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?
• What spend management projects could I
undertake after a spend analysis to identify
savings?
In the name of transparency…
Let’s agree on a few things first…
Do you trust your current
YouWhat
already
do have
you call
thespend
raw data
data to Ask
answer
procurement
questions
in your
outside
AP, FMS,
of contract?
ERP systems
questions?
What are they?
Spend Management:
Spend Analysis:
What you do with the
What you do to the data…
data…
Spend Analysis
AP
Data
PO
Data
pCard
Data
Cleanse
Spend
Data
Classify
Enhance
Spend Management
Improve
Processes
Manage
Maverick
Spend
Manage
Supplier
Relationship
Manage Risk
Recover
Overpayments
Procure Cooperatively
Reduce
Disparity
Source More
Locally
Ensure Legal
Compliance
Benchmark
Relative
Position
Quantify
Savings
Deliver
Savings
Spend
Data
Spend Analysis
84.4%
Spend Management
Buyers
Budget
Holders
Audit
Department
Procurement
Managers
Spen
Spend
d
Data
Data
Legal
Department
Contract
Managers
Finance
Department
Accounts
Payable
Economic
Development
Equality
Officers
Environmental
Officers
Why bother?
Challenges
Obstacles
Cut spending but not
services
Incomplete and poor
quality data
Collaborate within and
Multiple poorly
integrated systems
across sectors
Local/ Small/ Diverse/
Sustainable Suppliers
Be transparent
No standard FMS
implementation
Time and support
Why bother?
Solutions
Software
Data
Guidance
AP system
tools
Spend Analysis
Provider
Customized
consultancy
project
E-Procurement
Hire a Data
Analyst / Excel
or Access
Expert
Analytics/ BI
tools
How is spend analysis done?
1. Supplier name
2. Supplier address
Invoice of
number
53. Pieces
Data
4. Invoice date
5. Spend value
How is spend analysis done?
DIY
Export from
AP, pCard and
PO systems
Sense check
exports
Stitch exports
together
Manipulate in
Excel, Access
etc.
Enhance data
on top 25
suppliers
Manually
classify
suppliers
How is spend analysis done?
External
Export from
AP + pCard +
PO Systems
Standardize
exported
data
Check
fitness/
accuracy of
data export
Manually
validate
classification
Classify to
common
taxonomy
De-duplicate
supplier
records
Validate
value and
volume with
organization
Enhance
supplier
information
Link to a
master
record
Provide MI
tools and
export
function
Spend
Data
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
Using the results of spend analysis
The 10 Point Plan
Invoice
Consolidation
1
Long Tail
Consolidation
2
Duplicate
Payments
3
Improved
Terms
4
Category
Extension
5
Category
Rationalisation
6
Compliance,
Contracted Suppliers
7
Cooperation,
Common Suppliers
8
Price
Variance
9
Category 10
Reengineering
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…
Invoice Reduction
• Which suppliers should I seek
weekly/monthly invoices
from?
Aggregate
number of
invoices per
supplier
• 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?
Supplier
Names
Average
invoice value
per supplier
$
Invoices by
value range
per supplier
43,979 invoices < $500
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?
Aggregate
spend per
supplier
Supplier
Name
Aggregate
number of
invoices per
supplier
$
Category of
supplier
Department
spend per
supplier
1829 suppliers < $1000
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?
Category of
supplier
Department
spend per
supplier
Aggregate
spend per
supplier (deduplicated)
Supplier
Name
Other
suppliers in
the same
category
Percentage
of supplier’s
turnover
represented
$
Contracts
already in
place
84 suppliers > $250k
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 offcontract spend quickly?
Category of
supplier
Other
suppliers in
the same
category
Aggregate
spend per
supplier
Supplier
Name
Dept.
spend per
supplier
Current
contracts
Categories
with no
contracts
$
Monthly
spend
information
36% average with contracted suppliers
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?
Other
suppliers in
the same
category
Category of
supplier
Aggregate
spend per
supplier
Supplier
Name
Department
spend per
supplier
$
Current
contract
expiry date
44 Sporting Goods Suppliers
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?
Aggregate
spend per
supplier)
Category of
supplier to
common
classification
Standardized
public sector
body
name/number
Standardized
supplier
name/number
Current
contract
expiry date
Centrally
hosted and
maintained
database
$
Common tools
that all
contributors
can use
18 Suppliers, $38m aggregate spend
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.
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