In part one of this series, we reviewed what 'evidence' you should collect for proper spend analysis. With that in hand, let's review the next steps to crack the case (and reduce maverick spending).
Use the spending evidence you've collected to gain a thorough understanding of the following:
- Analysis of suppliers paid
- Identification of the number of preferred suppliers with established contracts
- Recognition of the ratio of preferred suppliers to non-preferred suppliers
- Analysis of contracted supplier in terms of dollars spent
- Rollback spending on contracts. Determination if contract compliance is taking place by creating contract scorecards
- Analysis of top suppliers as a percentage of total spend (top 5, top 10, top 15...etc.)
- Determine the relationship between top suppliers and contractual suppliers
- Supplier performance
- How often contracts are renegotiated or put out for competitive bid
- Analysis of commodity codes
With a deep understanding of the evidence, action steps should be prepared, including:
- Reduce the supply base and establish a preferred supplier list -- review how many suppliers you have in key categories and then start looking at their performance. Based on performance, percentage of total spend, and quality of relationship, it shouldn't be too difficult to make a short list. Of course, the shorter this list, the better. One of our industrial clients saved $400,000 alone from reducing their welding suppliers from 12 to one.
- Optimize preferred supplier relationships -- supplier consolidation should come with a quid pro quo. If a preferred supplier will be getting more (or all) of your business, you should expect (and negotiate) better pricing and terms. By consolidating to one preferred office supply supplier, one of our retail clients was able to negotiate better rates and free shipping on every order.
- Automate routine or manual procurement processes -- while streamlining the supplier base, it only makes sense to simplify the procurement process as well. Implement a procurement automation solution that allows requisitioners to browse through catalogs that have the preferred supplier products and pricing built in. These systems also provide incredible visibility into the most granular spending detail. Automation empowers organizations to weave better spend management into the fabric of corporate culture.
- Report results back to management and employees -- there's nothing more motivating than results. Set realistic savings goals and review progress in regularly scheduled meetings. You'll be surprised how the morale boost encourages people to save even more. Be sure to share the data with your preferred suppliers. Knowing that you're monitoring contracts will keep them on their toes.
Although we don't wear lab coats, analyze DNA, or interrogate suspects, being a Cost Savings Investigator can be just as important. If we collect the right evidence, apply deep analysis to what we've found, and make action plans to reduce maverick spending, we can crack the case.
While it's true uncovering and exposing maverick spending won't get you an Emmy, it may save your company millions of dollars in the process.
One final note for fans of the show, it looks like Calleigh and Eric may be getting back together.
- Mark Schaffner, VP of Marketing, Verian Technologies