12 Things You Can Do With Spend Analysis
Data
Once you have taken the time to complete a full spend analysis exercise
that brings together your Accounts Payable, PCard and Purchase
Order data, the next step is to start looking at what you can do
with all that information. Some of these points can be achieved
with a basic spend analysis, others require additional time and
effort, especially in the areas of classification and enrichment of
spend data.
1) Delivery Savings
Right now everyone is being asked to do more with less. You’re
being asked to deliver savings while still providing your
stakeholders (internal customers and your constituents) with the
same goods and services. There is only so much negotiation you can
do with your vendors for the best possible deal. Spend Analysis
gives you great insight over your spend data and can help you
identify opportunities you didn’t know existed.
2) Improve Processes
Spend Analysis data will allow you to make an informed decision
on how processes within your organization could be improved.
Whether this be the implementation of an eProcurement System,
better use of PCards or consolidating invoices with individual
suppliers, spend analysis data help identify these opportunities.
The results of a spend analysis process can also provide needed
direction when implementing a new system, both in terms of
configuring that system as well as identifying the departments and
people within your organization whose adoption and us of the new
system will help generate an ROI on the project as quickly as
possible.
3) Managing Maverick Spend
Everyone puts contracts in place, but after signature, they tend
to get relegated to a filing cabinet or electronic record system,
not to be looked at until there is a problem or the contract is
about to expire. Greater spend analysis data will allow you to
better track these and identify:
- Suppliers where the value of non-contracted spend is
non-compliant either by legal or internal procurement
standards
- Spend with non-contracted vendors in categories where a
contract is available
- The categories of spend where there may be too many suppliers
and no contract in place
and other forms of maverick spend within your organization.
4) Managing Supplier Relationship
Generally, your vendors will know more about how much you spend
and on what with them than you will. Spend analysis can help to
correct that imbalance and in some ways, tip it you’re your favor.
When it comes time to negotiate a new contract with a vendor,
having done a comprehensive spend analysis will not only give you
more information about your spend with that specific vendor. It
also can provide you with insight into how much you are spending
with that vendor’s competitors which is information your vendor
doesn’t have.
5) Manage Risk
It’s easy, when you’ve worked with a particular supplier over a
number of years, for your organization’s spend to steadily increase
above and beyond what was originally contracted or intended. Over
time, the vendor may steadily become overly reliant on your
organization for their annual revenue. Too much spend with one
vendor can create risk in two ways. Firstly, if they are dependent
on your spend and you make the business decision to move your spend
away from this vendor, they could potentially go out of business
causing a public relations issue, even if the procurement decision
in isolation was the correct one. There will be individuals within
you organization that should be made aware of this in preparation
for any negative feedback or publicity.
Secondly if you are too dependent on one particular vendor and
that vendor goes business for other reasons, your organization
could be left without critical goods or services that you need.
Enriching your spend data with information on your vendors annual
revenue and credit scores will allow you to better assess your
organizations overall supply chain failure risk.
6) Recover Over-Payments
On average in public sector organizations, 99.8% of all
transactions are for the correct amount, to the correct vendor, and
only happen once. However this 0.2% margin of error can equate to a
reasonable sum of money. Bringing together AP and pCard spend in a
spend analysis can help identify erroneous transactions and begin
to recover these over-payments.
Imagine the scenario where a vendor doesn’t believe they have
been paid on time. They call around in your organization looking
for their legitimate payment for goods or services provided, and
end up talking to the person who actually purchased the goods. As a
gesture of goodwill, the buyer pays the vendor by pCard, but
ultimately the overdue invoice winds its way through the system in
parallel. The vendor ends up getting paid once by pCard and again
through the normal AP method. Hopefully your vendors would repay
the duplicate payment, but it doesn’t always happen.
7) Procure Co-operatively
Many organizations are now being asked to work more
collaboratively with other organizations in their local area. If
you have all your spend data in one place, and in a format common
to other organizations, it becomes much easier to consolidate your
data together. This generally has the effect of making your
collaborative efforts more strategic, rather than reactive and
ad-hoc. Quickly being able to identify those common suppliers,
common categories, and opportunities to collaborate can lead to
dramatic savings opportunities.
8) Reduce Disparity
In addition to saving money and becoming more efficient, you may
be being asked to report on diversity spend and take steps towards
increasing diversity spend. In order to effectively report on spend
with various types of diverse businesses, you need a flag in your
spend data that describes the vendor type and importantly, this
flag needs to be kept up-to-date. And if the goal or directive is
to increase spend with diverse businesses, you need to know where
you are today in order to determine what that goal should be, and
measure progress towards it.
9) Source More Locally
‘Local Preference’ has historically been a hot button issue.
Hard numbers can help to take some of the emotion out of the
discussion. Spend data enriched with geographic information enables
you to understand how much you spend locally now, and then take
steps accordingly. All too often, public procurement teams are
criticized for not spending enough with local businesses, without
anyone actually knowing how much is spent with local businesses or
on what. Whatever your position on preferences or set asides,
having accurate information to hand can be instrumental in
establishing your position as the credible one.
10) Ensure Legal Compliance
Public organizations operate under a myriad of legal
requirements, whether it is the state procurement code or only
internal rules and regulations. One example is your organization’s
thresholds requiring competitive solicitation, or at least to get
three quotes. Some states even have punitive legal consequences for
failure to comply with those rules and breaking those rules can be
no fault of the procurement or finance team. Imagine a situation in
which an organization has very decentralized purchasing and a
25,000 competitive solicitation threshold. Now imagine 10 out of
100 budget holders decide that a particular piece of software is
exactly what they need to be more efficient and software licenses
costs $3,000 annually. As the individual budget holder is only
spending $3,000, it falls into the small purchase arena, and flies
below the radar of the one or two members of the procurement team.
All of a sudden and with no warning, the organization has
unwittingly broken their procurement own code, and potentially
state law. Having spend analysis data updated over time will allow
you to track these more effectively and ensure you are compliant,
or at the very least not unwittingly non-compliant.
11) Benchmark Relative Position
The opportunity to benchmark and compare your organization to
other local organizations or organizations of a similar type across
the country can be very useful. Where multiple organizations
collecting and organizing spend data together in one place,
meaningful comparisons with your peer organizations are possible.
The collation process enables you to answer a range of questions
that it is not possible to answer using your own financial
management systems such as the average number of vendors or spend
by category, understanding which vendors are generating the highest
aggregate revenues from other public bodies, and to set targets for
improvement that are realistic and achievable relative to the
average or "best in class" for other public bodies of a similar
type and size.
12) Quantify Your Savings
Having the pool of cleansed, classified and enriched spend data
will help you identify savings and efficiencies, but it also sets
your baseline from which you can calculate the savings you have
delivered back to your organization. This will allow you to
demonstrate the value of your procurement/purchasing team to your
organization in dollars and cents, the common language of finance
and business officers to whom which the majority of public
procurement practitioners report.
Contact us
if you want to find out more about spend analysis using the
Observatory.
TAGS: spikes cavell, spend analysis, 12 things, deliver savings, improve processes, maverick spend, supplier relationship, manage risk, over payments, cooperative, diversity, local, benchmark, savings