As a business grows, procurement often becomes more complex, with spending becoming fragmented across departments, business units, locations, categories, and suppliers.

To improve spend visibility, control costs, and streamline procurement processes, businesses can engage in spend aggregation—a strategic approach to centralizing and consolidating procurement efforts.

The six steps covered in this article will help you implement spend aggregation effectively, enabling your organization to optimize procurement and maximize cost savings. 

1. Centralize All Procurement Data

The first step in spend aggregation is to ensure all procurement-related information is available in one easily accessible place.

Why is centralizing procurement data important?

Because, simply put, you can’t improve what you can’t see.

More precisely, having a central database that integrates diverse sources of procurement data—such as requisitions, approvals, purchase orders, and supplier invoices—enables your team to:

• gain comprehensive spend visibility across different categories, suppliers, and locations, 
• identify cost-saving opportunities, redundancies, and areas for consolidation, 
• bring more spend under management, and
• ensure compliance with procurement policies.

Note that procurement data centralization also directly tackles the top spend visibility issues cited by companies in a SpendHQ survey:

Illustration: Veridion / Data: SpendHQ

These problems are effectively addressed because the process of centralizing procurement data involves:

• collecting, cleansing, and auditing procurement data,
• integrating internal and external data sources into a centralized system, and
• establishing standardized data formats and collection protocols.

Ultimately, this enables you to generate accurate, real-time reports, analyze data for insights and forecasts, and make better-informed procurement decisions.

Of course, it’s clear that achieving this level of data centralization requires the use of one or several procurement automation tools designed for this purpose.

For instance, if your company is using one or more enterprise resource planning (ERP) systems, their providers often also offer procurement-specific solutions.

A prime example is SAP Ariba.

Aside from integrating with SAP ERP and other systems, this all-in-one procurement management platform centralizes data through its Central Procurement solution.

Source: SAP Ariba

SAP Ariba consolidates procurement data into a single system and provides a range of other automations related to:

• procure-to-pay processes,
• supplier management,
• contract management, and
• spend analysis.

Of course, there are other notable procurement management platforms that will also centralize your data from various sources, such as Coupa, Procurify, or ProcureDesk.

Additionally, for large procurement datasets, you might use the services of cloud-based data warehouses and data integration tools.

Lastly, truly centralized procurement data also implies integration with external data sources, such as big data platforms for supplier discovery, market intelligence, and risk management.

Regardless of the complexities involved in procurement data centralization and consolidation, this is a crucial step toward spend aggregation. 

It enables your team to gain full spend visibility and identify cost-saving opportunities through organizational improvements and supplier consolidation efforts.

2. Consolidate Your Supplier List

Now that your procurement data is centralized, it should be much easier to categorize and aggregate spend.

From there, you’ll be able to identify redundancies, inefficient processes, and overlapping suppliers that can be consolidated.

For example, spend analysis can reveal that some or all of your company’s departments and locations purchase their own office supplies from various vendors.

This is a typical situation where office supplies purchases were never centralized or brought under full procurement control, whether because it was deemed unnecessary or impractical.

However, supplier consolidation in such indirect spend categories can bring about many advantages, as this case study shows.

In a nutshell, Guild Mortgage, an independent mortgage lender, centralized its office supplies purchases, reducing the number of suppliers from 20 to just 1.

Illustration: Veridion / Data: Staples

This enabled employees to order office items and materials from one place, thereby reducing not only the procurement costs but also the number of received invoices and the amount of administrative work.

So, what are the steps to consolidating your supplier list?

After analyzing procurement data, your suppliers should be grouped into different spend categories and their performance should be benchmarked.

This benchmarking should compare your suppliers in each aggregated category between one another and against the prevailing market conditions. 

To do so, you’ll first need to ensure that the data you have on your current suppliers is accurate and up to date.

While supplier questionnaires and internet searches can help achieve this, such methods are often time-consuming and error-prone.

However, the supplier benchmarking process can be streamlined with the help of big data tools like our Veridion.

Source: Veridion

Veridion gives your team access to a global, weekly-updated database of suppliers, along with advanced search functions.

One of those functions, our Match & Enrich API, allows you to enrich your supplier profiles with the latest data, ensuring no crucial supplier info slips through the cracks.

Likewise, Veridion provides the freshest data on other eligible suppliers, allowing you to benchmark your current suppliers against their market counterparts.

Veridion can also be used for super-fast supplier discovery, risk management, and supplier performance monitoring.

Having internal and external sources of supplier data enriched, updated, and aligned allows you to more accurately group suppliers based on:

• your established spend categories, and
• their already benchmarked performance. 

From there, you can shortlist the best suppliers, and negotiate new, more favorable contracts with them.

Ultimately, spend aggregation enables data-driven supplier consolidation, allowing you to reduce administrative costs and enhance your bargaining power by channeling your spend to fewer, higher-volume suppliers.

3. Streamline Communication Across Departments

Spend aggregation is not a one-time initiative.

It’s a continuous process that requires close collaboration and cooperation among different teams, departments, locations, and stakeholders.

This is why streamlined, cross-departmental communication is an essential component of effective spend aggregation.

While closely related to procurement data centralization, it extends beyond that.

A Harvard Business Review survey found that companies with effective communication in procurement achieve, on average, 53% more cost savings.

Illustration: Veridion / Data: Workday

Generally, such enhanced savings stem from your procurement team having:

• clear procurement objectives,
• well-categorized spend data and supplier lists, 
• easy access to accurate and updated procurement data, and
• effective communication with other departments and key stakeholders.

When these elements are in place, procurement professionals can leverage insights from other departments to improve procurement efficiency and achieve higher cost savings.

So, how can you facilitate cross-departmental communication?

First and foremost, by encouraging employees to share their insights, collaborate with procurement, and suggest potential cost-saving initiatives.

Beyond that, establishing clear communication channels between procurement and other departments is key.

For this purpose, you can consider using company-wide collaboration tools like Microsoft Teams or Slack.

Source: Slack

Such tools allow your procurement team to easily communicate with other departments and receive support when needed. 

Of course, procurement management solutions like Coupa and Jaggaer also provide their own team communication features, as do project management tools like Asana and Trello.

However, not all company departments nor external stakeholders will have access to such systems.

Therefore, it’s more effective to use communication platforms where both internal and external users can be invited, ensuring that all relevant parties can collaborate seamlessly.

Overall, more efficient communication leads to more effective spend aggregation and supplier consolidation, which in turn drives greater procurement cost savings.

4. Work On Mitigating Third-Party Risk

Once you’ve aggregated your spending with fewer suppliers, those select suppliers are going to become even more strategically important.

More precisely, you need to carefully manage and mitigate diverse risks associated with these third parties.

Naturally, this includes both:

• potential supply chain disruptions due to issues such as a supplier’s financial instability or unexpected factors affecting their performance, and
• potential reputational damage and legal liabilities related to a supplier’s non-compliance with regulations or standards.

For example, if a key supplier fails to comply with your company’s environmental, social, and governance (ESG) standards, this can have disastrous reputational and financial effects.

To avoid these risks, it’s crucial to assess both new and existing suppliers against them.

This is where Veridion’s comprehensive supplier database and search capabilities enable you to proactively address these risks and drive sustainable sourcing decisions.

Source: Veridion

You can use Veridion to find and assess suppliers against a range of criteria, including their fair labor and environmental sustainability practices.

Other actions aimed at mitigating third-party risks include:

• utilizing tools like risk management software and data analytics platforms,
• conducting thorough supplier risk assessments, including audits and on-site visits,
• developing contingency plans for key suppliers, and
• continuously monitoring supplier performance and risk factors.

To recap, proactively mitigating third-party risks is a crucial step of successful spend aggregation.

When risks are well-managed, this ensures the reliability and sustainability of your consolidated supplier base, protecting your company from potential disruptions, compliance issues, and financial or reputational damage. 

5. Monitor Supplier Performance

Successful spend aggregation depends not just on selecting the right suppliers and managing associated risks, though.

It also hinges on ensuring that these suppliers continue to perform optimally over time.

Since spend aggregation typically results in fewer suppliers, the performance of each one becomes increasingly critical to the overall success of your procurement strategy.

Therefore, once spend is aggregated and the supplier list is consolidated, it’s essential to monitor whether these key suppliers consistently meet the agreed-upon standards.

While supplier performance monitoring is a complex subject with many variables, it essentially involves:

• establishing key performance indicators (KPIs) for suppliers,
• regularly reviewing and analyzing supplier performance data, and
• providing feedback to suppliers and addressing any performance issues.

To achieve this, you can use a range of standalone software tools (or features of your all-in-one procurement solution), including:

• contract management,
• KPI tracking via supplier scorecards,
• supplier relationship management (SRM). 

Here’s an example of one solution with these functionalities.

Source: GEP Smart

Such tools can help you track metrics like delivery times, product quality, and compliance with contracts, enabling your team to identify and address any issues that arise.

Additionally, they allow you to automate many performance-monitoring tasks, such as generating reports, setting alerts for deviations, and scheduling regular performance reviews.

All in all, successful spend aggregation relies on ensuring that your consolidated suppliers consistently meet the established standards. 

For this, leveraging supplier performance monitoring tools and processes is crucial.

6. Continuously Refine the Spend Aggregation Process

Spend aggregation is a fluid process that requires ongoing adjustments and refinements.

For instance, a supplier might discontinue providing certain items that were previously grouped into one spend category.

This disruption could necessitate finding alternative sources or revising your spend categorization.

Similarly, a new market player may offer to consolidate several spend categories under one roof, presenting an opportunity to further simplify your procurement process and potentially secure better pricing or terms.

These examples illustrate why it’s essential for your spend aggregation strategy to adapt in response to evolving supplier dynamics and market conditions.

To do this, you can take advantage of procurement analytics tools and other software solutions we mentioned.

Source: Pivot

Such tools should allow you to regularly conduct spend analysis and re-evaluate spend categorization.

Additionally, they should provide real-time insights into spend patterns, supplier performance, and market trends, enabling you to make informed decisions and swiftly adapt your spend aggregation process. 

Other measures you can take to ensure continuous refinement of spend management and procurement processes and outcomes include:

• soliciting feedback from company stakeholders and suppliers, and
• implementing improvements driven by data and feedback.

By leveraging the right tools and adopting these proactive measures, you can ensure that your spend aggregation approach remains effective and aligned with your organization’s evolving objectives.

Conclusion

Having gone through these six steps, it’s clear that spend aggregation is a dynamic, ongoing process that requires a strategic approach.

It starts with data centralization and moves through supplier consolidation, risk management, and continuous refinement.

Of course, each of these steps demands careful planning and execution, with the flexibility to adapt to changing circumstances. 

By leveraging the right tools and methodologies, your organization can achieve greater spend visibility, optimize procurement efficiency, and realize significant cost savings.