I have been watching CSI: Crime Scene Investigation since it first aired in 2000. Each episode is a study in procedure, strategy and deep analysis. It's a fascinating show and no surprise that it ranks number 3 in DVR playback (3.07 million viewers). I was watching an old episode last week when a thought occurred to me: spend analysis is not that different than crime scene investigation. It takes a plan, adherence to procedures, an open mind, and the willingness to see some gruesome things.
Inflated invoices for off-contract purchases are a horrific sight. It's like discovering a big cockroach in your house: a disgusting sight, but worse knowing that a hundred others are hiding close by. For large organizations, even a 5 to 15 percent reduction in maverick purchasing can lead to millions of dollars in savings. In this two-part post, we'll play Cost Savings Investigators, rooting out maverick spending with the precision of a modern detective. In part one, we'll review what spending 'evidence' you should collect for analysis. In part two, we'll show you how to use that evidence to crack the case.
An in-depth spend analysis can uncover some interesting (and frightening) information. To do a proper, detailed spend analysis, you need a snapshot of:
- Number of supplier relationships
- Number of GL codes
- Items purchased by GL code
- Percentage of overall spending by supplier
- Number of invoices processed
- Average amount of supplier payments
- Frequency of checks processed for suppliers
This information will help identify opportunities for managing purchases by commodity, consolidating spend, streamlining payment processing and setting non-financial criteria for supplier evaluation. Examples of improvements may include supplier consolidation and XML connections with high transaction volume partners. Next, tap into the general ledger and obtain the following:
- Number of general ledger chart of accounts -- This will provide a global picture of how the organization tracks spend, different commodities purchased, and what level of spending detail is currently available to the organization.
- General Ledger expenditure amounts -- Where is the organization spending the most money? Are these account values firmly established and reliable data points? Are certain suppliers servicing multiple cost centers? Many organizations find that miscellaneous account codes make up an inordinate percentage of the total spending. Account types such as "9999" often end up being larger percentages than initially anticipated. Therefore, consider a second level of analysis of the general ledger in order to gain a thorough understanding.
To get a true picture of the "crime scene," you will also want to look within the organization for other types of accessible data, such as p-card information, ERP programs or other legacy systems.
In part two of this series, we will explore what to do with all the evidence you collect.
- Mark Schaffner, VP of Marketing, Verian Technologies