SpendHQ and Spend Matters will be hosting a joint webinar titled, “The Spend Visibility Maturity Curve: Where Do You Stand?” on August 26,at 2 p.m. EST. Jason Busch and Tom Beaty are the featured panelists. Register here.
Database Seeking Insights. My friends tell me I am attractive. I am mysterious and multi-layered. I’m funny in an unpredictable way. Some might call me convoluted, confusing and worthless – but I ignore the haters. My previous relationships spent hours and hours late into the evening trying to understand me. They cursed a lot but they always came back…until they didn’t come back any more. The truth is that if you want to do your job, you have to figure out a way to get along with me. Let’s go out. I’ll give you some misleading conclusions and you can buy drinks.
After decades of procurement advancement, it is stunning how ill-equipped many procurement executives are when it comes to their data. Many teams are “sourcing in the dark” due to challenges with spend data. Data is often spread across systems that leverage different coding. This coding was likely designed for the accounting group and has little to do with a procurement viewpoint.
Here is a simple, real life example: A CPO of a $1.5 billion publicly traded company was working with her CFO to determine what they spent on small parcel shipping. They ran a report and pulled the “shipping” general ledger code and declared that the company had spent $6 million on small parcel domestically.
But something did not sound right...
Upon closer inspection, the data showed that about $4 million was with traditional small parcel carriers, FedEx and UPS. The rest was a mishmash of couriers, the USPS and for some reason, a drywall contractor. The company embarked on a full spend analysis designed to take all of the spend data out of its many systems and reorganize it from a procurement point of view. Here is what they found:
- There were 19 vendor entries with different spelling variants for 1 of the 2 major small parcel vendors (ie: Federal Express, Fed Ex, etc.).
- Spend with these vendors was charged to 26 different GL codes, including 2 labeled “shipping” due to a past merger.
- Spend was all over the place. For example, there was a significant amount of small parcel spend under the “marketing” GL code because the marketing team regularly shipped out sales materials.
- One vendor owned 85% of the volume, but there was no relationship in place with that vendor, so pricing was different across the organization and did not reflect the overall volume.
The total spend ended up being over $9 million. Thankfully, this story had a happy ending that culminated with $1 million in savings across the small parcel category plus the implementation of a category management strategy.
But the clear takeaway from this real-world case study is that traditional accounting systems and processes are a nightmare for procurement categorization. Other common strategies for obtaining “good data,” such as counting on your procure-to-pay (P2P) system to automatically generate it, do not seem to be working for many companies.
Most procurement leaders already know and understand this problem. But the problem within the problem is that achieving true, reliable and clear spend visibility most often seems like an insurmountable task. Most companies that attempt a data validation and re-categorization project give up when their “3-month” timelines start to look more like 12. But there are some organizations that have figured it out, and there are resources available to help yours do the same.
Spend visibility, like dating, is a lot better without all of the drama, confusion, tears and expensive haircuts.
The professionals at Spend Matters have developed a method for measuring your organization’s level of spend visibility, and they call it the “Spend Visibility Maturity Curve.” It lays out specific milestones to benchmark your organization against and provides insight into what it takes to reach a mature level of spend visibility. Jason and I will be talking in depth about the Spend Visibility Maturity Curve during a webinar hosted by SpendHQ on August 26 at 2 p.m. EST. We’ll be fielding questions as well and are excited to bring more attention to this topic.
Spend visibility can be achieved, and it doesn’t have to be difficult. Register for the webinar by clicking here. I think you’ll be pleasantly surprised to see what can be achieved in a matter of weeks.