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An Introduction to Spend Analysis and Spend Management

Optimizing Your Spend. An Introduction to Spend Analysis and Spend Management. Spend Analysis and Spend Management. What are they? Who uses them? Who are they relevant to? Why bother? How are they done? What does the Spend Analysis process look like?

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An Introduction to Spend Analysis and Spend Management

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  1. Optimizing Your Spend An Introduction to Spend Analysis and Spend Management

  2. Spend Analysis and Spend Management • What are they? • Who uses them? Who are they relevant to? • Why bother? • How are they done? • What does the Spend Analysis process look like? • What spend management projects could I undertake after a spend analysis to identify savings?

  3. In the name of transparency…

  4. Let’s agree on a few things first… Do you trust your current data to answer procurement questions? You already have the raw data in your AP, FMS, ERP systems What do you call spend outside of contract? Ask questions

  5. What are they? Spend Management: What you do with the data… Spend Analysis: What you do to the data…

  6. Spend Analysis Spend Data

  7. Spend Management Spend Data

  8. Spend Analysis 84.4%

  9. Spend Management Spend Data

  10. Why bother? Challenges Cut spending but not services Collaborate within and across sectors Local/ Small/ Diverse/ Sustainable Suppliers Be transparent Obstacles Incomplete and poor quality data Multiple poorly integrated systems No standard FMS implementation Time and support

  11. Why bother? • Solutions Software AP system tools E-Procurement Analytics/ BI tools Data Spend Analysis Provider Hire a Data Analyst / Excel or Access Expert Guidance Customized consultancy project

  12. How is spend analysis done? • Supplier name • Supplier address • Invoice number • Invoice date • Spend value 5 Pieces of Data

  13. How is spend analysis done?

  14. How is spend analysis done? Spend Data

  15. Common Pitfalls • Assuming classification is easy • Assuming data can be stitched together • Assuming software can do it for you • Finance or IT teams too busy to extract • Data extracted incorrectly and not checked • Relying on user entered classifications • Existing tools are designed for analysts

  16. Using the results of spend analysis The 10 Point Plan 1 2 Invoice Consolidation Long Tail Consolidation 3 4 Duplicate Payments Improved Terms 5 6 Category Rationalization Category Extension 7 8 Compliance, Contracted Suppliers Cooperation, Common Suppliers 9 10 Price Variance Category Reengineering

  17. Example Savings Opportunity If I could answer these questions, I could find savings… If I want to answer those questions, this is the data I need…

  18. Invoice Reduction • Which suppliers should I seek weekly/monthly invoices from? • Which category of suppliers are giving me an invoice volume problem? • Which suppliers would be best to move order and payment to pCard? • How much could I save by moving to pCard?

  19. 43,979 invoices < $500

  20. Long Tail Consolidation • Which suppliers do I spend less than $1000 per year with? • Which suppliers do I only have one transaction with per year which I could lose? • Which departments are using a lot of “one time” suppliers? • Which categories do we have a lot of small suppliers in?

  21. 1829 suppliers < $1000

  22. Terms in the Top Tier • Identifying Savings: • Which suppliers do I spend the most with and how many departments do they supply? • How many other suppliers are in the same category as my top tier suppliers? • Are all of my departments getting the same “best rate?” • How much do my top tier suppliers rely on my business?

  23. 84 suppliers > $250k

  24. Contract Compliance • Identifying Savings • Which departments aren’t using the preferred/ contracted supplier in a given category? • Which categories of spend don’t have any contracts in them? • Is my data source up to date enough to deal with off-contract spend quickly?

  25. 36% average with contracted suppliers

  26. Category Rationalization / Extension • Identifying Savings: • Which suppliers enjoy a relative monopoly of supply to my organization? • Which categories do I have too many suppliers in where aggregation could drive costs and prices down? • What contracts are coming up for renewal where I could rationalize or extend my supplier base?

  27. 44 Sporting Goods Suppliers

  28. Aggregation with other organizations …where are the opportunities to collaborate with other public sector bodies? • Identifying Savings: • Which suppliers does my group already share and how much is spent with those suppliers? • Which categories does the group have the greatest spend/ greatest number of suppliers? • When are the current contracts for members of the group expiring so that we can collaborate?

  29. 18 Suppliers, $38m aggregate spend

  30. Next Steps: • Spend Analysis really is the first step • Get the data in shape first • Internal or External • Start thinking about problem areas • Let the data guide your projects • Analytical/business intelligence tools are step two. • A Spend Management plan is step three.

  31. ?

  32. Spend Analysis and Spend Management The images, charts, and graphs in this presentation were exported directly from the NIGP Observatory. For more information about how the NIGP Observatory could help your agency to identify real savings, collaborate more effectively, increase contract compliance, and record your success, please contact Spikes Cavell, NIGP’s strategic partner: Jonathan White: (571) 527 - 8310 jonathan.white@spikescavell.net

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