Is a lack of spend visibility holding you back?
In these last few months of attending multiple conferences and meetings with procurement professionals ‒ and a few with the CFOs, Operations Directors and others whom procurement teams report to ‒ it’s become clear that there are two critical misconceptions about spend analytics: firstly, that it is DIFFICULT, and secondly, that it will take a LONG TIME to deliver real results. Spend analytics is easier than you think and it can deliver results very quickly.
Spend analytics is easier than you think
When we claim that spend analytics isn’t difficult, the three main objections we hear as are follows: the data isn’t available, the data can’t be extracted easily, and that the data in the systems is so bad that no one could fix it.
The truth is that the basic data you need for spend analytics are available in your ERP, accounts payable, purchasing card, eProcurement and other systems today. You can start spend analytics with just a few pieces of information: who was paid, when, how much, and who in your organization spent the money. It’s simply not possible that your organization functions without those key pieces of information. Unlike classifications, those pieces of data are going to be correct more than 99% of the time (or else your organization has bigger challenges to face!). Once you have those nailed, you can move on to categorization, enhancement from external sources (business size, minority status) and then identify collaborative opportunities with other nearby organizations. Don’t let perfect data get in the way of the good.
You can extract the data out of your systems. The key to getting over the data extraction hurdle is to be as specific and collaborative as possible with the people and/or teams who will extract the data for you. “Please give me all expenditure for the last year” is not specific enough to act on and will likely land your request in the ‘too hard’ bucket because it is too vague. If you ask the people extracting data for exactly what you want and why you want it, they’ll be able to act more quickly and even provide guidance on other data points they have which might be relevant for you. For example: “I’m trying to get a handle on our goods and services spend with third parties across our organization. Can you please provide an Excel file with the supplier name, invoice ID, invoice date, amount and department name for all transactions where the invoice date is between July 1, 2015 and June 30 2016? Please exclude salaries, benefits, inter-organization transfer payments, rent and investments.” People can act and deliver more quickly if they know exactly what you are asking for.
Cleaning and classifying your data is the most complicated part of the process, but the good news is that there are many options available to tackle that part of the process. Each have their own pros and cons which are outside the scope of this article, but more information can be found in at the 30:42 mark of the Spend 101 NIGP webinar available here: (http://www.spikescavell.com/learning-about-spend-analysis)
Delivering results quickly
The main objection we hear regarding savings is that it takes a long time to deliver any results from a spend analytics project. Interestingly, we only hear this from people who haven’t done it. Delivering results quickly through spend analytics isn’t an all-or-nothing proposition. You don’t have to hit the ball out of the park with $1m in savings delivered on your first attempt to make a spend analytics project successful. In fact, many organizations can achieve a 2-4x ROI on their spend analytics investment by delivering the first small-to-medium-sized project they identify and execute.
With even basic spend visibility, you can identify and deliver quick, tactical savings projects in your first 90 days that give you the cover you need to plan and deliver longer term, strategic projects. You can start by more actively managing spend with your top 20% suppliers, progress to transactional efficiencies which free up your team for more strategic tasks, then identify common spend across departments that can be rolled up to create more efficiencies. Delivering those three programs will give you a significant ROI on your spend analytics investment, and give you time to plan your category management strategy, or to join external data sources to your spend data to visualize spend with minority/small businesses, spend with contracted suppliers and spend in common with nearby entities.
The following are a few real life examples that we have seen over the last six years:
- One organization estimated $3m in quick wins simply from rationalizing their information technology suppliers – within one day of having better spend visibility.
- Another got an immediate benefit from reduction of the cost to their SWAM (minority spend) report from 1.5 FTEs to less than $20,000 per year.
- Another public sector organization reduced the time it took the procurement team to respond to FOIA requests from a week or more to a few hours – within weeks of completing their first spend analysis exercise.
- Another identified and realized a 30% increase in the rebate on their pCard program within a few months by targeting the departments that were not compliant with policy.
- Within six months, one city of approximately 100,000 population identified and delivered savings of approximately $500,000 with even more identified to be implemented.
Whether you’re delivering hard dollar savings which can be redirected to new purposes or you’re freeing up your staff’s time and resources to focus on new strategic initiatives, many opportunities can be identified quickly and executed quickly when you have the right spend visibility in place.
So – what’s stopping you?
You have the data in your systems. It can be extracted. You have options for how to clean and classify the data. And you’re likely to get a 2-4X ROI on your spend analytics efforts after delivering your first savings project. Any way you look at it, that’s a good investment! To find out how Spikes Cavell can support you in delivering savings and efficiencies for your procurement organization Contact Us.
(The original version of this article was authored by Jonathan White, Director of Business Development (Americas) and can be found in the November/December issue of Government Procurement magazine here)