Simply put, systematize the tactical and free up your power sourcer(er)s to focus on the strategic. You should automate everything you can from an extraction, classification, categorization, amalgamation, enrichment, and standard financial reporting perspective so that your team can spend the bulk of their time slicing, dicing, refining, dimensionalizing, and re-classifying your spend data in new and creative ways using a true spend analysis tool in search of that next big opportunity. Sometimes the gold nuggets are there for the picking in the shallow stream, but you always have to mine deep into the mountains to find the vein.
Focus on streamlining the following:
- Extraction from the External Data Systems
This will likely require your IT or accounting team writing scripts to automate the extraction of relevant data from each ERP or other data system.
- Cleansing, Classification, and Import
Your central repository should cleanse and classify new transactions automatically, based on the classification rules that you (or your vendor or services partner, on your behalf) have created. You will need to review the results of this classification for new and existing spending, and you will need to update your vendor and GL masters, but you should ensure that these processes are managed consistently and smoothly.
- Baseline Reports and Spend Reports
Your spend analysis tool should be set up to create the reports and summaries that your finance teams and executives will want to see on every data refresh.
- “Low Hanging Fruit” Opportunity Analysis
Your spend analysis tool should be configurable to run “low hanging fruit” opportunity analysis reports that look for variances between actual spend and estimated spend based on external benchmark results. Those external benchmarks must be managed and updated on a regular basis to keep these reports useful.
- Integrate with your Contract Repository
Maverick spending can’t be positively identified until you’ve eliminated spend which might be on contract. Integrating contracts with your spend analysis system will enable you to definitively identify off-contract spend (although be careful: the inverse is almost certainly NOT true, since true compliance requires much greater insight than is available from the A/P level).
- Run Maverick Spending Reports
In line with the above, make your life easy by running maverick spend reports on every refresh.
Once the tactical grunt work is out of the way, make sure your senior sourcers have access to a leading analysis tool like BIQ (which is also used by Iasta as part of their end-to-end sourcing suite), and let them dive in to the data and find savings opportunities you never knew you even had, like:
- Overspending on Computers and Peripherals
Many sellers and resellers love to give you “best price” guarantees because they know that as long as they don’t raise the price during the contract term, you’ll probably never notice when they charge you $995 in 6 months for the same system you paid $1000 for today. Given that electronics typically depreciates 3% (or more) a month, it’s easy to calculate that you probably shouldn’t be paying more than $844 for the same configuration in six months.
You do this by loading in historical market pricing for the last year and comparing what you’ve spent to what you should have spent. If you have a “best price guarantee”, you use the generated report to go to your vendor and demand a refund.
This happens so often, and many big companies overspend so much, that there are some boutique consultancies that pretty much make their living just finding overcharges on commodities such as electronics equipment and office supplies.
- Fraud Reduction
This could take the form of spending on a commodity in a department that should never be buying such a commodity (such as X boxes by accounting) or spending on non-approved or banned suppliers (such as to a company owned by a friend of an employee or, worse, the employee himself). It could also take the form of finding fraudulent charges made by your employees (like the sales rep who submitted the same dinner receipt for $484 six months in a row under “client entertainment” or the executive who likes to charge his weekly lap dances to his corporate credit card).
- Loss Prevention
Did you know that sometimes it’s more profitable to let your customers keep old equipment for which leases have expired or which has broken down and is still under warranty? If the cost of reclaiming it, inventorying it, and then re-selling it or auctioning it is more than what you will realize, it’s cheaper to let the customer keep it. At least one insurance firm is saving a fortune by using their spend analysis tool to determine when it’s more cost effective to let the customer keep the damaged car. If it’s going to cost $1,000 to transport and process but only sell for an average of $500 at auction, what’s the point of taking it?
- Invoice Analysis or Compliance, Compliance, Compliance
How many spend cubes should you build? The answer is, “many.” That’s because invoice analysis (required for true compliance) requires analyzing invoice data that can vary in format and content between suppliers.
As Jack Welch once asked, “How do you know you’re getting the pricing you contracted for?” If this question reduces your procurement staff to incoherent splutters, as it usually does, you’ll understand the need for invoice analysis!
- On Beyond Compliance
Suppose that you find that the price for 5 pound express mail packages was correctly calculated by the freight vendor in every instance. But are you correctly estimating how many 5 pound express mail packages you are sending? Is the loading dock staff perhaps forgetting to fill in the weight fields on one-pound packages?
Up Next: Contract Management Integration – It’s Easier Than You Think
YOU WILL COMPLY!
Seven of Nine