E-Sourcing Forum » It’s what you don’t know that costs you Part 2: What is the value of Strong Spend Analysis?

It’s what you don’t know that costs you Part 2: What is the value of Strong Spend Analysis?

March 16th, 2010 at 10:39am David Bush - Iasta

How often have you heard the phrase what you don’t know is what costs you? This phrase has never been truer than when companies are trying to assess who and what they are spending their money on. Take this classic example of what happens when a corporation waits to long to see the light that shines when a strong and accurate spend analysis project is executed on their data.

“In 2000, a Fortune 200 Health Care Manufacturing Company decided to have an internal IT resource consolidate a few databases reflecting the primary US spend within the organization. Accounts payable data was added (few line item details) along with some supplier enrichment data that had been captured for a small subset of the suppliers. Because the organization was at the beginning of a large SAP implementation, they deemed this level of information to be adequate in the short term. Some small savings were achieved as the consolidated database was analyzed but, after 6 years of implementing SAP, spend details were still not available as needed for deeper sourcing needs. They still did not understand their spend at the level of detail required for sourcing purposes; data was collected at levels that were too high and was not useful to drive meaningful leverage and savings. Deciding to invest in a new round of professional and more comprehensive Spend Analysis and incorporating Global Spend enabled them to discover millions of dollars in hidden opportunities that they could have been saving every year.”

Now these results are not typical of every spend analysis project. The size of hidden opportunities varies widely depending on the size of a company and the number of finance systems they house. However, the downside to not establishing a spend analysis initiative into a corporations sourcing lifecycle is very clear. Here are just a few points that continue to show why Spend Analysis is so vital to any corporation.

This savings generally represents 10x and, in some cases, up to 100x ROI on the Spend Analysis project.

Companies NOT doing Spend Analysis fore-go millions of dollars that would go straight to the bottom-line of the company’s profitability.

On average companies save .25-1% on total spend dollars. For a company with $1 billion in spend, this equates to $2.5 – $10 million in new cost savings on an annual basis (that’s every year, not just a one-time savings opportunity).

—These facts represent results from over 100 customer engagements from companies across various industries.

Imagine for a second that you are a global company with at least 10-15 finance systems. How many opportunities are you missing in double payments, fraudulent payments, missed volume discounts, or even off-contract spend although you have preferred suppliers? This is the type of information that you can expect to become visible and take action on during a spend analysis project. With that said there are a lot of ways to get to that point. My next post will explain how the tools in Spend Analysis have changed over the years and what new technology exist to help you get to the end point faster, with more accuracy and visibility.

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