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An Introduction to Spend Analysis and Spend Management

An Introduction to Spend Analysis and Spend Management. Optimizing your spend. Spend Analysis and Spend Management. What are they? Who uses them? Who are they relevant to? Why bother? How are they done? What does the Spend Analysis process look like?

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An Introduction to Spend Analysis and Spend Management

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  1. An Introductionto Spend Analysis and Spend Management Optimizing your spend

  2. Spend Analysis and Spend Management • What are they? • Who uses them? Who are they relevant to? • Why bother? • How are they done? • What does the Spend Analysis process look like? • What spend management projects could I undertake after a spend analysis to identify savings?

  3. In the name of transparency…

  4. Let’s agree on a few things first… Spend data comes primarily from the AP, ERP or FMS systems… What do you call spend outside of contract? Do you trust your current data? Ask questions

  5. What are they? Spend Management: What you do with the data… Spend Analysis: What you do to the data…

  6. Spend Analysis Spend Data

  7. Spend Management …is the proactive use of spend analysis data to carry out the following within the organization: Spend Data

  8. Who uses them? Spend Management: Everyone Spend Analysis: Procurement

  9. Spend Analysis Survey 84.4%

  10. Spend Management Spend Data

  11. Why bother? Spend Analysis: If you can’t trust the data, how can you trust the analytics? Spend Management: In order to save, you have to know what you spend…

  12. Why bother? Challenges Cut spending but not services – do more with less Spend more with Local/ Small/ Diverse Suppliers Be transparent Obstacles System data isn’t good enough/ doesn’t contain all of the data Multiple systems within the organization No two organizations have the same system

  13. What are the solutions? • Solutions Software AP system tools E-Procurement Analytics/ BI tools Data Spend Analysis Provider Hire a Data Analyst / Excel or Access Expert Guidance Customized consultancy project

  14. How are they done? Here is how spend analysis is done…

  15. How is spend analysis done? Supplier name Supplier address Invoice number Invoice date Spend value 5 Pieces of Data

  16. How is spend analysis done?

  17. How is spend analysis done?

  18. How is spend analysis done? Spend Data

  19. How is spend analysis done? • Basic assumptions • One version of the truth – how much was actually spent • Extract in an electronic format… • Common Pitfalls • Finance or IT teams too busy to extract • Data extracted incorrectly and not checked • Relying on user entered classifications • Existing tools are designed for analysts • Assuming classification is easy • Assuming data can be stitched together • Assuming software can do it for you

  20. Using the results of spend analysis 4. Contract Compliance 3. Terms in the Top Tier 5. Category Rationalization 2. Long TailConsolidation 6. Category Extension • InvoiceConsolidation 7. Aggregation with others

  21. Example Savings Opportunity If I could answer these questions, I could find savings… If I want to answer those questions, this is the data I need…

  22. Invoice Reduction • Identifying Savings: • Which suppliers should I seek weekly/monthly invoices from? • Which category of suppliers are giving me an invoice volume problem? • Which suppliers would be best to move order and payment to pCard? • How much could I save by moving to pCard?

  23. 43,979 invoices < $500

  24. Long Tail Consolidation • Identifying Savings: • Which suppliers do I spend less than $1000 per year with? • Which suppliers do I only have one transaction with per year which I could lose? • Which departments are using a lot of “one time” suppliers? • Which categories do we have a lot of small suppliers in?

  25. 442 suppliers <$1000

  26. Terms in the Top Tier • Identifying Savings: • Which suppliers do I spend the most with and how many departments do they supply? • How many other suppliers are in the same category as my top tier suppliers? • Are all of my departments getting the same “best rate?” • How much do my top tier suppliers rely on my business?

  27. 84 suppliers >$250,000

  28. Contract Compliance • Identifying Savings • Which departments aren’t using the preferred/ contracted supplier in a given category? • Which categories of spend don’t have any contracts in them? • Is my data source up to date enough to deal with off-contract spend quickly?

  29. 36% average with contracted suppliers

  30. Category Rationalization/Extension • Identifying Savings: • Which suppliers enjoy a relative monopoly of supply to my organization? • Which categories do I have too many suppliers in where aggregation could drive costs and prices down? • What contracts are coming up for renewal where I could rationalize or extend my supplier base?

  31. 38 Computer Programming and Design

  32. Aggregation with other organizations • Identifying Savings: • Which suppliers does my group already share and how much is spent with those suppliers? • Which categories does the group have the greatest spend/ greatest number of suppliers? • When are the current contracts for members of the group expiring so that we can collaborate?

  33. 55 Common Suppliers, $60.5 spend

  34. Next Steps: • Spend Analysis really is the first step • Get the data in shape first • Internal or External • Start thinking about problem areas • Let the data guide your projects • Analytical/business intelligence tools are step two. • A Spend Management plan is step three.

  35. ?

  36. Spend Analysis and Spend Management The images, charts, and graphs in this presentation were exported directly from Spikes Cavell’s Observatory. For more information about how the Observatory could help your agency to identify real savings, collaborate more effectively, increase contract compliance, and record your success, please contact Spikes Cavell Jonathan White (571) 527 - 8310 jonathan.white@spikescavell.com

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