Today’s post is by Alex Borbely, Director of Sales at SafeSourcing
In yesterday’s post we explored what Spend Analysis is and some of the experiences I have had spending time with customers during the review process.
Today we’ll look at the steps involved in Spend Analysis.
Typical Steps of Spend Analysis: Identify all the sources available for your spend data, from all of your departments, plants and business units. This includes accounts payable, general ledger, pCard, eProcurement systems, etc. Gather and consolidate all of your spend data into one central database. This can be difficult if your data is in different formats, different languages and different currencies, however, there are programs available specifically designed to accomplish this however not necessary and a simple Excel workbook may be used.
Cleanse your data. This includes finding and correcting errors in descriptions and transactions, as well as standardizing the spend data for easy viewing. Group, or link, your suppliers for better supplier management. For instance, purchases made from IBM, IBM Corp., or Cognos should all be grouped together, since they’re the same supplier. Categorize your spend. Whether you use specific industry standard classifications or your own company-specific categories, you need to be able to determine where your money is being spent. Office supplies, marketing travel, legal, direct and indirect spend should all be categorized appropriately.
Analyze your spend data. Ensure that you have negotiated the best contract deals per supplier now that all of your spend is identified. Ensure that all of your buyers are purchasing from preferred suppliers. Reduce the number of suppliers per category. Repeat. Performing a spend
analysis once is a great start to identifying savings, however, you need to continually update your data to ensure that contract terms are being adhered to, that buyers are purchasing from preferred suppliers and that savings opportunities are being identified.
Once the Spend Analysis is completed, and reviewed with the client, there are several lessons learned as a result:
- Upon completion you now have a baseline for sourcing initiatives
- Spend Analysis now becomes an enabler for process improvement
- The known data is now a measurement device for cost reduction programs such as SafeSourcing’s Reverse Auction Events
- Significant cost-savings opportunities through supplier and commodity consolidation
- Enhanced compliance through effective spend and supplier monitoring, which by the way is part of the SafeSourcing full service program
- Comprehensive spend visibility across direct and indirect commodities and services
In closing I cannot help but to remember something that was drilled into my head as a young individual by my parents: “It’s not about how much money you make, it’s about how you save it.” This says it perfectly as to why spend analysis is such a vital part of procurement planning.
For more information on how we can help you with your procurement needs or on our Risk Free Pilot program, please contact a SafeSourcing Customer Service representative. We have an entire team ready to assist you today.