In today’s global economy, in which more than half of your products and services might be sourced from suppliers in different countries, the ability to systematically manage a large and diverse supply hase would well prove to be the single most important differentiator between leaders and laggards in the future.  

Spend Analysis is the starting point of strategic sourcing and creates the foundation for spend visibility, compliance, and control.  Spend Analysis organises procurement information via supplier hierarchies, commodity alignment, and spend amount in order to ascertain true category spend, identify strategic sourcing opportunities through demand aggregation and supplier rationalisation, and identify expense reduction through increased compliance in the form of vendor rebates, contract compliance, eliminating ‘maverick’ spending, and budget variance.  

Spend Analysis is the groundwork for successful purchasing and procurement.  Procurement and purchasing professionals will typically go through one to three months’ worth of invoices to analyse.  This process involves identifying specific categories of spend, volume of products and prices of products.  The procurement and purchasing professional will collate this data into a report broken down by category to show the business owner/operator what, and how much they’re spending per category and per product. 

If the business has a purchasing system to draw this information from, this can speed up the process as most systems have built-in reporting of this nature.  Otherwise, invoices will do just fine.  Depending on the size of the business, it may be recommended that a system of tracking spend is implemented to ensure transparency and visibility of the data so as to identify the categories of spend that need attention.

Having access to existing supply chain data means that procurement professionals can analyse, dissect and create reports for business owners to see exactly where they stand when it comes to their variable costs.  Fixed costs can also be reviewed within this service but typically variable/operating costs are analysed as these are more able to be flexed as a result of business levels and demand.

A client will give the procurement and purchasing professional access to all invoices and purchase volume data to facilitate the spend analysis reporting.  The purchasing professional will then breakdown the data and categorise it to make it easier to identify opportunities.  Most suppliers do not offer a diverse product range and only offer specific categories of product.  This means that pricing can be better negotiated and consistency of supply is easier to guarantee as they should have ample stock to draw from.

It can be observed that some business operators use Google to search for products and will end up paying retail for operating supplies.  This is especially the case when it comes to smaller, independently owned businesses.  There is an immediate opportunity to reduce the costs just by contacting the suppliers directly and asking them for trade or wholesale prices.

Once the report is generated, the procurement and purchasing professional can then move on to the Cost Reduction portion of the service if required.