an introduction to spend analysis and spend management optimizing your spend
TRANSCRIPT
An Introduction to Spend Analysis
and Spend Management
Optimizing Your Spend
Spend Analysis and Spend Management
•What are they?
•Who uses them? Who are they relevant to?
•Why bother?
• How are they done?
•What does the Spend Analysis process look like?
•What spend management projects could I undertake after a spend analysis to identify savings?
In the name of transparency…
Let’s agree on a few things first…
You already have the raw data in your AP, FMS, ERP systems
What do you call spend outside of contract?
Do you trust your current data to answer procurement
questions?Ask questions
Spend Analysis:What you do to the data…
Spend Management:What you do with the
data…
What are they?
Spend Analysis
Enhance
Classify
Cleanse
SpendData
pCard Data
AP DataPO Data
Spend Management
SpendData
Deliver Savings
Improve Processes
Manage Maverick
Spend
Manage Supplier
RelationshipManage Risk Recover Over-
payments
Procure Co- operatively
Reduce Disparity
Source More Locally
Ensure Legal Compliance
Benchmark Relative Position
Quantify Savings
Spend Analysis
84.4%
Spend Management
Spend Data
Buyers Procurement Managers
Contract Managers
Finance Department
Accounts Payable
Environmental OfficersEquality Officers
Economic Development
Legal Department
Audit Department
Budget Holders
SpendData
Why bother?
Challenges
Cut spending but not services
Collaborate within and across sectors
Local/ Small/ Diverse/ Sustainable Suppliers
Be transparent
Obstacles
Incomplete and poor quality data
Multiple poorly integrated systems
No standard FMS implementation
Time and support
Why bother?
Solutions
Software
AP system tools
E-Procurement
Analytics/ BI tools
Data
Spend Analysis Provider
Hire a Data Analyst / Excel
or Access Expert
Guidance
Customized consultancy
project
How is spend analysis done?
1. Supplier name 2. Supplier address3. Invoice number4. Invoice date5. Spend value
5 Pieces of Data
How is spend analysis done?
DIYExport from
AP, pCard and PO systems
Sense check exports
Stitch exports together
Manually classify
suppliers
Enhance data on top 25 suppliers
Manipulate in Excel, Access
etc.
How is spend analysis done?
ExternalExport from AP + pCard + PO Systems
Standardize exported data
Check fitness/ accuracy of data export
Validate value and volume
with organization
De-duplicate supplier records
Classify to common
taxonomy
Manually validate
classification
Enhance supplier
information
Link to a master record
Provide MI tools and
export function
SpendData
Common Pitfalls
• Assuming classification is easy• Assuming data can be stitched together• Assuming software can do it for you
• Finance or IT teams too busy to extract• Data extracted incorrectly and not checked• Relying on user entered classifications• Existing tools are designed for analysts
Using the results of spend analysis
1Invoice Consolidation
Long Tail Consolidation
2
Duplicate Payments
3 Improved Terms
4
Category Extension
5 Category Rationalisation
6
Compliance, Contracted Suppliers
7 Cooperation, Common Suppliers
8
Price Variance
9 CategoryReengineering
10
The 10 Point Plan
Example Savings Opportunity
If I could answer these
questions, I could find savings…
If I want to answer those questions, this is the data I
need…
Invoice Reduction
• Which suppliers should I seek weekly/monthly invoices from?
• Which category of suppliers are giving me an invoice volume problem?
• Which suppliers would be best to move order and payment to pCard?
• How much could I save by moving to pCard?
$Supplier Names
Aggregate number of
invoices per supplier
Average invoice value per supplier
Invoices by value range per supplier
43,979 invoices < $500
Long Tail Consolidation
$Supplier Name
Aggregate spend per supplier
Aggregate number of
invoices per supplier Category of
supplier
Department spend per supplier
• Which suppliers do I spend less than $1000 per year with?
• Which suppliers do I only have one transaction with per year which I could lose?
• Which departments are using a lot of “one time” suppliers?
• Which categories do we have a lot of small suppliers in?
1829 suppliers < $1000
Terms in the Top TierIdentifying Savings:
• Which suppliers do I spend the most with and how many departments do they supply?
• How many other suppliers are in the same category as my top tier suppliers?
• Are all of my departments getting the same “best rate?”
• How much do my top tier suppliers rely on my business?
$Supplier Name
Aggregate spend per
supplier (de-duplicated)
Category of supplier
Department spend per supplier
Other suppliers in
the same category
Percentage of supplier’s turnover
represented
Contracts already in
place
84 suppliers > $250k
Contract Compliance
$Supplier Name
Aggregate spend per supplier
Category of supplier
Other suppliers in
the same category
Dept. spend per supplier
Current contracts
Categories with no
contracts
Monthly spend
information
Identifying Savings
• Which departments aren’t using the preferred/ contracted supplier in a given category?
• Which categories of spend don’t have any contracts in them?
• Is my data source up to date enough to deal with off-contract spend quickly?
36% average with contracted suppliers
Category Rationalization / Extension
$Supplier Name
Aggregate spend per supplier
Category of supplier
Other suppliers in
the same category
Department spend per supplier
Current contract
expiry date
Identifying Savings:
• Which suppliers enjoy a relative monopoly of supply to my organization?
• Which categories do I have too many suppliers in where aggregation could drive costs and prices down?
• What contracts are coming up for renewal where I could rationalize or extend my supplier base?
44 Sporting Goods Suppliers
Identifying Savings:
• Which suppliers does my group already share and how much is spent with those suppliers?
• Which categories does the group have the greatest spend/ greatest number of suppliers?
• When are the current contracts for members of the group expiring so that we can collaborate?
$Standardized supplier
name/number
Standardized public sector
body name/number
Aggregate spend per supplier)
Category of supplier to common
classification Current contract expiry
date
Centrally hosted and maintained
database
Common tools that all
contributors can use
…where are the opportunities to collaborate with other public sector bodies?
Aggregation with other organizations
18 Suppliers, $38m aggregate spend
Next Steps:
• Spend Analysis really is the first step• Get the data in shape first• Internal or External• Start thinking about problem areas• Let the data guide your projects
• Analytical/business intelligence tools are step two.
• A Spend Management plan is step three.
?
Spend Analysis and Spend Management
The images, charts, and graphs in this presentation were exported directly from the NIGP Observatory. For more information about how the NIGP Observatory could help your agency to identify real
savings, collaborate more effectively, increase contract compliance, and record your success, please contact Spikes Cavell, NIGP’s
strategic partner:
Jonathan White: (571) 527 - 8310