Author: Margaret Gilbert
There is value in undertaking a spend analysis and to making use of the information. Time is often given for not tackling an analysis but this is short-sighted in that using the information gained can provide clarity as to procurement spend.
An analysis of spend covering the previous 2-3 years can provide a clear picture of spend and which will allow for future planning. For some reason insufficient attention is given to this research and planning made on guesswork rather than facts.
It would be helpful if attention was paid to high spend as well as low spend. Why low spend? There is administration cost to keeping supplier database so it would be useful to remove after undertaking an analysis of various category spend and removing unused suppliers.
What do you need to focus on:
- High spend – this is obvious.
- Frequent spend – this may move to high spend.
- Sole source – this is good to know especially for the length of time. The objective should be to find multiple suppliers so there is choice and comparison.
- Infrequent spend. – this is important to know as well so you can decide whether it is worth keeping on the system.
The benefits are obvious but factual information can assist in procurement planning and for budgetary purposes.
Why is spend analysis not done? The frequent issue is lack of time and not having the information.
Time – this exercise should be part of contract management and can be used for forward looking procurement requirements. This can form the basis of negotiation.
Not having the information – if this is the case then this has to be managed and could be a case of ineffective systems and procedures.
The obvious place to find the information is from finance and if necessary reviewing and gaining information from invoices.
Use of information.
The information can be used for:
- Discussions with suppliers
- Future negotiations.
How to undertake:
- Take high spend
- Review previous 2-3 years spend
- Assess information – is spend on the rise or reducing?
A spend analysis takes time but there is value in undertaking. It will provide actual information which might show differences in the guesswork. Guesswork is not helpful as to plan will require facts.
If spend is increasing, then this will require further budgeting going forward. If spend is down – is there a reason, is it a ‘blip’ or is it becoming a pattern. If spend is the same – this is useful to know as well.
- Is the information likely to change direction?
- Does the information exist elsewhere?
- Review again if results different than expected
- File the information for comparison purposes.
Having facts is essential. It is not helpful to operate by guesswork which could be wrong. A spend analysis does take time but is useful to do. Keeping records will reduce time going forward as you have a base and you just need to focus on current information.
A spend analysis can form the basis for forward planning and budgeting. If you are unable to find the information this should be of concern and putting in place effective systems and procedures should occur.
Take the time to undertake – you might be surprised.