The ABC of Spend Analysis

ABC tagTo me, Spend Analysis is a critical area to get under control and where a good-size company should invest in. I’ve mentioned it several times and lately in a post I wrote on Michael Lamoureux request. Early this month, Purchasing.com issued a nice and 3-part series « The ABC of Spend Analysis »:
Acquire the data skills
Bring the data together
Change the way you source
The articles provide some tips about how and what you need to deploy spend analysis and reveals unexpected benefits. From my perspective, the top 13 learnings from those articles are as follows:

  • « Strengthening your data analysis skills will benefit your company as well as your suppliers because you will be better able to assist your internal clients in planning spend strategies and also better understand your supplier’s cost proposals »
  • buyers need to learn how to manipulate data out of large databases because, « Most canned reports do not give you the information that is needed in the daily purchasing, or planning activities. The data is in the systems but you need to be able to access the data and use commonplace tools to get what you need out of the data ». The Purchasing survey also found that almost half (48%) of buyers polled said data analysis skills are a pre-requisite for hire into their procurement organization.
  • It is key to « Have a good understanding of product costing methods and product cost structure, price comparisons within product groupings, and software or tools that allow for data analysis. »
  • Configure data sets based on a structure that sets place holders for what you want to measure, even if you don’t have the data yet.
  • Buyers need timely data refreshes that reflect their spend habits.
  • Team up with finance and go through the accounts payable or invoice systems data to categorize and gather data.
  • One tactic Heitmann used to keep the data-gathering process organized was to effectively outline and communicate the goals of the program and the requirements for the process itself.
  • Don’t treat spend analysis as a one-time treatment. It is continual. Identify that this will be a common, consistent process. Though your spend data systems’ first ETL process will be a large undertaking, gathering your spend data is a work in progress. Data refreshes might be monthly or quarterly, but it will never be fully turn-key even after it is optimized, there will inevitably be wrinkles here or there.
  • You never know what you might learn in a spend-analysis exercise—or what your suppliers might learn.
  • Spend Analysis represents a high opportunity for finding where to consolidate your own spend.
  • Spend analysis can help uncover ways to help suppliers, which in the long run helps you.
  • Some results from spend analysis can be surprising, such as discovering the reason for long leadtimes or the fact that using different suppliers for prototype and production parts can add unnecessary costs.
  • Sharing the results from spend analysis can result in more internal support for sourcing changes that reap savings.

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