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How and why Spend-analysis should be done?

When you have decided to start develop your organization’s sourcing, where would you start? You already have budgeted resources in order to start organising. Maybe you have already examined or you probably have found few service providers (cost reduction specialist provider) or cooperation partner to help you. I am quite sure that you haven´t internalized matter of outsourced service partner (PSP, Procurement as a service), what we offer in order to start organize your organization sourcing activity. I understand your point of view that how would you can clarify the differences between sourcing specialist and cost reduction specialist service.

Please read more from the recent blog: Would it be time for sourcing take control direction of future?

The basis for sourcing is the Spend-analysis. So here it’s a short story how do we proceed in order to clarify your organization current state in sourcing point of view.

What is the Spend-analysis and why it should be done?

The spend-analysis would be best to clarify with a question: where company’s money goes, to which vendors and by who (by how many buyers)? If we can get an answer to this question we have succeeded. The analysis gives opportunity to place practises in order to cut costs and give more transparency for the acquisition costs.

Where the data of purchases for the analysis can be got? In order to make a Spend-analysis, there is a large amount of data to be gathered.

The needed data would be collected from

  • Procurement systems
  • Financial management systems
  • In cases where the organizational structure is fractioned, the data should be collected on the different kind of systems or programs
  • If tracking or the information can’t be taken reliable, the data can be collected from the vendors.

I want to emphasize to you that the reason why this Spend-analysis is so Important for sourcing. We spend a lot of time and efforts to make a Spend-analysis. The most important reason is also before mentioned reason!

Spend-Analysis is The Basis/Foundation in order to take over sourcing/procurement activities in your organization.

The operative purpose of analysis is the clarify purchase history dividing costs into specific categories and give more transparency to company’s purchase history. There are also other benefits to be achieved, what?

  • A tool for managing vendors/ to reduce numbers of vendors or switch vendors
  • How much costs by cost centers and how the costs/expenses are divided?
  • Purchasing volumes by categories (Improving the bargaining position)
  • Most bought products and services
  • Recognizing the products and services, which are potential for savings
  • Recognizing most valuable vendors and in strategic point of view
  • Number of purchases under contracts

How do you check the quality of information (data) and remove the incorrect information so that they don’t distort the outcome of final analysis? There are many ways to check the data. For example, using ABC-analysis in order to make an analyse in product level, when you can get the information on most bought products and services based on Pareto’s rule.

If you like to know more about Spend-analysis and procurement, don’t hesitate to contact us.

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