4C Approach to a Robust Spend Analysis
For any organization, the first step to transformation is to have a 360 degree view of its internal functioning. When it comes to procurement, the first step refers to measure and get a hold of the overall spend made by the different departments of an organization. With multiple ERPs having different spend categories, it becomes a horrendous task for any enterprise to compile a single preview of the overall spend made.
Most companies these days are performing regular spend analysis with the help of technological interventions such as process automation, approval workflows, budgets allocation, business intelligence, guiding rules etc. This is good to track the purchase made at transactional level. However to be able to determine a spend forecast, an organization needs to gain a clear visibility of its historic spend. This not only helps a CPO to put a strategic plan for future spend, but also to draw a correlation how spend of the company has shaped over all these years. To constantly measure and evaluate where your company is spending give the power to control it better, after all an effective cost reduction strategy begins with analyzing your current spend. A strong hold at the spend data empowers a company at the very beginning of a sourcing to pay cycle. Here are four ways through which the spend analysis brings value to the complete sourcing to pay cycle –
- Consolidation – A well planned spend analysis solution effectively combines all spend made by all the business units of a company. Particularly for a large organization which runs on multiple ERPs, a consolidate view is necessary to comprehend the volume and costs associated with spend.
- Classification – Once the consolidation is over, it is important to have the spend classified by categories. Any organizations needs to make sure that their spend is getting categorized properly with right name given to all purchases so that it can be further analyzed at the unit level. This helps in identifying the categories where money is being spent and in instilling the need to realign the negotiations priorities with the vendors for each category. Excess, duplicate and maverick purchases are also identified in this step.
- Collaboration – A spend analysis solution helps in identifying the suppliers with whom similar purchases have been made. . Having an overview of all the similar purchases and costs involved pave the way to shortlist the best supplier(s) for the given category. This helps in finding the suppliers who offers better value at minimal costs and highlights the opportunities for an organization to collaborate efficiently with them. The supplier-buyer synergy turns out to be very critical in maintaining the long term relationship with a particular supplier and eventually leads to cost savings in long term and economies of scale.
- Command – With spend analysis installing the right foundation, it becomes easier for a CPO to make better informed decision. They now have a better command on their spend and also able to set benchmarks for future cost savings backed by reduction in non-complaint spend, consolidation of supplier base and improvement in operational performance.
Thus, the amalgamation of these 4Cs results into a holistic report giving insights into the total spends of organizations defined by categories, suppliers, etc. The final outcome acts as the foundation to rest of the e-sourcing cycle, empowering CPOs to make the best and most efficient buying decisions.
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