Spend analysis for Indirect categories

Definition of Spend Analysis

Spend Analysis is the collection process, cleaning, classifying, and analyzing spend data in order to reduce procurement costs, improve efficiency, and monitor compliance. Spend Analysis can also be used in other areas of the business, such as inventory management, budgeting and planning, and product development.

Document to discover: Spend Analysis Model

General procurement management

When it comes to general procurement, the link to business strategy is less vital, except that it must be in line with company values.

Spend Analysis, the aim is to simplify processes. You have three main problems:

• How to collect data;
• How to segment these purchases;
• How do you identify important families?

Document to download: Map your spend using the Kraljic Matrix

Data to be collected to classify general purchases

There will be no effective general procurement without this step, which is as essential as it is difficult. Indeed, by definition, general purchases are diverse and not repetitive, which makes them difficult to “classify”.

consultancy

Take care of your relationships on the accounts payable side, you will need their knowledge.

This step should answer the following questions:

• Who buys what,
• To whom,
• at what price
• What is the recurrence of the purchase,
• why.

Data collection is not enough. It is essential to organize information intelligently.
The first “mandatory” rule is to work on editable files such as Excel or Word (or equivalent) and to absolutely avoid PDF files or, worse, paper versions only.

The context and activity of the company can influence the collection of data, especially when faced with project, machine or construction purchases, or when your company is the subject of a merger-acquisition. However, we emphasize the need to devote time and energy to this stage, without which you cannot build a purchasing policy.

The actors and the tools at your disposal

When you are able to precisely define the data you need, you need to determine the actors and the tools that will allow you to gather this data and manufacture actionable information.

The actors

Information can be scattered throughout your organization, as there are so many people who may need general purchases. Virtually any employee can be a “consumer.” Depending on the activity of your business, you will quickly identify the biggest consumers. Here are the most common ones:

• computer scientists;
• maintenance;
• human resources and/or CHSCT.

As mentioned above, in all cases, purchases result in an order, which gives rise to a delivery, which gives rise to... an invoice. Supplier accounting is therefore preferred. You will find information with a high level of reliability, in terms of turnover. On the other hand, the information may not be organized for “purchasing” purposes. Suppliers with their sales statistics will be closer to your needs.

Collect information as close as possible to its “appearance.” In particular, this means that you should not hesitate to contact your suppliers directly to request reporting.

Asking for information on your purchases is certainly not a sign of maturity of the function, but sometimes you have to forget your self-esteem to get what is essential: information.

The tools

Here are the key questions to determine the right source of information to activate:

• Is the source comprehensive and reliable?
• Is it the easiest to activate, especially in terms of the human resources concerned?

Building a purchasing framework

This is the basis for purchasing analysis. Purchasing segmentation makes the link between the market and internal needs. Identifying segments is essential to define purchasing levers and adapt the strategy to each category.

In order to simplify the reading of your expenses, you set up a repository of purchasing families adapted to the context and activity of your company.

Why build a repository?

The objectives are multiple:

• transform a complex problem into several more affordable problems;
• visualize Purchasing segments homogeneous and as relevant as possible in terms of technologies, sources, risks or constraints;
• have a need management logic so as not to (no longer) suffer from internal hazards.

How do you build a repository?

The repository allows Classify accounts payable not the command lines. It is necessary to determine the main activity offered by your supplier within your organization. Attention, this does not always correspond to the main activity of the supplier.

Distinguish between expenses related to production suppliers non-production suppliers.

Once this distinction is established, you identify two to three levels of precision in writing the repository:

• FShopping family or category: functional classification representing a homogeneous set of activities;
• Sub-category: technological profession detailing a unit of products or services;
• Segment: supplier market allowing each purchase to be classified on a well-defined and restricted market.

In order to facilitate the integration of the repository into your ERP, we recommend integrating a separate code for each purchasing family. This makes it possible to request this number for each creation of accounts payable and thus keep your database up to date.

Present a Spend Analysis

The database thus created is a gold mine for spend analyses of your business. You must be able to visualize purchase expenses for each perimeter of shopping families.

Now, your main objective is to transform the data collected into information, information into knowledge, and knowledge into an action plan. This consists in building an economic intelligence process within your purchasing structure.

In the diagram below, the data collected is communicated in the form of information that is clearly and quickly accessible to your interlocutors.

The next step is therefore to give this information a value that creates gain. Now you need to use your knowledge of the market to establish an action plan for cost reduction.

Conclusion

Spend mapping is based on three main areas: visibility, analysis and process. By exploiting these three areas, businesses can get answers to critical spending questions, including:

• What are the actual expenses?
• Who are the stakeholders?
• Am I getting what was promised for these expenses?

Thus, Spend Analysis allows you to audit all of your company's expenses and to prioritize your high-potential purchasing actions.
Expense analysis is often considered to be part of a larger field called expense management, which includes expense analysis, merchandise management, and strategic procurement.
This work is essential for a purchasing department wishing to contribute effectively to the growth of its organization. Spend Analysis is the only guarantee of efficient results in the short and medium term.
Once the Spend Analysis has been put forward to your management, you will have greater flexibility in deploying procurement policies and will thus be able to better manage your costs and supplier relationships.