Mostly Harmless, Part XVIII
In the last post, the analysis process was discussed and some of the basic questions were defined. This post will address the some of the associated challenges of the analysis process, some associated best practices, and the benefits that could be expected from an appropriate e-Procurement solution.
Common Challenges
The literature will claim that there are many challenges with regards to spend analysis, and that these challenges will revolve around data cleansing, data classification, and data enrichment, but the reality is that there are generally only two real challenges: access and analysis.
- Data Access
In order to do data analysis, an analyst needs access to the majority of the relevant organizational data that represents at least 90% of the spend in the categories that the buyer wishes to analyze. Without a centralized e-Procurement system, this can be difficult as some spend will be in the ERP/MRP, some in the accounting systems, some in the P-Card system, and some in various departmental systems.
- Insightful Analysis
Top N reports are not analysis. Spending trends are not analysis. Automated reports are not analysis. Analysis is the ability to slice and dice the data eight ways from Sunday to allow for the identification of unusual spending patterns that represent true savings opportunity.
Best Practices
- Force Every Purchase Through the e-Procurement System
Forcing every purchase through the system not only significantly reduces maverick spend, but it provides a centralized repository of all transactions which provides a solid foundation for spend analysis.
- Force Every Payment Through the e-Procurement System
If the e-Procurement system does not support e-Payments, insure that it supports a record of payment against each invoice and that all payments are loaded into the system and cross-referenced with associated invoices, goods receipts, and purchase orders. This is necessary to take spend analysis to the next level. While many vendors will claim that only AP data is needed for spend analysis, the reality is that AP, invoice, and purchase order data is needed for spend analysis. Without the m-way analysis, it is impossible to tell if overpayments, which could be recovered, were made. Without the m-way analysis, it is impossible to identify all maverick spend, which is the first step in reducing future maverick spend. Etc.
- Do Ad-Hoc Analysis Whenever There is a Possibility for Savings
Traditionally, data analysis was avoided because the cost of analysis was high relative to the savings potential. However, with the right tool, the cost of an ad-hoc analysis is no longer the five or six figures it used to cost, it’s now three or four figures — which makes even a maximum five figure savings opportunity worth analyzing, especially if a preliminary analysis can be done in an hour or two! Even if only one in ten hunches pays off, if it only costs $1,000 of an analysts time to do an analysis, and the one pay off is $100,000, that’s a 10X ROI.
Potential Benefits
- Savings
Real analysis will identify overpayments that will lead to immediate savings. Real analysis will identify maverick spending, which will lead to more savings when it is prevented. Real analysis will uncover new savings opportunities, which will lead to more savings. Real analysis is savings.
- Better Procurement
Finding and eliminating maverick spend through better processes leads to better procurement. Understanding spending patterns leads to better procurement. Saving money leads to better procurement.
Once the analysis is complete, it is time to review and update the catalogs and contracts, which is the subject of the next post.
Next Post: Catalogs & Contracts, Part I