Today’s post is from Eric Strovink, the spend slayer of spendata. real savings. real simple. Eric was previously CEO of BIQ; before that, he led the implementation of Zeborg’s ExpenseMap, which was acquired by Emptoris and became its spend analysis solution.

If you have a contract with a vendor, you should be paying the contract price. But until you check, you don’t really know — and what you find out may surprise you.

In Part I of this series we discussed the two pieces of data required — transactions from the vendor, and contract prices for the items under contract. The next step is to join those two datasets together, in this case by Part Number.

Here is what that might look like if we do it in Excel:

This was done by:

• Sorting the contract prices by Part Number so VLOOKUP will work
• Building a helper column K which is the difference between invoice price and VLOOKUP’d contract price (hidden)
• Building a VLOOKUP to compare contract price to invoice price (shown)
• Building a Pivot Table to roll up column L

Lots more could be done. For example, we could:

• Add a computation of the amount of overcharge.
• Add year-month to the pivot table, giving us an idea as to the distribution of the overcharges. Have they all occurred recently, or just in the relatively distant past?
• Produce a table of only the overcharged items, in order to send it to the vendor with a request for compensation.
• Identify “who” is buying the excluded items (more on this in Part III).

However, as the model becomes more complex, it becomes more difficult to maintain. What happens next month, when a new tranche of transactions is available? Who updates the model? Each of the formulas and pivot tables needs to be updated carefully — a process that’s irritating and time-consuming at best, as well as highly error-prone.

Make it Easy, not Hard

A spend analysis tool can make this a lot easier. Load the two datasets, and link them by Product Number. Then build a price difference column, set up a range, and you’re done. This requires no advanced Excel knowledge, and produces a model that updates automatically when new data are added. This dashboard was put together using Spendata, but there are certainly other options.

And now, adding next month’s data to the analysis is anticlimactic — literally a couple of clicks, and everything auto-updates. So, even if you could “do it in Excel”, you won’t, because it’s just too painful. But if you use the right tools, you can produce compliance models quickly, and you can maintain them with near-zero effort.

We’ll conclude our discussion in Part III: Monitoring Demand. Thanks, Eric!

Today’s post is from Eric Strovink, the spend slayer of spendata. real savings. real simple. Eric was previously CEO of BIQ; before that, he led the implementation of Zeborg’s ExpenseMap, which was acquired by Emptoris and became its spend analysis solution.

If you have a contract with a vendor, that’s good news — you’re not paying list prices any more. At least, that’s what should be happening.

It’s fascinating what can really happen. We’ve recently seen a vendor raise prices in a distant region while maintaining contract prices in the headquarters region. This and similar disparities aren’t necessarily deliberate — mistakes can be made by anyone. Even items purchased through an e-procurement system can fall off the price-compliance applecart as a result of exception-handling processes. The lesson is that “Trust but Verify” is a necessity, not a nicety. And, since manual inspection of a large volume of items and invoices is impossible, this process must be mechanized.

The good news is that many goods and services can be standardized with a fixed price. These items can easily constitute 25-30% of spending. For these goods and services, contract compliance is (at least conceptually) straightforward. Examples include physical items, such as computers, office supplies, phones, furniture, MRO parts, facilities supplies, vending items, security equipment, mobile phone plans, stationery and forms, promotional items — even some types of software. Services examples can include cleaning, appraisals, training classes, recruiting, records management, armored car, overnight mail, hotel, and car rentals (when they are for a fixed unit of time or work).

If contract compliance for these goods and services is straightforward, why doesn’t everyone do it? As usual, the devil is in the details.

1. Who builds the (usually spreadsheet) compliance model?
2. Does the model show who is buying off-contract items from the vendor? Which items? When?
3. Who loads next month’s data into the model, and adapts it accordingly? What’s the cost of this, versus the payback?

For these questions, invoice data, aka Price X Quantity (PxQ) data, is required.¹

Acquiring Data

PxQ data is best acquired directly from the vendor. It’s your data; you have a right to it; and you’ve a right to ask for it. Many vendors will supply it in a reasonable format, such as in an Excel spreadsheet, or as a CSV or DSV file. Some vendors, though, will attempt to discourage you by providing data in an unreasonable format — for example, by supplying every invoice they’ve sent, in PDF format, as an individual file (don’t laugh; we’ve seen this). You may want to consider whether doing business with that vendor is in your best interest moving forward. Certainly you should write into any future contract that the vendor must provide PxQ data in a reasonable format.

But, you also need contract data — that is, contract price by item. That data is probably already in a reasonable format, for example as an addendum to the contract. At worst, it can be keyed in manually or minimally edited into shape.

So, there are two datasets to consider. The first, consisting of invoice level PxQ data, comes from the vendor and resembles this:

The contract pricing, which you should already have, resembles this:

Once you have the data in this form, you can easily figure out whether the contract is leaky or solid. We’ll continue this discussion in Part II, Monitoring the vendor.

Thanks, Eric!

¹Accounts Payable-based spend analysis can help to determine what spend is definitely not under contract. But it is helpless to address contract compliance issues.