Optimizing Addressable Spend: Ways to Make the Most Out of Every Dollar

In this post-pandemic inflationary era, it has become imperative for procurement teams to manage costs without impacting value delivery.

One effective way, as seen during the pandemic, is taking steps to optimize addressable spend – the amount available to cover operating expenses and investments.

Optimizing this spend is an effective way to increase the bottom line and to make sure the business is making the most out of every dollar.

What is Addressable Spend?

Addressable spend covers both your current and future spend and is used to fund anything – from marketing campaigns to R&D activities. You can maximize this addressable spend by knowing where and how to allocate your resources.

Addressable spend is of two categories: discretionary and non-discretionary spend.

When you are doing discretionary spending, you spend on a specific project while non-discretionary spending is already committed to an existing project.

According to a recent survey by Procurement Leaders commissioned by GEP, 75% of the respondents said their organization will aim to keep higher levels of inventory in 2023 than it did three years ago, increasing costs.

Also read: CPO Compass 2023

Benefits of Maximizing Addressable Spend

• It ensures that the money is used in the most efficient and effective way possible – where to invest resources to maximize returns. You'll be able to allocate funds to projects will give you an edge over competitors.
• It also reduces risk – by avoiding wasting money on projects unlikely to generate returns. You make informed decisions about where to allocate funds in the future to minimize risks.

Also read: 2023 GEP Spend Category report

3 Steps to Manage Spend Better

• Create a budget and track spending: This will give you a better understanding of where your money is going and allow you to identify potential areas of waste. You will be able to create realistic goals for how much money you can afford to spend on a given initiative.
• Prioritize initiatives on expected returns: By allocating resources to the most profitable endeavors first, you’ll ensure your addressable spend is being used in the most effective way possible.
• Look for ways to reduce your costs and increase efficiency: This effort can include anything from finding low-cost suppliers to streamlining operations.

Leveraging Best-of-Breed Software and Automation

Latest software can help you track and optimize your spend. For example, there are budgeting and forecasting tools to track your spending and identify potential areas of waste. There are solutions to analyze your data and identify trends to optimize your addressable spend.

Software also automates certain aspects of spend management. For example, automation tools can streamline purchasing process, allowing you to quickly make purchases and track spending. The tools also send reminders to ensure spending is within budget and allow you to easily make adjustments.

Also read: Spend Analysis: How To Get It Right

Conclusion

Making the most out of the company’s addressable spend can be a powerful tool procurement teams to deliver value with keeping cost under check.

By understanding what addressable spend is and taking steps to maximize it, you can ensure that you are providing more bang for the buck. And the smartest way to achieve this is by deploying best-of-breed spend management and automation solutions.

Learn more about how GEP can help procurement teams optimize spend.