Spend Leakage 

Spend Leakage 

There are many ways that organizations can lose money needlessly, and one of them is through spend leakage. Spend leakage occurs when an organization pays more for goods or services than it should have due to inefficiencies in the procurement process. The term “leakage” is used because it suggests that money is literally leaking out of the organization – and that’s exactly what’s happening.

Organizations can experience spend leakage in a number of different ways. For example, they may be paying too much for the goods and services they purchase due to poor negotiating skills on the part of their procurement staff. They may also be suffering from supplier markup, which occurs when suppliers inflate prices knowing that the buyer is unlikely to shop around for a better deal. And finally, they may simply be paying too much because they don’t have visibility into their overall spend , meaning they can’t identify areas where they could get a better price.

The first step to reducing or eliminating spend leakage is to gain visibility into your organization’s overall spending. This can be done through a number of different methods, including data analytics, supplier relationship management (SRM) software, and good old-fashioned communication between procurement and finance. Once you have visibility into your spending, you can start working on identifying areas where you could get a better price – and then make sure you get that better price by negotiating effectively with suppliers.