All you need to know about Spend Analysis – but were afraid to ask

Spend Analysis is now recognised as a vital foundation stone for effective procurement. Knowing, at the most simplistic level, what you are spending, with which suppliers, enables procurement to start prioritising and planning.

Taking that further into looking at spending trends over time, variances between internal cost centres or divisions enables a further level of analysis. And when we get into using spend analysis for monitoring compliance (both internal stakeholder compliance and suppliers' compliance to contract terms), or even to identify procurement savings from post merger integration .... then the power of advanced spend analysis becomes clear.

However, the prospect of reading a 130 page document about Spend Analysis might not fill you with too much excitement.  But actually, Dr. Michael Lamoureux and  Bernard Gunther (writers, academics, bloggers, advisers) have made it prety much as useful and interesting as is possible in their e-book, Spend Visibility: An Implementation Guide (Sponsored by Lexington Analytics).

Even better, it is free to download here.

It's written in a clear manner, with lots of tables, screen-shot type examples and case studies to illustrate the points. While it covers the technical details and theory, it is very pragmatic and everyone from beginners to analytics experts will find material of value here I'm sure.

Here's an example of their clear and pragmatic approach - the authors are talking here about about why you don't need to get 100% spend mapping accuracy in order to identify opportunities. An 80% mapping should be enought to get started.

If there is no identifiable savings opportunity, then there is no point in mapping the last 20% of spend, because mapping all of the individual exception cases that are contained in the bottom 20% of spend will take 80% of the time. If an organization strives for 100% mapping accuracy on the first pass, by the time the spend is mapped, the cube will be too stale to be of any use to anyone. However, a good analyst can map 80% of global spend in a spend visibility exercise for even the most transaction intensive of the Fortune 500’s in under a week with the right spend analysis tool and get to 95+% in a few weeks.

Highly recommended and an impressive achievement.

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