Spend Analysis Moving to Real Analytics

Hot Topic

Only two months to go and we finish our  current series of Hot Topics -- Spend Analytics, the hot topic for January, is being extended into February (since the month is short) and people took a while to get back into the swing of things in January after the holidays.

Spend Analytics is an area that has moved closer to the centre of many organisations’ procurement strategy and operations in recent years. Gaining a detailed understanding of where money is being spent, with whom and by whom is central to developing appropriate sourcing strategies and in managing internal compliance and behaviour. But whilst spend analytics has become mainstream, it continues to develop rapidly as technology becomes more powerful and integrated. We will be looking at the latest thinking in this field and that technology - for instance how linking analytics with purchase-to-pay and invoicing systems is going to generate a whole new set of opportunities for procurement, based on much more real-time rather than historic data.

To kick off this hot topic, what better than this post 'Spend analysis moving to real analytics' from Mark Ellis, a partner with one of our sponsors, 4C Associates.   4C Associates is a leading procurement consultancy which has been helping clients achieve cost transformation for 15 years.

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A lot has been written about spend analytics – analytics, cognitive procurement, big data and how to manage structured and unstructured data within your organisation.

What we see in practice is a lot of companies working on three tiers of capability:

  1. Some companies still manage their spend analytics through the ERP-based data-warehouse, where static reports are generated and run at a point in time, or companies that run an annual quarterly or monthly spend review.
  2. Standard reports from Business Intelligence (BI) tools are mostly generated by consultants and you will get what you need at that time, rather than what you require on an ongoing basis. You’ll regularly need something different within two weeks of the report being constructed.
  3. The most successful organisations are managing through real-time dashboards and understand the ramifications of spend buying channels and implications of the Purchase to Pay (P2P) processes.

When you have a proper tool for spend analysis your data can be enriched through a database or by data-crunchers, giving you a better view of the macro spend profile, as well as the possibility to drill down to detailed level on multiple dimensions.  This data information can then support your planning processes, stakeholder engagement, drive innovation through your supply chain and provide valuable insights for your business.

We know that for the majority of the companies and not- for-profit organisations even this last part is still quite far away, but in this post we want to look even further than this milestone.

Let’s leave the big data out of this discussion, as this implies that all analytics are about big data. Of course, we can talk about more data than we did in the past, but it’s nothing in comparison with the data generated in one airplane in just one intercontinental flight.

Spend analysis is just as much about getting an insight into the past to justify what we did, as making informed assumptions for the future.  How much did we spend, with whom, on what, when and where?  These are the basic questions, but looking across these variables is where the real insight lies. This is where analytics comes in and even better informs our decisions through predictive analytics.

All data we gather from our legacy systems is of course from the past, but when we step out of our own organisational comfort zone we can combine our data with market trend data, supplier data, statistics, business requirements, environmental and climate changes and much more. Even the linkage of the data source to make it real-time, driven from the P2P systems, rather than a monthly batch update is becoming more common as technology evolves and process accuracy matures.

This allows procurement to step truly into the era of advanced analytics, where we not only justify our past performance and look for future opportunities, but pro-actively think about the future of our business. This allows procurement actually to become a business partner that brings value to the discussion with stakeholders and supply chain - therefore not just a reactive partner to support the transactional processes. This will enable real market insights, also identify innovation opportunities, sustainable solutions and ‘should cost’ models.  So a real business partner within your organisation.     

The full use of the available management information sources and linking this to intelligent decision making is how to really make the difference in procurement and support operational delivery across your organisation.

If you have anything you'd like to say about spend analytics  - do feel free to contribute a blog to nclinton@spendmatters.com

First Voice

  1. Chabannes:

    Thanks a lot ! You are definitely right! The P2P will bring accurate and realtime data. Adding trends, index, market data will create a set of data from where smart folks plus technology will be able to transform in information.
    And above that with alert on trends or comparaison change, action on information will make purchase people able to create savings opportunities and risk reduction.

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