Why Bother Classifying Spend? 3 Ways Spend Analysis Will Improve Your Life … Part I

Today’s guest post is from Brian Seipel, Spend Analysis lead at Source One Management Services focused on helping corporations gain a clear view of their spend data to derive actionable budget optimization strategies.

Let’s face it, you and your team have your collective hands full keeping the Procurement trains running each day. Adding a spend analysis initiative on top of everything else being juggled? Well, that may be one ball too many to keep in the air. It seems like an unnecessary added step you simply don’t have time for and, really, what’s the point?

Through years of working with clients to develop and execute strategic sourcing initiatives, I have found there are two camps I can sort organizations into. Which side a client lands on is indicative of how much work lies ahead in terms of helping them truly control spend. Organizations will either be pro spend analysis… or barely spend time on the subject, if any at all.

To be fair, many organizations run a tight ship in terms of managing spend – but there’s still room for improvement for a good number of others. There are some great reasons to make a proper spend analysis a priority. As such, I wanted to take a minute to extol the virtues of this process to show some of the benefits you may be missing out on. See below for my top three reasons a proper spend analysis should be the next initiative you spend some time on.

A Tale of Two VARs

(Value Added Resellers)

First, I’d like to set the stage a bit. Consider the relationship between an organization and its IT hardware/software value-added resellers. In this scenario, we have two such VARs; one servicing the organization’s New York branch, the other servicing Philadelphia.

These two VARs have a lot in common. Both serve the same North East region, both offer stellar customer service, and so far the relationship has been good on all sides. Each office comes away satisfied after reviewing their VAR’s track record. But is that all there is to the story?

Generate More Savings

One of the most apparent (if not THE most apparent) reasons to analyze your spend is the impact such an analysis has on strategic sourcing initiatives. At the most basic level, an organization needs to know several key facts before developing a strategy around cost savings:

  • “How much money are we spending, and who is spending it?”
  • “Who is that money going to?”
  • “When are these transactions happening?”

These seem like simple enough questions, but getting the answers can be tricky. To kick off our VAR example, one great way to save money with such VARs is to leverage your spend volume to negotiate rebate structures and develop reduced unit pricing for all purchases. The more you spend, the bigger the rebate and the greater the incentive for VARs to offer unit price discounts – and these things can add up quickly. Consolidating spend to as few VARs as possible helps to maximize this strategy, and both our VARs service the same region. However, because New York and Philadelphia each use two separate VARs, neither will be able to negotiate as strong a rebate, and we likely won’t make much progress in commanding discounted rates. Each location may have a great relationship with its respective VAR – and Procurement wouldn’t know they were missing out on a savings opportunity until a spend analysis revealed this missing piece.

But this is just one way spend analytics will change your life.

Thanks, Brian.

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