How are we spending? This is always THE basic approach to trigger any category management OR strategic sourcing roll out at an organisation. Although the question seems very simple and obvious, many organisations struggle to find the accurate and real answer. This is because the spend is managed by various stake holders across the organisation and this spend data is also scattered in discrete data lakes. Even if a technology is deployed to capture all the spend transactions, many at times it suffers from “garbage in – garbage out” syndrome.
Spend analysis can be done using any or multiple approaches as below
- Tail End spend analysis – this is simple application of Pareto’s Law of 80/20.
- Vendors spend analysis – How much do we spend vendor-wise.
- Category spend analysis – How much do we spend across respective well-defined spend areas
- Item spend analysis – is done at SKU level
- Payment Term spend analysis – captures spend across different payment terms
- Contract spend analysis – brings out non-compliant spends and hidden spend-leakages.
A typical demography of spend at any organisation may look like an inverted pyramid as below. Higher the VALUE derived at the bottom of the pyramid, better is the Procurement Performance!!
Identify Saving Opportunities
Manage Supplier Relationships
Improve Legal Compliance
Reduce Maverick Spend
Manage Co-operative spend
Improve Diversity Spend