Preparing for a Spend Analysis

I have been working in procurement spend analysis and adjacent functions for several years. In that time, I have had the opportunity to implement spend analysis tools across large procurement organizations, directly classify data using various tool, complete manual spend analyses, and build processes around spend analysis tools. To put it succinctly, I have had a bit of experience with spend analysis tools and related processes. I’d like to share some of my insights and tips for navigating a procurement-focused spend analysis.

Everything starts with the data. Regardless of the tools you use, the firm you hire, or the expertise within your in-house team, if your data isn’t complete and well understood, your spend analysis time and efforts are going to go to waste. It is critical to be able to communicate effectively about the data you intend to assess.

• Understand your data before asking someone else to understand it - This means knowing what each field of a dataset represents and understanding why some data may be incomplete.
• Include the level of detail in your dataset that you wish to analyze – If you need to understand where purchases are being made, include the purchasing location data in your data pull.
• Understand the parameters used to pull your data – You should be able to clearly explain what date fields were used and why, what business units, GL codes, or type of spend were included or excluded and why, and how each dataset relates to the others.
• Review your data for discrepancies before handing it off to a third party for analysis.

Be reasonable about the insights you plan to glean from the data. Spend analysis is not magic, it is (or should be) a standardized process and methodology for reviewing, cleansing, and classifying data. Again, it comes back to the data. If you have not included business units, locations, GL codes, buyers, etc. you will not be able to analyze data using these parameters. For this reason, your data collection practices are important to understand. If you are not collecting the relevant data before you engage a team for spend analysis, you will need to add to or supplement the dataset(s) you intend to assess. It is important to consider what you want to get out of a spend analysis prior to putting time and resources into a full spend engagement.

Plan ahead, spend analysis takes time. I have yet to see a spend dataset come across my screen that doesn’t need a significant amount of cleansing and review. Just the data cleansing step can take a good amount of time. To avoid unnecessary rework, the data cleansing step must be done correctly, this means allocating the time and human capital necessary to complete the task. Planning should involve understanding the purpose of a spend analysis. Are you looking to identify opportunity for strategic sourcing? Are you looking to get a handle on maverick or non-PO spend? Do you want to assess the effectiveness of your purchasing policies? Are you trying to budget for the next fiscal year? Do you plan on repeating the spend analysis on a periodic basis or is active spend management your end goal? By answering these questions ahead of time, you can more accurately scope your spend analysis steps to achieve better results.

To get the most out of your spend efforts, you should know your data, be reasonable about your expectations, and plan your course of actions before embarking on your spend journey. If you follow these straightforward recommendations, you should see a comparatively streamlined spend analysis engagement whether you are outsourcing the activities or assigning to your internal team.