Stop shadow spend in its tracks: insights from procurement experts

Vendr and Art of Procurement collaborated to host a webinar titled "Stop Shadow Spend in Its Tracks With Improved Data Visibility."

The webinar featured procurement experts Emily Campbell, Director of Product Design & Research at Vendr, and Nick Pinkman, Sr. Cloud Manager at Vendr.

Philip Ideson and Kelly Barner moderated the conversation, which focused on addressing the challenges of shadow spending within companies.

“Shadow spend” refers to purchases made within a company without authorization or tracking. Such purchases cause significant financial losses and compliance issues. The discussion highlighted the importance of improving data visibility to identify shadow spend. Then, the panel presented various strategies companies can adopt to manage it.

The conversation includes

• Rethinking how shadow spend can impact your company – for better and for worse
• Strategies for assessing and mitigating shadow spend
• How shadow spend can impact the procurement of cloud services

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Rethinking shadow spend: Exposing opportunities for improvement

Is shadow spending always a bad thing? In our discussion, Emily says identifying shadow spend can be a net positive. Once identified, shadow spend exposes opportunities to improve your company’s SaaS management processes.

Emily emphasizes the importance of education and awareness in managing shadow spending. She suggests using a research lens to understand the tools companies use to meet the needs of their teams. This approach can improve communication with employees within the business.

While striving for zero shadow spend is not the goal, Philip suggests companies should provide users with appropriate ways to purchase what they need.

He explains that shadow spending exists because procurement processes have not brought users value. Processes need to be more user-friendly, or else employees will bypass them.

Therefore, procurement teams need to find ways to facilitate the process for users to obtain what they require.

Mitigating shadow spending through communication

Clear communication is critical to expose shadow spending. Emily stresses the importance of a common language that focuses on real problems and opportunities, not relying on jargon.

Miscommunication can derail efforts, leading to misalignment and downstream issues. To prevent shadow spending and achieve common goals, establish a shared understanding and work together towards the same end.

Emily agrees that employees often experience frustration when they cannot buy what they need, leading them to find a roundabout way to get it.

“I think the opportunity here is to frame it from a perspective of ‘how are we serving our customers? How are we maintaining security for all of us? How are we helping with knowledge management, information management, financial management, and scalability?’” says Emily.

“Maybe we can get you that tool you want to use if we know who’s using it, why it’s necessary, and making sure we’re doing our diligence around compliance and security.”

Nick proposes that companies can comparably link shadow spending to their initiatives to reduce costs.

"Companies often struggle with getting the most value for their spending and ensuring that deployed resources are appropriately sized and discounted," says Nick.

Ultimately, framing employees as partners helps them understand the importance of compliance and security alongside cost savings.

How workflow implementation can alleviate shadow spend

The speakers delve into the benefits of using workflows in the buying process and how procurement professionals can use workflows to manage cloud and SaaS spending.

According to Emily, utilizing workflow tools or frameworks can ensure transparency in the decision-making process from the outset, helping to uphold the company's culture, philosophy, and decision-making processes. She also stresses the significance of identifying the stakeholders who require access to the data utilized in the tool.

"Workflows are beneficial because they force you to think through decisions early on and bring transparency to the process," according to Emily. "It's not a matter of making a request and getting a yes or no back; it's about transparency from the start."

Emily also points out that workflows involve considering where data comes from and who should have access to it. Finally, she clarifies that workflows provide transparency in decision-making and contract negotiations, but companies will always link workflows to their greater company values.

"Any implemented process, such as a workflow, operating agreement, or set of principles, is tied to the business's philosophy, culture, or decision-making approach," she adds.

Philip asks if workflows are standalone or integrated, and Emily explains Vendr's system of record and centralized data, as well as the need for tools to streamline manual processes.

The speakers concluded that critical operating agreements and alignment among department heads and VP-level individuals are essential for successful workflow technology deployment.

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The importance of utilizing dedicated procurement partners

Nick emphasizes having a dedicated procurement representative during SaaS negotiations, especially when purchasing cloud infrastructure. He notes that procurement heads are often hands-on during the negotiation process due to the high level of importance and spending.

"Being able to have someone from the procurement team be a representative throughout is critically important," says Nick.

He also suggests treating the negotiation process as a partnership conversation rather than a one-sided negotiation. According to Nick, cloud providers like AWS incentivize customers to save money by establishing long-term solid relationships. Cloud providers also offer incentives for higher usage, like the AWS Enterprise Discount Program (EDP).

"They know that if they want a strong long-term customer-obsessed relationship, they will need to help you be confident in your decisions," Nick says.

Nick recommends being clear about what you want and taking a partnership-level negotiation approach: "When it comes time to do these contract negotiations, it's the perfect time to bring in other conversations.”

Emily adds, “The market is getting more complicated. It’s getting more nuanced. Having people who can understand at a deep level why to negotiate one way versus another based on what you’re trying to procure, I think category expertise is critical.”

The incentives and dynamics of the market are evolving towards a service-oriented approach, which customers should consider during negotiations.

Procurement strategies and negotiating with suppliers for optimal business outcomes

Next, the team discusses procurement strategies and supplier negotiation. Emily brings up the idea of leverage and change costs when considering suppliers. Nick adds his thoughts on operational cost as a barrier to scaling projects.

He points out the difficulty of transitioning from one provider to another and emphasizes the importance of considering what technology supports the product and business the most.

Sharing his experience with approval processes for bespoke projects, Nick recommends two to three months of preparation before engaging with a cloud provider.

"Even a few percent on a couple of million a month is quite huge," he says, highlighting the importance of planning to avoid losing out on significant discounts.

According to Philip, you also need to align your procurement strategy statement with the needs of the business and technical perspectives – rather than following blindly. Consider what customers are looking for as well.

Measuring procurement success beyond cost savings

During the discussion, Emily highlights the importance of tracking various KPIs to measure procurement success beyond cost savings.

She states, "Tracking cost savings, time savings, and negotiating speed are the primary KPIs to measure procurement success."

Explore additional indicators beyond cost savings to gauge procurement success better. These include measuring overall satisfaction with procurement and determining the percentage of software or cloud infrastructure budget negotiated through procurement compared to costs discovered afterward.

Emily emphasizes the importance of destigmatizing shadow adoption and tracking its instances so companies can improve performance.

"Once we identify shadow spend,” she asks, “can we look across the business? How many different instances can we find?"

Regarding lagging indicators, Emily recommends tracking changes over time, building stronger relationships, and negotiating better deals resulting from strength and coordination.

"Then,” she concludes, “ultimately, are we able to negotiate better deals due to that strength and coordination on our end when we're talking to the supplier."

Final insights and strategies for managing shadow spending

Managing shadow spending is crucial for companies to avoid significant financial losses and compliance issues.

Addressing shadow spending in cloud services is essential, where unauthorized or untracked purchases can result in unforeseen costs and security risks. Companies must implement effective cloud governance frameworks and negotiate contracts with cloud service providers to manage shadow spending successfully.

Moreover, companies must learn from their shadow spending and measure procurement success beyond cost savings. Utilizing dedicated or outsourced procurement partners, negotiating with suppliers, and implementing efficient workflows are among the strategies that can help companies manage shadow spending and improve their procurement practices.

Businesses must take proactive steps to manage shadow spending and learn from it to optimize their procurement practices continually. The insights and strategies shared in the webinar are invaluable in mitigating the risks associated with shadow spending and ensuring business success.

How Vendr can help expose and mitigate your shadow spend

Are you concerned about shadow spending within your company? Vendr can help you identify and manage shadow spending to save your company from significant financial losses and ensure compliance. With Vendr's procurement platform and expert team, you can gain improved data visibility and eliminate unauthorized or untracked purchases.

Vendr's dedicated procurement partners can provide valuable insights and strategies to mitigate shadow spending, including cost-optimizing communication, efficient workflows, and negotiating with suppliers.

Additionally, Vendr can assist you in managing your cloud services procurement and help you negotiate contracts with cloud service providers to avoid unforeseen costs and security risks.

Don't let shadow spending go unnoticed in your company. Get started with Vendr today to learn how their services can help you expose and mitigate your shadow spending.

Note: Some quotes have been edited for clarity.

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