Spend Analysis
SIX STEPS TO IMPLEMENTING SPEND ANALYSIS: PROCRASTINATION IS NOT ACTUALLY THE FIRST STEP!
AUGUST 3, 2011
Everyone in procurement knows that spend analysis is important. The problem is they also know that it’s hard. It means getting a lot of data that may come from multiple sources, determining a hierarchical classification system, and classifying each piece of data (usually each financial transaction). You’re also going to need software tools to compile the data in meaningful ways so that you can see spending patterns and identify opportunities for savings. It’s not about getting the data one time; you need a plan for how to refresh the data regularly, which will probably involve your IT group and some tools and automation to do the heavy lifting. Because there are so many places to get overwhelmed, often the easiest thing to do is…nothing.
But, the fact is, if you’re serious about marshalling your organization’s resources to improve the bottom line, then you need a concrete understanding of what you’re spending and where you’re spending it. So the real question is not Should we analyze our spend? but How can we possibly get started?
Many spend analysis guides include a “Before You Start” section full of tasks, most of which are pretty intimidating. Here’s what I think about that: By the time you complete those tasks, you have definitely already started! So, I would break down the process into six more manageable steps:
Step One: Get a year’s worth of spend data. Usually, you can get purchase transaction data directly from accounts payable or order processing systems.
Step Two: Look at the data and figure out how to classify it. I’m not going to pretend this is easy, but you don’t have to start with a blank slate. About 80% of the companies we work with use the United Nations Standard Products and Services Code (UNSPSC) because it includes more than 20,000 categories that are hierarchically organized to support “drill down” and “roll up” analysis.
AUGUST 3, 2011
Everyone in procurement knows that spend analysis is important. The problem is they also know that it’s hard. It means getting a lot of data that may come from multiple sources, determining a hierarchical classification system, and classifying each piece of data (usually each financial transaction). You’re also going to need software tools to compile the data in meaningful ways so that you can see spending patterns and identify opportunities for savings. It’s not about getting the data one time; you need a plan for how to refresh the data regularly, which will probably involve your IT group and some tools and automation to do the heavy lifting. Because there are so many places to get overwhelmed, often the easiest thing to do is…nothing.
But, the fact is, if you’re serious about marshalling your organization’s resources to improve the bottom line, then you need a concrete understanding of what you’re spending and where you’re spending it. So the real question is not Should we analyze our spend? but How can we possibly get started?
Many spend analysis guides include a “Before You Start” section full of tasks, most of which are pretty intimidating. Here’s what I think about that: By the time you complete those tasks, you have definitely already started! So, I would break down the process into six more manageable steps:
Step One: Get a year’s worth of spend data. Usually, you can get purchase transaction data directly from accounts payable or order processing systems.
Step Two: Look at the data and figure out how to classify it. I’m not going to pretend this is easy, but you don’t have to start with a blank slate. About 80% of the companies we work with use the United Nations Standard Products and Services Code (UNSPSC) because it includes more than 20,000 categories that are hierarchically organized to support “drill down” and “roll up” analysis.