Spend Analysis: Going Beyond Cost Control

Spend Matters welcomes this guest post by Mickey North Rizza, vice president of strategic services at BravoSolution.

The discipline of managing supplier spend is core to the mission of any procurement organization. After all, what good are the hours spent on negotiating and locking in the best possible price for goods and services if, at the end of the fiscal year, the budget has been blown?

For years, spend analysis technologies have played a critical role in ensuring that what’s been budgeted is what has been spent. Now, we’re seeing sophisticated organizations moving beyond using spend analytics as a tool for controlling costs and employing the solutions to uncover new opportunities to improve performance throughout the supplier lifecycle.  

Moving beyond the opportunistic model where the system would flag a spend line that represented savings captures, savvy procurement and supplier management teams are taking bold steps to unlock the power of spend analysis. Using a strategic and disciplined approach that turns data into insight and visibility, these leaders are accelerating world-class spend and supplier management. There’s definitely some upfront work, but the benefits make the effort well worth it.

A Cross-Disciplined Team Lays the Best Foundation

Critical to moving the needle on how effective spend analysis can be for your own organization is a solid foundation. All too often, spend and supplier management strategies are set in a vacuum and analysis has been historic. Changing this silo-based approach and developing a forecasting or forward-looking mentality is the first step toward transformation.

Essential to ensuring you are starting from the right place and headed toward the right objective is making sure you have the right data. When you engage with key stakeholders to gain consensus on baselines and metrics, it becomes much simpler to build a strategic approach to spend analysis. In most organizations, the constituencies at play include:   

  • Finance/accounts payable (A/P): Are the numbers accurate?  
  • Procurement: Do we have access to the right suppliers?
  • Sourcing: Is the right category structure in place?  
  • Legal: Are there any confidentiality or compliance issues?  
  • IT: Are the platform’s data integration capabilities running smoothly?

When you have agreement on the structure, data and the numbers, the path to continuously improving spend is much clearer and simpler to navigate.

Align with the Big Picture

A singular focus on cutting costs can result in short-sightedness. Organizations set out strategic business objectives with far-reaching implications. Whether it is to lower the business’ carbon footprint with green initiatives, expand business with a more diverse demographic, reduce risk with more visibility into the supply base or roll out seasonality-based product lines, aligning parameters for spend analysis with those objectives raises both the profile and impact of the effort.  

Examine your organization’s strategic plan, identify areas where spend and supplier strategies can support those efforts and apply spend analysis to cultivate forward-looking models that can support expansion and innovation.

Mitigate Risk and Reap the Rewards  

A lot has been written about the impact of supplier risk—unfortunately, all too often, after disaster strikes. From conflict minerals to supplier failure and geopolitical instability, many factors can impact the stability and performance of the supply base—and your organization’s own success.

Household names like BP and Polaroid as well as suppliers like Chassix Holdings are reducing the potential impact of supplier risk on their businesses with solutions that ensure transparency and accountability. When you know where the risks are — before they become headline news — not only are the savings compelling, your business can focus on cultivating success for customers, employees and shareholders.

Choosing the Right Partner

Shifting from a tactical approach of controlling costs to a more strategic model where spend analysis allows your organization to pursue new opportunities, invest in innovation and strengthen financial performance starts with choosing the right solutions partner. When evaluating potential providers, consider the following questions:

  • What level of expertise does the company bring to my business?
  • How flexible is the solution?
  • What limitations are there on scalability?
  • What can they teach me about best-practices in the discipline?
  • How can they support the effort to expand engagement beyond my department to other key stakeholders?
  • How can the solution adapt to the dynamic and volatile nature of my business and the economy overall?

Striking the Perfect Balance

When purchasing executives have the ability to know who they are buying from, what they are spending and how those relationships tie to the business’ overall mission, there’s an incredible freedom to scale up or down on spending. Regardless of what is happening in the economy around the corner or around the world, smart spend analysis gives you the confidence you need to develop supplier relationships and spend strategies that move your company forward.

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First Voice

  1. Bill Kohnen:

    Nice article. I especially agree with considering how the solution provider can help with best practice. It is amazing how most providers really so not have people that really understand purchasing or have direct experience. At best most will suggest you contact one of their consulting partners which means potentially more money on consultants than for the solution.

    I would also add that you should ask detailed questions about the balance between AI and algorithms vs human interaction for the data cleanse and review. Also where this takes place and who does it.

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