10 Best Practices in Spend Analysis

10 Best Practices in Spend Analysis
Spend analysis has become the cornerstone of sourcing success.
Unfortunately, most companies lack sufficient accurate and reliable data and timely insight into their corporate spend. As a result of not knowing what they spend, on which products and with which suppliers, decisions are made on guesswork.
Extensive research by the Aberdeen Group has established that more sourcing decisions are made on intuition rather than on fact due to poor and incomplete spend information.

10 best practices in spend analysis

1. Audit your current capabilities. Establish where your spend information is stored within your systems and how good the quality of it is. Be realistic about what you know and how reliable it is. Find out what you don’t know.

2. Access all spend-data sources within and outside the enterprise. That means delving into your invoices and payments, remittance advices and ad-hoc financial transactions. Also source information from your bank and credit cards, your service providers and partners and affiliates.

3. Implement a common categorization scheme across the entire organization so that spend is classified in a way you can use it. In spend analysis it is preferable to use an industry standard or a general option e.g. UNSPSC.

4. Use system software or expert service provider to help you “cleanse” and reclassify your data on an ongoing basis. They use automation tools to streamline any spend that is not already classified. Payments are often made outside your financial system, through third parties or to one-time vendors.

5. Employ category experts to advise you and ensure that your classifications make sense and that they are complete, valid and accurate. New purchases can be auto-classified and any exceptions must be addressed.

6. Do your spend analysis down to the most detailed level. This should be such that you can identify the item bought, who from, the user division or location and the buying entity. The goal should be to have 90% of your spend classified.

7. Enhance your own data with other business intelligence.
Use external sources of information on economic activity, raw materials, packaging, logistics which will assist you in understanding your own data. There are many published sources of information designed for purchasing people.

8. Increase the frequency of your spend analysis. The business environment is dynamic and prices change, suppliers fail, contracts expire and sales fluctuate. Automating standard reports that you have scheduled means that you get up to date information as often as you want.

9. Use decision support tools. Too much information in too much detail needs to be managed so that you are not overwhelmed. Select reports in the sub-category or specific view you need and export the data to work on it further.

10. Continuously improve your spend analysis. Spend data is a work in progress and should be treated as a continuous improvement project. The more insight there is, the better your decisions.
Reference : http://www.unspsc.org/AdminFolder/Documents/3Q04-Minahan-BP_Spend_Analysis_Rpt110304f.pdf