Good Spend Analysis

Goods Spend Analysis

The return in year 1 is forecast to be 5 times the investment

Any business in search of capital has two main options: grow revenues or control costs. For the past few years, the economy has called for the latter as the most viable option. In fact, most agencies have already drained their internal cost control options and are looking toward the supply chain for the most realistic place to find savings.

Spend analysis is the process designed to find out how much an agency is spending and with whom. It plays a critical role in identifying where cost reduction opportunities lay and how to source products and services more competitively. Spend analysis is often viewed as the first step in the strategic sourcing process, but done regularly, it can help agencies monitor ongoing costs, manage demand, and influence supplier choices all outside of the lengthier strategic sourcing exercise.

With the proper execution of spend analysis, agencies gain the valuable insights necessary to truly follow through with cost-cutting initiatives. These include:

• Ascertain Spending Patterns--The only way to really understand spending patterns is to collect spending data from all systems, such as accounts payable, general ledger, ERP, e-procurement, p-card, and service providers.

• Capitalize Buying Power--Knowing when an agency has maximized its buying power comes from making sure the "spend" is spread as far as it can go, often referred to as "consolidating the spend."

• Carry Out Knowledgeable Management Decisions--Spend analysis ensures no order will be placed without the confidence of knowing the details that went into the decision.

• Direct Constant Improvement--This includes efforts in contract fulfillment and managing the quality of supplier service. Having a rein on costs tends to bring both parties (buyer and seller) closer to successful fulfillment of a contract.

• Devote Effort Toward Planning and Budgeting--As a tool, a spend analysis...