Spend Analysis: Enabling Insights To Drive Procurement Benefits

Table of Contents

Introduction

Many companies can be considered a laggard, when it comes to setting up effective procurement processes. Each year, they are missing out on opportunities to save millions of dollars that could in fact be reinvested back into the business to fuel growth. While setting up industry leading procurement processes can be challenging for companies, a systematic step by step approach with expert guidance is more likely to be effective. The first step towards establishing a best-in-class procurement strategy is to get comprehensive visibility into a company’s spend with third-party suppliers, through a spend analysis exercise. Spend analysis enables an aggregate view of 3rd party spend (across business channels) which helps in negotiating better deals with third-party vendors.

In our experience, cost reduction opportunities are often hidden within various spend data sources, such as Accounts Payable, General Ledger, and ERP systems. Typically, the data retrieved from such systems need to be refined before it can be translated into meaningful insights. A systematic spend analysis approach helps fine-tune spend data to provide line-item level visibility by category, geography, business unit and other industry-leading criteria which enables effortless tracking and visualization. Spend data which has been fine-tuned to business requirements is immensely valuable in providing actionable business insights. A comprehensive view of the aggregate third party spend (across business channels) that is regularly refreshed allows the business to identify cost related trends which enables accurate budget planning. Moreover, it empowers the business to develop procurement strategies with increased spend leverage to ultimately achieve higher savings.

The Spend Analysis Process

We define spend analysis as the process of collecting, cleansing, and analysing 3rd party spend data to identify and drive enterprise-wide, value creation opportunities. Details of the end-to-end spend analysis process is below:

Collect Spend Data

Collect and aggregate spend data from various sources, such as Accounts Payable, General Ledger, Travel and Expense, Claims Systems and ERP solutions. Data from multiple sources should be validated to establish accuracy

Cleanse & Enrich Data

The spend data needs to be refined in order to retrieve actionable insights from it. First, the data should be cleansed to remove redundancies (e.g. typographical errors), discrepancies (e.g. descriptions v/s transaction codes) as well as validate and update any missing codes. Further, the data needs to be enhanced and enriched to ensure accuracy, vendor name standardization (e.g. removing any acronyms, alternate names and accounting for parent-child company relationships) and intuitive viewing.

Classify Spend Data by Categories

To get a holistic view of enterprise wide spend, it should be categorized into meaningful categories and subcategories pertinent to the nature of business. We help companies categorize data based on its proprietary, industry-leading taxonomy from their respective industries whether it be retail, software, manufacturing, healthcare, government, financial services, etc. Below is an example of a condensed third party spend data for insurance carriers.

Typical Third Party Spend For Insurance Carriers

Top Subcategories of a Typical Insurance Company

IT/Telecom

• IT Services

• IT Software & Support

• Telecom Equipment & Services

• Hosting Services

• Value-Added Resellers

• IT Hardware

Claims & LAE

• Claims Litigation

• Claims Adjusting/Appraising

• Estimates

• Medical Bill Review

• Fraud Investigation Services

• Subrogation

General & Professional Services

• Consulting

• Travel & Incentives

• Fleet

• Office Equipment & Supplies

• Marketing

• Temporary Labor

Real Estate & Facilities

• Building Leasing

• Equipment Maintenance & Repair

• Security Services

• Cafeteria/Food/Beverage

• Energy & Utilities

Underwriting Services

• Information Services

• Property Valuation

• Driver Record Reports

• Credit Reports

• Rates, Rules & Forms

Analyze Spend Data

Once the data has been thoroughly cleansed, enriched and organized into various spend categories, a rigorous data analysis exercise must be conducted to drive meaningful business insights. The data should be sliced and diced across multiple pivots such as categories, business units and geography to get a comprehensive view of the organization’s spend. Spend analysis can provide the organization with critical business information that could otherwise remain hidden, some of these are

  1. Top spend areas or categories, subcategories and suppliers
  2. Cost variations and spend patterns
  3. Spend by brands or business units
  4. Opportunities to consolidate spend with vendors

We leverage a combination of spend insights and functional expertise to identify savings opportunities, performance improvement initiatives and a strategic sourcing plan for its clients.

Spend Analysis Can Help Companies Achieve Their Most Strategic Goals

Spend analysis is critical in understanding how a company’s costs have evolved over time. By combining this information with best-in-class industry data, companies can maximize value from their supply base and stay ahead of the market. In addition to enabling a strategic cost reduction program, spend analysis can also help companies realize other strategic objectives

Spend Analysis Helps Companies Realize Their Strategic Goals
Ensure Business Continuity

Spend Analysis helps organizations get a comprehensive view of their suppliers. This can be used as the starting point to create, nurture and grow a diversified and robust supply base for critical products and services. This in turn reduces a company’s dependence on a single supplier, which is critical in minimizing exposure to supply chain disturbances.

Optimizing Working Capital

Gaining visibility into supplier payment terms and ensuring they are aligned with industry standards can help organisations maximise the availability of working capital.

Reducing Maverick Purchasing

Negotiating advantageous terms with strategic suppliers is only beneficial if purchases are made against those specific contracts. Through spend analysis, We help companies estimate the amount of spend that falls outside of pre-negotiated contracts and develop a strategy to re-route this spend and drive immediate savings.

Manage Third Party Risks

Companies can get a holistic view of their supply base and actively track any changes to it through spend analysis. This enables them to implement a comprehensive third party risk management program to effectively monitor vendors for cybersecurity, privacy, financial, regulatory and compliance risks amongst others

Conclusion

A spend analysis exercise is only successful if it drives strategic benefits for an organization. To enable this, it is essential that the entire spend analysis process is executed with a strategic mindset and a collaborative approach. Spend data by itself is merely informational, it is only when it is combined with market data, benchmarks and functional expertise that it can be used to drive actionable insights. Having worked with companies across multiple industries, we have in depth category expertise for relevant categories. Our proprietary processes, information and benchmarks along with analytical skills help financial services companies maximize procurement benefits while they can focus on core business related activities to fuel business growth and enhance operating performance.

Author

Managing Partner and Co-founder (US)

Tunir Chatterjee has been a career consultant for 18 years. Before joining consulting at Accenture Strategy, Tunir spent several years in Siemens Medical Systems in Product Development for the Angiography and X-ray modality.
Enquiry Now