Spend Analysis Playbook

September 25th, 2007 at 04:30am David Bush - Iasta

Last month, SupplyChainBrain, ran an article written by Ashok Santhanam of Bristlecone. I did not see any one highlight this article, so I thought I would bring mention to it.

Santhanam does a nice job of highlighting the typical problems that manifest in corporations, many times with very expensive back end ERP systems not solving the problems in the slightest. Issues such as data inaccuracy due to inconsistent coding system within companies or across divisions, bad item level coding and no linking to industry standardized codes (SIC or UNSPSC), inter-company linkages, and special classifications within the supply base.

He also breaks down three phases of implementing a spend analysis solution, as almost 900 other companies have done (although this number pales in comparison to the 8,000 eProc deployments)

1. Cleansing and building: Merge, map and augment are the easy ways to describe the details of the launching of a SA program.
2. The data now exists in a normalized and constructive format, its time to start the analyzation process to look for outliers and opportunities. Iasta does this by building spend cubes and custom data dimensions.
3. Take action. All the data will begin telling stories, many times very scary stories. Its time to put together a plan and go after aggregated sourcing opportunities or consolidate the supply base, as examples. We also like to propose opportunities where invoicing errors have occurred on major categories, leading to millions of dollars in overbilling and subsequent opportunity for credit reconciliation.

The article concludes with sage advice based on his years of experience:

It’s important to keep in mind that spend analysis and optimization efforts not be viewed as a one-off project. Some organizations may view a large spike in savings from doing a spend analysis one time as reason enough to stop. But for most companies, a long-term program will help a company continue its success by preventing maverick buying, encouraging contract compliance and reducing the practice of buying from multiple suppliers at different prices.

Under a long-term program that combines projects with a managed service program through a trusted vendor, clients can build upon a history of data cleansing and analysis work without having to initiate a new process from scratch each time procurement problems escalate. This approach is the surest way to future-proof your initial cost-saving results.

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Entry Filed under: General, Spend Analysis, Supply Management Best Practices, Technology / SaaS