Joe Smith, CPO of a $250M organisation was being asked to reduce year-on-year expenditures by 5+%. He knew those savings were quite possible, but did not have clear insight into what goods and services his organisation was actually buying today. Spend, invoicing and supply base data was spread across multiple sources including Purchase-to-Pay, Finance and ERP systems.
He needed reliable information about what categories were being purchased from where in the organisation and with what suppliers. But he had already found that getting that information was harder than it sounded. He had already made two attempts at developing his own spend analysis capabilities using spreadsheets, then some general-purpose business intelligence and reporting tools. In both cases, the data issues were just too complex and every time they developed a report or data view, they found problems that made the output virtually useless.
This is where purpose-built Spend Analysis tools can accelerate procurement efforts - solutions that are well thought through, flexible and just worked.
With this type of tool, within one year, he had:
- Identified the 4 spend categories that were most fragmented and negotiated consolidated supplier contracts that save an average of 8% of total spend in those areas.
- Identified the areas of the organisation that were most frequently making off-contract purchases, performed some education in those areas and established several new supplier contracts to meet previously un-met needs and increased on-contract spend in those areas by 60% (a 5% increase vs. total spend)
- Identified several situations where significant spend was taking place outside the organisation’s established approval process, worked with his finance director and department heads to modify the way those purchases were being made so that the right managers always had the opportunity to approve or deny them, and reduced total spend in several categories in those departments
- Identified several cases where there was only one supplier of goods or services critical to the operation of the organisation, increased performance and compliance monitoring for those suppliers and in some cases went out and found alternatives that could be used if needed
- Finally was able to give senior management accurate reports on how much was actually being spent with SMB, local and minority-owned suppliers. Used that information to work with various department heads to increase those percentages where needed.
Now in his second year with Spend Analysis in hand, Joe has already set his sights on the next few categories for sourcing, increased on-contract spend, increased approval compliance, risk mitigation, and supplier diversity. All of those activities have become far more methodical and he is confident that he is putting his teams efforts where they can have the most impact on the organisation’s bottom line. He sees no reason why they cannot continue this process indefinitely.
To learn about PROACTIS Spend Analysis click here.