Spend leakage
Spend leakage is the gap between savings negotiated in contracts and savings actually realized on invoices. It occurs when purchases bypass negotiated agreements, suppliers invoice above contracted prices, rebates and discounts go unclaimed, or scope quietly expands without repricing. Because leakage hides between contract signature and payment, it stays invisible to teams that measure negotiated savings and stop there.
Examples
Price creep on a casting: A contract fixes an aluminum housing at $11.40 through December. In March the supplier starts invoicing $11.92, citing alloy costs, and AP pays because the PO was raised at catalog price. Eleven months and 85,000 units later, the leak totals $44,200 on one part number.
Unclaimed rebate: A fastener agreement pays a 2 percent rebate above $1.5M in annual volume. The company spends $1.9M but never submits the claim, forfeiting $38,000. Nobody owned the calendar reminder.
Off-contract drift: After negotiating bearings at 9 percent below market, plant buyers keep ordering 30 percent of volume from the old incumbent at old prices, leaking roughly $87,000 of a promised $290,000 in year-one savings.
Definition
The uncomfortable arithmetic: sourcing reports $5M in negotiated savings, finance finds $2M in the budget, and nobody can explain the difference. The missing $3M leaked. Some left through maverick spend, buyers ordering off-contract from whoever answers fastest. Some left through price creep, where a supplier invoices $4.38 against a contracted $4.20 and 600 invoices clear before anyone checks. Some left through unenforced terms: rebate thresholds hit but never claimed, early-payment discounts forfeited, tooling amortization charged past its end date.
Leakage persists because the contract and the invoice live in different systems owned by different teams. Sourcing closes the deal and moves on; accounts payable matches invoice to purchase order, not invoice to contract. Closing the gap takes line-level price variance checks against contracted prices and a contract compliance owner with the authority to chase discrepancies.
Measure it as the spread between negotiated and realized savings, tracked through savings realization reporting, and treat rising leakage as a control failure rather than bad luck. Direct-materials teams use LightSource to compare invoiced prices against quoted and contracted prices line by line, which is where most leakage first becomes visible.
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