- How do you use your knowledge of how much money you spend on different suppliers?
- How much of your total spend do you have under management?
- How do you develop your purchasing strategies based on your spend?

Control of spend
The purchasing organization’s primary role is to secure material in right time, right volume, to the right quality and right cost – your stakeholders are counting on you to be more than “order takers”. To accomplish that, spend intelligence capabilities are necessary to be developed. In order to know where to put your purchasing efforts you need to know where you spend your money and with that information you can prioritize your purchasing activities and develop a purchasing strategy.

Spend Data Management (SDM) is:

– The process of aggregating, cleansing and analyzing corporate spend data in order to reduce costs and improve operational performance

– The process of transforming data into business intelligence

– An on going process versus a one time initiative

Many research studies show that the success of any purchasing program depends largely on the organization’s ability to access and analyze spend data. The spend analysis gives important information about: spending patterns, contract compliance, saving opportunities and spend under management. By having all this information any purchasing organization can easily monitor compliance to purchasing strategies and finally compliance to purchasing objectives.

Further research studies have found that organizations who actively pursue SDM strategies have achieved:

– 2% to 12% reduction in material costs through informed sourcing

– 50% reduction in off-contract spending

– 20% to 70% reduction in inventory levels

– 5% to 50% reduction in inventory costs

– 20% decrease in redundant or unnecessary part introductions

Purchasing spend analysis is even more important in companies with a complex set up/structures (e.g. many divisions or geographical sites that are not connected system wise or mergers between companies running different ERP systems). In this case it enables you to find spend consolidation opportunities in your purchasing work as well as efficiencies in both processes and daily work.

Best in class companies have automated spend collection processes and analyzes the spend frequently and visualizes the status internally to stakeholders for buy in and fast corrective actions.

With a working spend analysis process you are in control of where you spend your money, you can use the data to identify saving opportunities, prioritize purchasing projects, develop purchasing strategies and facts for supplier negotiations.

Common pitfalls

- There is no system nor method to gather spend per supplier meaning you have to invest major efforts to perform your spend analysis

- There is no systematic spend data analysis performed frequently, leading to missed saving opportunities

- There is no standard methodology of naming suppliers, parts or items leading to a mismatch of data

- The spend data is not cleansed or classified leading to difficulties and misunderstandings when analyzed

- The spend data is not used in the purchasing strategy development process meaning that the potential buying power with the suppliers is not fully utilized

Sources: Symbal Chase, Aberdeen Group, AT Kearny