Over the last two weeks, we’ve discussed 7 problems Procurement Pros can make that can and will lead to problems while conducting a spend analysis.

In part one (click here), we reviewed issues of timing. In part two (click here), we went over issues of selecting suppliers to account for in our analysis.

For a full rundown of the issues, here are all seven once again:
  1. Ignoring time parameters,
  2. Not accounting for shifting spend trends,
  3. Ignoring low-spend suppliers,
  4. Not taking into account niche players,
  5. Improper cleansing techniques,
  6. Seeking too much granularity,
  7. Failing to act.

We’re in the home stretch now! The final three issues are less about the data we are pulling into our analysis and more about what we do with this data. In the end, we could have excellent data from the timespan and supplier coverage perspectives, but this alone won’t be enough if we don’t use our data wisely.

Improper cleansing techniques
One of the biggest issues that will prevent us from getting a good visual of our supplier landscape is improper cleansing techniques. As a simple example, consider the case of AT&T. At the outset, there are a number of ways this company could be named within the systems we are pulling from. “AT&T,” “AT&T, Inc.,” “AT and T,” “A T T,” and “ATT” are just a few that I have seen – and this name fragmentation is compounded when we consider AT&T’s cellular subsidiary “AT&T Mobility,” which falls prey to not only these same issues, but the chance that such spend records are lumped together with their wireline counterparts. Already, we have 10 possible naming conventions instead of two, with the added threat of consolidating the two different types of spend together erroneously. That’s a good bit of headache!

All organizations face this problem, but it can be most pronounced when:
  • Multiple supplier databases exist that aren’t tied together with some form of Master Data Management;
  • Different departments, business units, or other silos share the same pool of suppliers, but don’t seek to align with each other on said suppliers;
  • Mergers or acquisitions slam two completely separate sets of supplier bases together, at a time when rooting through supplier databases is likely low on either side’s list of priorities.

I spoke before about the domino effect of these issues, and it certainly comes into play here. If we are already of the mindset to mistakenly ignore the small fry in our analysis (see problem #3), then the heavy fragmentation of suppliers will only serve to make potentially big suppliers look insignificant. In other words, our spend with AT&T may be pretty large and warrant further investigation, but if we only see 1/10th of this spend split among all these different names, we may be tempted to ignore each of them entirely. It may require elbow grease to do so, but taking the time to identify alternative spellings and apply a single, universal supplier name is well worth the time.

Seeking too much granularity
Throughout these posts, I’ve tried to stress that due diligence is key. So why am I dialing back here? Isn’t granularity important to truly understand spend?

Yes and no. Ultimately, it depends on our ultimate purpose – In this case, our purpose is to set the stage for strategic sourcing initiatives. Good granularity, in this sense, is doing due diligence and understanding any niche players and how they impact the supplier landscape, as discussed in the last post. So what is bad granularity?

Consider the relationship between an organization and Staples. There is a lot of data that we could collect, right down to the number of blue felt tip pens compared to black ballpoints that get purchased. But why do we need this detail at this stage? Since our goal is to identify candidates for sourcing initiatives, all we need to know right now is how large our spend is so we can further qualify it as a candidate. To do otherwise and seek too fine a level of detail is to risk paralysis by analysis.

There are thousands of items we could purchase from Staples, Office Depot, and a number of other suppliers. The only thing we need concern ourselves with during this spend analysis is the aggregated total we spend with each supplier.

To be clear, there will be a time where we do genuinely want to know all about the types of pens we purchase at a granular level, hence my “at this stage” qualifier. There are plenty of reasons to want a clear understanding of our market basket once we go to market, but this comes into play during the later phases of the sourcing process… let’s first make sure we get to that phase.

Failing to act
Which brings us to our final mistake, failing to come to any sort of actionable conclusion. This one is simple: Think “trees falling in vacant forests” – the best analysis in the world means nothing if we don’t actively use it to advance our strategic sourcing initiatives.

It seems obvious, but this is a real concern. Let’s add up all our issues above to see how:
  • We spend too much time in trial and error trying to identify our correct spans of time (problems one and two)
    We face an uphill struggle connecting with end users and stakeholders to carve out out critical suppliers (problems three and four)
  • We fall to our own internal problems managing our spend profiles, or worry too much about details that aren’t important (problems five and six)

By the time we finish, our analysis may be out-of-date, upper management has lost drive for our initiative, we’ve missed opportunities because contract renewals have come and gone, or a combination of these things. And so, despite best intentions, we’ve failed to act.

Know These Mistakes In Order to Avoid Them
None of the mistakes or examples I’ve used throughout these posts are hypothetical. These are all problems we have seen working with clients over the years, and each of them could have caused big problems if not addressed. By understanding these problems in advance, we can know what to look for moving forward and avoid unnecessary delays and headaches.
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Brian Seipel

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