What are the best methods of capture in a Spend Analysis Programme?

This is an excellent question that is presented by many procurement analysts to kick start their respective programmes. There is a wide variety of opportunity analyses that can be conducted directly within a good spend analysis tool. A large proportion of procurement analysts following a similar path time and time again with an overarching theme of “start with the basics and generate quick wins”. So therefore here are some topics which should be considered in any spend programme.

1. Identify Leverage with Existing Suppliers

As part of any spend programme.  One should commonly include supplier linkage data (parent/child) which identifies corporate families. This is as basic as it gets – gaining an understanding of which suppliers are owned by the same parent entity. In many cases existing agreements can be consolidated and renegotiated with the parent entity. One of the best methods to aid you in this programme is to ensure that all your suppliers are linked to Dun & Bradstreet and all supplier/vendors have a Duns number.

2. Supplier Rationalization

This is a straightforward analysis commonly using the Pareto principle (80/20) that highlights how many suppliers comprise 80% of spend for each category. Using this type of analysis you can quickly identify the categories where there are too many suppliers comprising the bulk of  spend. These categories are then flagged for “further detailed analysis”.

3. Preferred Supplier Spend

Almost all organizations have some sort of preferred supplier list either managed in a procurement system or sitting in a spreadsheet on someone’s computer. Including this information in the spend analysis application will provide immediate visibility into two areas; 1) categories where preferred suppliers are in place but not in use and 2) categories where no preferred supplier exists, thus highlighting a potential sourcing opportunity.

4. Spend by Buying Channel

One of the benefits of spend analysis is that it helps to identify process inefficiencies and maverick spend. The buying channel, or source system, identifies where each transaction originated. Companies with procurement systems in place can quickly identify business units/individuals that are circumventing existing processes. Driving spends towards approved buying channels will improve overall controls, yield better compliance, improve data quality, lead to faster sourcing cycles, provide term discount opportunities and reduce A/P costs associated with cheque requests. It’s true, many of these or not tangible savings, but substantial benefits nonetheless.

5. Purchase Price Variance

“Are we buying the same items across our locations and paying different prices?” This should be one of the first areas procurement personnel look – generally there will be some immediate wins. By including line item level information (with associated parts/items if applicable) will quickly enable you to zero in on these opportunities.

6. Sourcing Compliance

This type of analysis begins to move away from the basic spend analysis towards sourcing execution management. At this stage one should use the spend analysis application to identify sourcing and/or savings opportunities and sourcing initiatives that have been completed – i.e. we have sourced a category and a new contract is in place. While there are numerous areas associated with compliance, we can start with the basics. Including our contract award information in our spend application will unlock the ability to manage and measure our performance across each initiative and ultimately track savings.

7. Master Data Management

It is imperative that the company has a good master data management policy in place that ensures the integrity of master data such as, Materials Data, Services Data, Contract Data and of course Vendor Data. In the majority of spend initiatives very little emphasis is placed upon the management of master data. If master data is not managed correctly then any spend analysis tool will yield inconsistent results.

Tags: Master Data Management, Spend Performance Management, Supplier Relationship Management, Supply Chain Management