Buyers Meeting Point procurement by Kelly Barner

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Spend Analysis 101

Spend Analysis 101

As a procurement professional, I am frequently tasked with conducting a spend analysis on behalf of current and potential clients, but for those outside of the industry, this may be an unfamiliar exercise. In this post, I will attempt to provide a crash course on spend analysis, answering some of the most commonly asked questions about the topic: What is a spend analysis? Why should I do one? And finally, how do I do it?

A spend analysis is a very broad term that refers to… you guessed it! Analyzing the spend of an organization with the objective of understanding where money is being spent and where there may be opportunity for cost savings or process efficiencies. Spend analyses are conducted by procurement professionals in an attempt to get a comprehensive view of all of an organization’s expenditures and they are frequently the starting point for beginning the strategic sourcing process. There are a number of benefits to conducting a spend analysis, but the most important is transparency. A spend analysis provides a holistic view of all spend (indirect and/or direct) in a given time period, typically during a fiscal or calendar year. By doing this, you are able to gain visibility into where spend is being allocated, who the top suppliers are, how many suppliers you use for certain services, and areas of opportunity. For decentralized organizations, a spend analysis may reveal potential service redundancies across departments/brands and provide insights into areas of consolidation across supply bases. Along the same lines, a spend analysis provides organizations with the information needed to increase spend control by showing where and how spend/budgets are being allocated. Although there are many reasons why an organization would conduct a spend analysis, the benefits are consistent.

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Guest Post on the Ivalua Blog: Can Technology Cure Procurement’s Budget Blues?

Guest Post on the Ivalua Blog: Can Technology Cure Procurement’s Budget Blues?

Budgets are concrete things, based in fixed numbers. But it’s amazing how much time is spent discussing budgets subjectively. Much like the spend procurement brings under management, finalizing a budget can be managed with the 80/20 rule: 80 percent of the time should be dedicated to discussing 20 percent of the spend. The trick is to discuss the right 20 percent!

Procurement technology can play a bigger role in budgeting than it does today. When spend categorization aligns with projects and line items in a budget, the whole process becomes more fact-based. Past budgets can be compared to actual spending for an improved understanding of where forecasting was the most (or the least) accurate. Projects that never took place will be easier to spot, as will overages by cost center or supply requirement.

Predictable categories of spend shouldn’t be the main focus. Assuming the need was properly anticipated, only minimal changes (if any) are likely to be required from one year to the next. Instead, more benefits come when discussion centers on investment opportunities with upside, or those that carry specific risks.

CLICK HERE TO READ THE REST OF THIS POST ON THE IVALUA BLOG

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Webinar Notes: RAGE Frameworks Real Time Intelligence for Supplier Risk

Webinar Notes: RAGE Frameworks Real Time Intelligence for Supplier Risk

Editor's note: Buyers Meeting Point would like to thank partner and colleague Jeanette Jones of Cottrill Research for this week's webinar notes. The original posting can be viewed on the Cottrill blog. For our readers without a background in etymology or taxonomies, an ontology is the study of categories of bring as well as their interrelations. In a procurement context, this can most clearly be seen in spend analysis through the category structure and hierarchy used by the company to group and organize transactions.

 

There are many articles and reports about using Big Data for supplier risk, but there is still confusion about what Big Data is and how exactly one moves forward. Tom Fishburne at marketcartoonist.com succinctly sums it up with this gem, “many companies struggle with small data, let alone big data.”

 

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Webinar Notes: Using spend analytics for supplier categorisation and management

Webinar Notes: Using spend analytics for supplier categorisation and management

Our featured webinar notes this week are from an August 28th event run by Supply Management and presented by Lutz Peichert Vice President and Principal Analyst at Forrester Research and Chris Ayscough Purchasing Director at SITA. The event can be viewed on demand here.

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