You know spend analysis. So basic. So primal. Wham, bam, spend cube, thank you ma’am – you’re done, right?
Not so fast. Spend analysis is not a quickie event on your long-term procurement transformation. It is an evolving competency, one in which as you become more skilled with it, you can bring so many different forms of [business] satisfaction to many stakeholders. In fact, there are so many incremental levels of value that can be developed here that I challenged myself to write a 50-part series on what such a journey might entail. If I can publish one per day, then it should take me a little more than “9½ Weeks.” I will also be using a consistent graphical model to show different aspects of such increasingly detailed capabilities to help illustrate the techniques. It’s not the Kama Sutra or anything, but it will be helpful.
But before I launch into the series, a bit of a preamble is first in order. Why is spend analysis such a deceptively alluring topic that I’ll be looking under the covers with you? There are many reasons.
You can't manage and improve what you cannot see. You don’t want to keep the lights off here. Spend analysis is a process that yields spend visibility, which is the “M” and “A” in the DMAIC (Define, Measure, Analyze, Improve, and Control) of spend management.
It is a fundamental part of corporate strategy. Huh? Corporate strategy is basically about finding the best way to allocate scarce resources (namely money – “future spend”) to best accomplish corporate objectives. If money is scarce, you better be able to see where the money has been is going and where it should be going.
Managing your spending includes internal spending too. Spend management is not a procurement process but rather an enterprise process, and one that finance is a big role in leading (especially with regards to indirect). As such, procurement doesn't need to promote a new mission. What is needed is a set of techniques and capabilities that support the broader mission of more shareholder bang for the limited bucks in the budget.
Spend analysis is a gift for your partners – not an IT project. It is decision support capability to make better business decisions. Spend analysis may start with procurement using it for strategic sourcing, but the real power is when you put it in the hands of your stakeholders. It’s their spend, so share the love and give them something they can use to help themselves.
Spend is the flip side of supply. As I always say, “spend is what you pay – supply is what you get.” Warning: this is not a good pickup line at a cocktail party. Spend management is part and parcel of supply management. Supply management is about maximizing bang (supply value) for the spent buck (spend magnitude). When you master your spend, inevitably you can facilitate a discussion about whether the extended supply network (including internal supply/spend too) is actually delivering the value commensurate with the spend. The spend information you develop will be used in a myriad of adjacent processes in supply chain, performance management, treasury and risk management, and category management (where many categories are also business processes: transportation, print management, legal, etc.)
Finance will get even more turned on by spend analysis than you. Think about who really controls the cards in spend management for indirect spend, CapEx, etc. It’s finance. Think about FP&A (financial planning and analysis). Do you think “SP&A” (spend planning and analysis) is relevant for them? Yep. Think about the budgeting process. Are there opportunities to improve the efficiency and effectiveness of this? Yep. Could deep spend analysis even enable zero-based budgeting? Yep. More of this money going to third parties? Oh yeah. And if you do it right, management accounting employees in particular, those original high priests of the lost art of activity-based costing, will eat this stuff up.
Spend analysis shines a bright light on the master data problems that you invariably have. Before you turn the lights down low, sometimes you need to turn them up to address the data hygeine issues that need to be taken on.
It’s incremental in nature – the Trojan rabbit of procurement transformation. As I wrote about here, spend analysis is the real Trojan rabbit that seems small and cute when you start but becomes a killer app as it extends and broadens into the enterprise. It’s like a good version of an STD – you want it to spread.
There is no explicit ROI with any type of analytics. It’s all “option value.” I wrote about navigating through this problem in a previous Spend Matters PRO piece, but I will help you in being crafty to sell the incremental capabilities of the “50 shades of pay.”
I hope you’ll enjoy the series – and that I’ll make it to 50! If I run out of examples that I’ve seen work, I’ll crowdsource the remainder. Actually, if you have some ideas to share on how your wham-bam spend analysis project actually turned into a much longer series of exciting forays into value creation, don’t be just a voyeur – I’d really love to hear from you.