Non-addressable Spend

Non-addressable spend in procurement refers to the portion of an organization's total spending that cannot be influenced or controlled by the procurement team. This type of spend typically includes costs that are either fixed, unavoidable, or outside the scope of procurement’s direct control.

Examples of Non-Addressable Spend:

• Salaries and wages: Employee compensation cannot typically be negotiated by the procurement team.
• Taxes and regulatory fees: Mandatory government charges or fees that must be paid, regardless of supplier negotiation.
• Internal transfers or cost allocations: Costs allocated between departments or internal teams that don’t involve third-party suppliers.
• Debt or interest payments: Financial obligations like loan repayments.
• Legacy or long-term contracts: Spend under existing contracts that are fixed and cannot be renegotiated until they come up for renewal.

Why Non-Addressable Spend Matters:

While non-addressable spend cannot be directly impacted by procurement teams, understanding and categorizing it helps:

• Accurate spend analysis: Differentiating between addressable and non-addressable spend allows for more focused efforts on cost control.
• Focus on strategic sourcing: Procurement can direct resources and attention to areas that are within their control (addressable spend) for maximum savings and impact.
• Improved budgeting: Helps ensure that non-addressable costs are accurately accounted for in financial planning.

Non-addressable spend is typically excluded from procurement savings targets, as it is outside the team’s ability to influence directly.