Getting Creative with Spend Analysis Datasets (Part 2)

Please click here for the first post in this series. This series of articles is based on insights from the following Spend Matters Perspective: Spend Analysis -- Making Quantum Leaps: Exploring the Realm of Possibility and Untapped Savings with Three New Strategies.

Spend analysis tools can help with far more than just setting sourcing strategy. Organizations that get the most from spend analysis investments use data to reorient how they look at contracting approaches and focus on supplier behaviors and development activity. Within procurement, there's often a belief that a specific type of established process and/or technology implementation will in and of itself create a set of outcomes. But unless procurement and finance departments work with suppliers to change behavior by putting hard data at the core of sourcing, contracting and compliance (e.g., purchase order) processes, the best intent and dollars spent on procurement transformation and P2P systems deployment will be for naught. Fortunately, new approaches to spend analysis not only help cement processes, strategies and the use of transaction-management technologies -- they also help keep suppliers honest.

Consider the case of purchase orders and rate card variance. Conventional wisdom may suggest that a PO can provide protection against rate card variance. But this is not the case in practice. A large, global financial services firm found that when it looked at its own data, there were considerable variances (in excess of 1.5%) between what they thought they would be paying and what they actually ended up paying -- even when an electronic linkage existed with suppliers, especially in the fulfillment area.

Moreover, the company also observed that for a number of these categories, including print and mail, "vendors were reluctant or unable to produce rate cards quickly"; and, according to a source close to the organization, "supplied rate cards were often grossly out-dated and inaccurate." In one category, "analysis revealed that each cost center (in fact, even some accounts within the same cost center) were operating with differing rate cards (a total of 30 items, 5000 item lines, and 40 different accounts), even though a master services agreement was in place. When the organization moved to a single rate card, a 12% across-the-board savings was delivered. Had the request for the detailed rate cards not been made, there would have been no change in behavior."

Stay tuned as this analysis continues.

In the meantime, for further information on the topic, you can download the Spend Matters Perspective: Spend Analysis -- Making Quantum Leaps: Exploring the Realm of Possibility and Untapped Savings with Three New Strategies.

- Jason Busch

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  1. David Karakas:

    Jason – Excellent perspective on Spend Analysis and glad to see that you will address in multiple posts. I would like to add that a recent report was issued by Ardent Partners that showed only 32% of organizations have "standardized spend analysis process", which results in the fact that "only 29% of those same procurement organizations have full visibility into enterprise spend." I am of the opinion that many procurement organizations have moved away from key fundamentals in order to bolster their visibility within an organization (to become more relevant). I would recommend that we remember, "garbage in, garbage out" and look for technologies such as one developed by MResult, that helps organizations classify spend BEFORE a requisition is turned into a purchase order and entered into the ERP system. Technology solutions that cleanse data on the back-end have been marginal at best, in my experience.

    Good post and looking to see what comes in the near future.

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