Feedback from our QOTW – driving procurement benefit from Spend Analysis

We had a great response to our first ‘question of the week’ (QOTW) so thank you so much to everyone who replied. If you are at all interested in Spend Analysis and Analytcis, I would recommend you go back to the post here and take a look at the full comments; but here is a summary of some of the key points made.  Apologies to anyone who feels I missed the real heart of their comments but I’ve had to just pick out a few key points in the interests of conciseness, or this would be the longest blog in history!  Also in the interests of space, I’ll save my personal comments on the topic for later in the week .

So….Christine Morton and ‘Flog’ led the discussions around use of the Kraljic matrix as a tool to determine priorities;  assess the criticality of spend areas, and the level of spend control that the analysis indicates, as a means of prioritizing activities post analysis.

But remember the data is a snapshot in time; using such analysis dynamically is necessary to drive real benefits.  And spend analysis “mustn’t become an end in itself’” as Pete Loughlin described it.  We loved this description of a discussion Flog remembered with a CFO who had carried out such an exercise;

Finance director ‘..very interesting, the things I learnt about what was going on’
Me: ‘So, what did you do with the information?’
He (looking confused): ‘What do you mean?’
Me: ‘Did you change anything? Set up any new contracts, investigate any of the expenditure?’
He (looking confused): ‘No’

As our original questioner realised, you do have to actually DO something with all this lovely data!

Hassan Iftikhar pointed out the need for data integrity, formatting and credibility if the process is to succeed; which links to the need mentioned above to make sure the data is updated / refreshed regularly in order to gain maximum benefit.

Kirit Pandit of Emptoris (and author of a book on the subject, no less) identified three phases;

Phase 1 – Visibility; identify the 2 most basic types of opportunities, Vendor rationalization and Demand aggregation. These are the low hanging opportunities.
Phase 2 – Maverick Spend; spend leaking out because of violations of the procurement process. Also, mismatch of payment terms is a big one.
Phase 3 – Contract Compliance. This is the Holy Grail, if the customer is past phase 1 and 2. This is also the most elusive opportunity for a variety of reasons.

Mike Roberts of BravoSolution also highlighted the staged approach, linked to the maturity of the user, and added some useful comments around what makes a good Spend Analysis process/ platform;

“The process must be able to rapidly refresh data to keep the analysis up to date, report on various metrics from as broad as ‘spend by supplier’, to complex ones such as ‘standard vs actual unit price by material’. It also must be able to handle the timely update of data anomalies (they will always be there!) such as classification updates or supplier groupings”.

Further Resources

If you want more on the topic:

Matt McGovern pointed us towards the book ‘Competing on Analytics’ by Harvard Business School Professor Tom Davenport. It ‘identifies what to look for in data analytics’ according to Matt and how to use it to your advantage once you have it.

There’s a White Paper titled “Strategic Spend Visibility: Untapped Potential for Cost Reduction” available on the Rosslyn Analytics website, says Lance Mercereau from the firm, which provides “examples of how to deliver short- and long-term savings based on the amount, type and quality of spend data being analysed”.

And Jason Busch (Spend Matters US) has produced a number of papers within the Compass Research series that cover this topic; Beyond the Basics: Using Spend Visibility to Drive More Than Category Sourcing Strategies and Spend Reporting is perhaps the most relevant, with some great recommendations around answering this question.

Voices (2)

  1. Flog:

    What I didn’t tell in the story of the conversation with the CFO – a colleague was at the same meeting and as the conversation was developing she was (a) trying to kick me under the table and (b) her eyes were saying ‘be quiet and don’t wind him up’

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