Closed-Loop Spend Analysis: A Missed Opportunity for Many Organizations (Part 2)

- March 13, 2012 12:03 PM
Categories: Analytics, Spend Analysis |

Spend Matters welcomes a guest post from Jim Wetekamp of BravoSolution.

In my last post, I talked about the immense opportunity organizations have to cut costs and drive company-wide value with closed-loop spend analysis and how not enough organizations are taking advantage of it. The best procurement teams go beyond cost cutting to make a real impact on their company’s valuation — and their success stems from taking a more holistic approach to spend analysis, with powerful data.

While typical spend analysis weighs information like AP/GL data, purchase order data, P-Card data, supplier content, expense and travel data, invoice data and contract information, closed-loop spend analysis extends that data collection to paint a more detailed picture. Additional procurement data is analyzed, including goods receipt data, transactional and survey-based supplier performance data, procurement plans and forecasts, savings initiatives, and commodity tracking details. The procurement team can then segment this data by location, supplier, and spend category to discover an organization’s true buying position and make decisions based on hard data, not spend assumptions.

This information is not easy to come by. It can be difficult to identify, especially since it’s likely to be scattered throughout several different departments and databases, which may not be compatible. However, the outcome of collecting and analyzing all this data is well worth the effort. Here’s why:

  • Closed-loop spend analysis extends value to the entire procurement process (not just core purchasing). This includes strategic planning, purchasing analysis, supplier relationship management and overall risk mitigation.
  • The analysis benefits more than the procurement team. The data can be used by finance, supply chain, engineering, logistics and even marketing departments.
  • The lifetime value of the spend process is extended. Instead of a one-off analysis, as more data is added, more savings opportunities can be identified.

Beyond just widening the scope of the spend program, closed-loop spend analysis delivers more than just actionable data:

  • It cements compliance by detailing contractual information, monitoring supplier and contract performance and taking corrective action when compliance fails.
  • It improves supplier measurement. Procurement professionals can leverage the data to highlight where poor delivery is eroding the value of expected savings and help measure suppliers accordingly to achieve targeted savings.
  • The savings targets are more accurate, and corrective action can be taken immediately if the program is heading off course.

Upon review of the program, the results will likely call some basic assumptions into question on the part of stakeholders, especially those who have become used to a relative lack of scrutiny on their purchasing behavior. Enquiries about contracts with suppliers with whom the buyer in a business unit has formed strong and possibly unquestioned relationships will be a challenge for certain staffers — but if the questions are based on hard data, its tough to argue against what’s in the best financial interest of the organization.

At its most basic level, spend analysis will have a positive impact on your organization. But taken a step further, the process can become a cornerstone to ongoing procurement transformation and organizational savings — and make a much more significant impact on the strategic direction of an organization.

For more information on implementing a closed-loop spend analysis strategy, check out BravoSolution’s latest brief.

– Jim Wetekamp, BravoSolution

Comments

  • The Godfather:

    It’s interesting the tag line includes the statement "for many organizations", because this is not a new or uncommon practice. "Many" spend analysis solutions have contained these capabilities for a number of years, if not decades. I know because I developed a few of them.

    Perhaps this observation depends upon one’s perspective. If one has always perceived spend analysis as simply a cleansing and market categorization, then a closed loop process integrated with related business content may be a revolution. However, if you’ve always approached the topic as a strategic use of company funds and an integral portion of a business plan, then everything old is new again.

    Nice advert though.

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