they have the chance to become a real issue.

That’s what Nina Leibel, Senior Manager, and Dario Kühl, Senior Consultant at Capgemini Invent Germany think.

Illustration: Veridion / Quote: Capgemini

That way, your procurement team can react to and mitigate certain risks in a timely manner, ensuring that your list of suppliers is limited only to the top-performing ones.

One AI-powered tool that can help you with that is our very own Veridion.

Source: Veridion 

Veridion uses AI-fuelled data gathering methods to provide you with always fresh and accurate data on millions of suppliers globally.

On top of that, it allows you to define your own risk factors.

This means that, as soon as there is an unwanted change to your suppliers’ business activities, you will be the first to know and ready to react to it immediately.

Source: Veridion 

AI-powered tools such as Veridion are essential for risk prediction and prevention, ensuring that your spend is limited only to the suppliers that don’t pose a risk to your organization and its financial health.

Detection of Anomalies In Spend

Lastly, AI is a powerful ally when it comes to detecting and preventing anomalies in your organization’s spend.

Whether that’s maverick spend, fraud, or inconsistencies in spend data, AI can help you catch and correct such issues on time.

Let’s take maverick spend as an example, since controlling it is crucial for successful spend aggregation.

78% of experience and compliance leaders say that employees partake in maverick spend because they believe that their purchases are too small to have an impact.

Now, multiply that action across thousands of locations within your organization. It adds up. 

Source: Veridion 

You can imagine the chaos that would ensue, which once again highlights the importance of spend aggregation.

This is, again, where an AI-powered tool like Veridion comes in handy.

Your procurement team doesn’t have to jump through hoops to figure out whether you already have a supplier for a specific type of product, or who they are.

They can simply search within existing suppliers, avoiding unauthorized spend and the additional cost of onboarding new suppliers.

Source: Veridion 

And if spend anomalies are a particularly frequent issue at your organization, you may want to consider investing in a spend audit solution.

Such tools often use AI to detect spend anomalies, helping you prevent fraud and other irregularities.

Source: AppZen

Overall, leveraging the power of AI will help you make sure that your spend aggregation efforts are based on accurate spend data, allowing your organization to reap all the benefits of this practice.

Conclusion 

The goal of this article was to give you an overview of everything you need to know about spend aggregation in procurement—from what it entails and how it can benefit your organization, to how you can use AI-powered tools to make the most of it.

We hope we have achieved that goal.

Spend aggregation can be a powerful tool for making your procurement function more efficient, your spend more transparent, and your supplier relationships stronger than ever.

Yes, implementing this practice will require stakeholder buy-in and investing in tools that will help you make sense of the spend data.

But once you start reaping the benefits of spend aggregation, it will all be worth the effort.