If all companies knew how to get spend analysis right, then there would be many more happy shareholders in the market, looking forward to their monthly holdings statements showing rising stock prices as a result of improved company earnings. But few companies that start a spend analysis journey get off on the right foot. All too often, procurement teams are misled by an incorrect map, showing a false path to what they believe should be their ultimate destination.
At its core, overcoming these spend analysis navigational challenges requires doing three things right. Get one of them wrong and the outcome may lead you to head down a savings mountain pass that will prove difficult to traverse, ultimately leading to a situation that minimizes procurement’s potential value to the company. So what three things should procurement stick in the core navigational pack? We suggest the following three capabilities as a start:
1. Implement a common language that makes sense to sourcing. The ability to classify to a useful coding structure that can enable a common language to identify categories/spending data and implement a savings/sourcing process. This may include taking a generic code structure such as UNSPSC and leveraging it to create a more appropriate accurate taxonomy for a specific industry or need.
However, more and more companies are choosing to entirely bypass generic code structures (like UNSPSC) because they don’t make sense to the sourcing team. They may make sense to accounting and finance, but they don’t accurately reflect the needs of sourcing – especially with indirect materials that don’t map cleanly to generic code structures.
The current trend is for organizations to use custom sourcing codes. In some cases they may use generic codes as an underlying structure and then roll them up into common sense category code structure. In other cases they classify directly to the custom category code structure. By using multiple taxonomies to look at corporate spend, companies have greater insight into the way a particular area of the organization does business.
2. Apply changes quickly. Companies should have the capability to quickly rollout changes to classification structure as the organization begins to adapt and meld the toolset to their specific environment. This is especially important as a roll-out begins to encompass increased spend quantities, details, geographies and stakeholders. When classification errors are found and not quickly corrected, the entire classified dataset is mistrusted. It is important that stakeholders trust the underlying data that supports business decisions.
3. Access to flexible reporting. It is critical that teams have access to flexible reporting/analysis within the toolset – not just canned reports. Canned reports get you started, but may not be able to include the full range of data in the data set. Flexible, ad hoc reporting and analysis capabilities enables companies to leverage both intended strategies as well as discover opportunities they may not have anticipated. Analytics capabilities should be able to support the needs of the analyst-type (e.g., power-users) as well as the executive-type and other stakeholders looking for a quick view into activities.