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Spend Analysis: Why Are You Still Waiting?

Here are the core questions of “spend analysis“: How much are we spending? Who are we spending it with? Which components are the most expensive? And, most importantly, how can we save even more money?

For most companies, especially those in the electronics industry, spend analysis provides the answers. But too often, the process stops here. It's always amazed me how many companies only touch the surface for spend visibility. They run basic spend analysis technology, find a few areas to cut the “low-hanging fruit,” and save some cash, and it's considered a job well done.

Cost cutting will always be a critical deliverable for supply chain and procurement professionals, regardless of the industry. But most companies are missing a major opportunity to really influence the strategic direction and valuation of their organizations. Why? Their visibility, data, and analytics are limiting.

There are many challenges that deter procurement teams from taking a broader approach to spend analysis. The most pressing: Companies are limited in the data they can analyze and only have access to items like accounts payable, invoicing and purchase order details. It's also about the process. Some teams lack the resources to make spend analysis a continual and frequent process. Regardless of the reason, this limited approach fails to paint a complete picture of an organization's spending, thus limiting procurement's impact.

I'm a strong advocate for taking a more holistic approach. Going beyond the basics (like accounts payable/general ledger, data, purchase order data, P-Card data, contract information, expense and travel data, supplier content, etc.) and analyzing more data (like goods receipt data, supplier performance data, procurement plans and forecasts, commodity tracking details, etc.) is not easy. It's tough to aggregate and even harder to segment. But the better the data, the more practicable insight procurement can leverage to drive lasting change throughout the entire organization.

The process might be challenging initially, but I see plenty of benefits over and over again, including the following…

  • The analysis benefits the entire organization:
  • The results go beyond procurement and are leveraged by finance, management, engineering, logistics, and even marketing and IT departments.

  • More savings can be realized:
  • As opposed to the one-off, low-hanging fruit strategy, the more data that's analyzed, the more lasting savings opportunities can be discovered.

  • The value goes beyond core purchasing:
  • It benefits supplier performance management, supply chain risk mitigation, and strategic planning.

And, of course, closed-loop spend analysis takes the benefits of traditional spend analysis one step further. It cements compliance by detailing and monitoring contract performance, ensures that savings targets are more accurate (raising the red flag when corrective action needs to be taken), and measures supplier performance — and how they're helping (or hurting) your savings initiatives.

So why are you still waiting?

4 comments on “Spend Analysis: Why Are You Still Waiting?

  1. prabhakar_deosthali
    March 26, 2012

    This is a very important aspect of the supply chain management. For a cost effective supply chain the company must know its total cost of procurement and not just the cost as the BOM.  frequent emergency procurements or express purchases cost a huge cost which many times gets hidden and justified in the name of keeping the assembly line running. But what use it has if it is indirectly eating into the profits.

    To be able to get the correct picture , a company needs special data anlytics software packages which go beyound the conventional ERP systems and can dig out some amazingly useful information.

     

     

     

  2. tioluwa
    March 27, 2012

    Great eye opener, i think it just goes to show that for anything that must be done well, great detail is always a necessity.

     

    are there specific products and professionals who offer these services?

  3. Houngbo_Hospice
    March 27, 2012

    @TIOLUWA:

    “are there specific products and professionals who offer these services?”

    As Paul said, the process may be difficult and challenging. But I think that this should (can) be done within the company's premises. Why do you think it should be entrusted to professionals outside the company?

  4. elctrnx_lyf
    March 28, 2012

    This is always an area where the compnies need lot of improvment. Cost cutting in products is a direct profit for the company without any extra marketing. But at the same time the companies has spend the money and need diligiant resources to do this.

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