With many large organizations constrained by the systems at their disposal and the data within them the all to typical view of spend analysis starts with commodity managers extracting what they can from the available procurement data, analyzing transactions, cleansing and standardizing then appending the data set with the necessary information (commodity, hierarchy, contract information etc) and finally collating data for their area into spreadsheets.

If you then multiply this task across the multiple commodity groups within most organizations you can see why for many companies supplier spend analysis is an unwieldy and unreliable beast to tame. The right understanding of your supply chain helps you identify weaknesses and opportunities

Most organizations will look at two things to leverage their profit – increase revenues and cut costs. When it comes to cutting expenditure, given that procurement spend represents such a significant proportion of most organizations outlay shouldn’t a systemized approach to understanding what goes on under the hood of the business be a priority? With multiple spreadsheets being worked and reworked then consolidated with other commodity spreadsheets. As you can imagine this capture and transformation task gives the opportunity for inaccuracy and complication. Do you think utilizing this mechanism will give you the results you need? And do you think you can manage your procurement activity without good visibility of category/commodity expenditure?

Where does the data come from?

Despite the prevalence of information systems in business its unsurprising that these are still often fragmented with various solutions being utilized for different functions. In particular procurement and financial transaction tools are often either divorced (separate systems) or at best loosely coupled (joined together by management information software).

For those involved at a strategic sourcing level wanting to understand the make up of the company’s activities this can provide a real problem of where your source data is obtained from. On the one hand – the financial systems will usually have accuracy but may lack the detail – the procurement systems may have the detail (what was bought and from whom) but lack financial clarity. Coupled with that the procurement system may also be missing spend that doesn’t go through the more traditional procurement routes (an obvious example being travel and expenses).

Many organizations will utilize their finance team to obtain spend data – this is a start but carries with it a series of issues – namely:

1/ Data is typically organized for financial reporting purposes i.e. GL code allocation rather than procurement needs – spend/commodity data.
2/ Supplier information can be “fuzzy” i.e.
• Consolidated spend for a company rather than seeing spend from different branches
• Incorrect supplier names used within finance (i.e. a payment center)
• Spend figures may be rolled up (i.e. total invoice rather than delineated into types of product bought)

The trick with supplier spend analysis is to obtain reliable category spend that can inform sourcing decisions. You want to know –

“What do I spend and with whom” and…

“How can I leverage that information to obtain better deals and help meet my company’s objectives”

Data helps to feed the engine

If you consider that the majority of initiatives launched by the procurement department in some way contribute to an organizations competiveness (reduced costs, shortened lead times) – getting reliable and useable data for the whole of the enterprise must be the first key step in improving your supply chain.

If we think of the common procurement objectives
• Getting spend under contract
• Selecting the right mix of suppliers to satisfy requirement
• Vendor consolidation tasks
• Cost saving objectives
• Transaction rationalization

How could any of this be achieved with success without knowing your start point?

Tooling up

So what does a best in class spend analysis system provide?
Let’s look at a few of the ingredients.

• A scalable solution that can combine the data from multiple geographically dispersed transactional systems into a single information point.
• Complete data incorporating all areas of spend.
• Granular data that can be rolled up from a top down view and expanded so you can see the detail i.e.
o What do I spend on this category in this timescale
o What did I spend on this part in this time period
• Hierarchical supplier view – suppliers part of a bigger family are included within a combined spend but can also be drilled down to individual branches or companies
• Standard commodity categories across all spend/elements of the enterprise
• Ability to manipulate “slice and dice” data
• Easy to update and maintain
• Identify opportunities for improvement
o Vendor consolidation
o Preventing leakage against contracted spend
• Actionable reports on a routine basis.
• Opportunity to integrate performance management, risk management and Relationship management elements.

Summary

Effective management of a diverse, geographically dispersed supplier base whilst leveraging the associated spend capitalizing on opportunities for efficiency and savings can be a key contributor to competitiveness. Supplier spend information is a key enabler to effective sourcing facilitating many of the decisions required to shape a modern supply chain. Without reliable information managers are blind to identifying reliable and realistic opportunities and constrained of monitoring the benefits of schemes that they deploy.

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