The Economics of Spend Management

I believe that we'll know that the Spend Management movement has succeeded when it becomes a frequent topic of boardroom conversation. But this will take more than the elevation of the Chief Procurement Officer. In my view, it will require that procurement transcend its roots as a functional area built from organizational processes, systems and best practices. Instead, Spend Management must become an economic discipline as much as a functional one. That's why I think that AMR's Mark Hillman is onto something that's very important in his brief The End of the Greenspan Era -- But Just the Beginning for Supply Chain Efficiency (free via this link to non AMR subscribers, for now).

In his write-up, Mark ties together productivity and economic growth during the Greenspan era, pointing to supply chain improvements as a driver of the booming period: "While many pundits are waxing eloquent on the passing of the Greenspan Era, the close of this period of U.S. economic history will be remembered at AMR Research for the astonishingly sustained rate of roughly 3% productivity growth from 1995 to the present. In the past 10 years, under Greenspan’s watch, supply chain process improvements and supporting technologies have come together to dramatically improve productivity and standards of living ... The effect of productivity growth on the U.S. economy cannot be understated. At a sustained growth rate of 3%, productivity doubles every 23.3 years; at a more historically normal rate of 1.0% to 1.5% productivity growth, it takes 48 to 72 years for productivity to double."

These numbers speak for themselves, but they're only a start. We need far greater economic analysis of the benefits that Spend Management can bring to fully elevate our beloved movement into the executive realm. But kudos to Mark for getting this type of analysis underway. Let's hope he -- and others -- continue to make supply chain and Spend Management an economic argument rather than a functional or technology one.

Jason Busch

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