Do you know exactly where your business is spending money? In order to identify savings opportunities and reduce expenses in the long term, you need insight into your spend that goes beyond general knowledge. A spend analysis is the most effective way to achieve that insight.
During a spend analysis you identify, collect, categorize, and analyze every purchase the organization makes. Put another way, a spend analysis involves bringing historical purchase data together in one place to build insights and answer some basic questions:
- Why are we making these purchases?
- Are our suppliers charging a fair price?
- Can we do better?
- How can we do better?
To be effective, the analysis needs to cover all categories of spend so that you can identify the best places to focus strategic sourcing and rein in maverick spend. You need to look at the number of vendors being used for each specific commodity and ask yourself if you are purchasing from the right vendors and the right number of vendors. Consolidating the number of vendors for a particular product will provide leverage in negotiating pricing and terms.
Once you have the information on what you are spending and whom you are spending it with, you need to start making decisions based on that information. A sourcing roadmap is a tool that can help you. To begin your roadmap, outline your target outcomes.
Evaluate your suppliers with such questions as the following:
- Is pricing the same for each transaction?
- Is this item or service critical for business operations?
- Is there room for savings or discounts on these items?
The information contained in your spend houses multiple opportunities to eliminate maverick purchasing, enforce contract compliance, shorten delivery cycles and negotiate better pricing and terms. The best way to collect that information is by first maintaining organized data on your suppliers and your spend and then by leveraging that intelligence through a spend analysis.
Given all the benefits, if you have not done a spend analysis, now might be a good time to consider completing one.
