Of all the levers that can be used in IT sourcing and negotiation, a company’s total spend with a vendor is one of most powerful. But, while gathering an inventory of current costs paid to a vendor is one of the first steps in managing IT and telecom, it’s not always easy nor is it always accurate.
In most cases, whether it’s procurement or IT doing the research, this information is ascertained from a select set of contracts or invoices. Or an enterprise may rely on the supplier themselves to report historical purchases. But this often only paints a partial picture of the total spend.
Best practice in managing IT/telecom spend is to have visibility to 100 percent of costs with a supplier or within a specific category. One way to achieve this is to request an annual spend-by-vendor report from finance. This report is generated from the accounts payable system – so unless a supplier is paid in cash or through an individual's expense reimbursement, it’s the most accurate way of knowing how much any one supplier was paid in a given time period.
If you’re confident that all IT costs are allocated to specific general ledger codes, then the report could be limited to those few codes. However, especially with rogue departmental IT spend on the rise, it’s a good idea to run the report against all suppliers. Unless it is a very large enterprise, most open-ended spend-by-vendor reports will include a few thousand vendors. Dumping them into a spreadsheet and sorting from highest to lowest is an easy way of then picking out the suppliers in the IT category.
If there is a large discrepancy between what finance reports as being paid to a specific vendor and what sourcing or IT has included in their inventory, then more research is warranted and any near-term transaction with the vendor should be paused while you research the findings. If the spend reported by finance is close to the expected value, then the sourcing engagement can continue with confidence that procurement/IT has full visibility of the spend being managed.
Remember - spend volume equals leverage, and failure to get crystal clear visibility into your spend volume is akin to leaving money on the table.