Spend Analysis Is Not Strategic. It Isn’t Always Strategic! Part II

That’s right, in and of itself spend analysis is Not strategic. This isn’t to say that spend analysis isn’t one of the most important actions that your supply chain can take in its effort to reduce costs, improve efficiency, and make the most effective use of business resources, but that the art of simply doing a spend analysis is not strategic.

Spend analysis provides a picture of the products and services the organization is spending money on, whom the products and services are being bought from, the organizational buyers who are spending the money, where the products and services are being bought from, and where the products and services are being shipped to and/or utilized. But this process is not strategic — it’s tactical. Furthermore, this information alone is not strategic. Let’s say the organization is spending 2M on computing equipment. So what? On it’s own, this information is not strategic. And unless the spend is significant (at least 1% of organizational spend) and the number one goal is to reduce total organizational spend by 5%, or the equipment needs to be unique (the organization’s proprietary trading platform only runs on hardware that natively supports AIX Unix), it’s not going to be used strategically. If the analyst compares spend to market prices and determines that reasonable savings are available (5% to 15%), the decision might be to run a sourcing event, but if it’s just another cookie-cutter RFX/Reverse Auction and/or TCO optimization with the same supplier base, it’s not strategic.

And then there’s the most common use of spend analysis in an organization that knows how to use it. Ad-hoc queries to determine if a (duplicate) invoice is being paid twice, if the wrong amount was paid to a vendor, if a department is on budget, if a category has enough spend to warrant a sourcing event, etc. Not strategic. Very important, but not strategic.

The reality is that very few events are strategic, because very vew categories are strategic. Unless it’s a unique product or service, unless the spend is a significant percentage of organizational spend, unless the product or service directly relates to a (long-term) organizational goal, or unless you’re looking for a strategic-partner to share in development, production, costs, or risk (mitigation)s, it’s probably not strategic. It’s probably still important, because every cent and resource counts in today’s economy, but let’s stop confusing tactical with strategic.

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