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Spend on Goods and Materials that directly Spend on Goods and Services that enable its
influence the product/service that the primary activity
company is selling. Easier to find and classify!
Travel
Commodities IT
Parts and Sub-assemblies …… MRO & Utilities
Capital Goods and Consumables…..
TAIL-SPEND
Quite possibly the most widely used source ofIf an organization wants to get close to 100%
data. Integrity of data cannot be questioned. understanding, they should look at other
Easily covers more than 95% of company sources. Very challenging and resource-
spending. intensive
OTHER SOURCES
Insight
CSV Format Data
Automate the input from your ERP system into our flexible solution.
Spend Analysis – The
Process
AP
Data
Extract Cleans
AP Data
e
Enrich
Data Extraction
• Mapping and extracting required
Classificatio data fields to data source
n
Analysis Manual Validation
• Data availability under correct
headers and GL Account
Insight
Supplier Normalization
• HCL Bombay, HCL Mumbai, HCL
BOM, Hindustan Computers Ltd.
Classificatio
n
Analysis
Insight
Classify your spend into Industry accepted categories or create your own
based on the need.
Spend Analysis – The
Process
AP
Data
Extract Cleans
AP Data
e
Enrich
Classificatio
n
Analysis
Insight
What are we buying? From who are we buying? For who are we buying?
What? Category
Common Types of Analysis
Cost per unit weight is performed to compare the similar parts. The inherent
Cost per unit weight
assumption is that these parts are similar, and their cost/unit weight should be
Analysis similar. This helps to identify the outliers which contributes to different costs.
Part Price History Plot the trend of a part’s price over 2 years and identify opportunities to re-
Analysis negotiate lower price in cases of unjustified price increases in the past.
Analysis identifies the optimum bracket quantity for cost reduction within the
Pricing Brackets/
available brackets. Can only be done on parts that have contracts that include
EOQ Analysis pricing brackets.
This type of analysis helps identify the relationship between material prices
Indexed Pricing
and part cost and helps us identify opportunities for index-based pricing and
Analysis re-negotiation.
Analysis identifies a way to obtain visibility into freight costs associated with
Freight
procuring parts from suppliers. It helps in selecting a best approach to
Analysis optimize freight costs.
VAT is a tax that is assessed at each phase of the process where value is
added to components or services by different suppliers. It is usually
VAT
recovered when a supplier sells his product to the next supplier in the chain.
Analysis Leakage can sometimes occur when trying to recover the VAT from foreign
governments.
Warranty cost incurred due to defective supplier parts. This could include
Warranty Cost
both labor and part cost.
Recovery
Analysis identifies the optimum way of categorizing parts into a family and
Part Family then identifying potential parts for cost reduction which do not belong to the
Analysis part family due to different processes or alternate processes that could be
used. It also helps in identifying cost outliers within the same family of parts
Savings & Compliance Tracking
An extension of spend
analysis
A logical extension of Spend Analysis is helping track benefits and drive PO compliance. This will
help recover costs and minimize leakage as well as help the Finance/Budgeting organization in
projecting future cash flows
Currently, there are many tools available in the market that offer spend analysis solutions.
1. DATA SOURCES: The ability to handle multiple data sources, providing data in multiple
formats
2. COMPATABILITY: Compatibility with multiple ERP systems
3. CUSTOMIZATION: Almost all tools are customizable, but require a lengthy implementation.
The required capability must be very well defined upfront else it will be hard to work in
modifications
4. VISUALIZATION: Ability to provide information in a clean, crisp manner. Different profiles
need different information – the charts and tables should be different for different
hierarchies
5. CLOUD: This is a must – especially for large corporations who would want data to be
Key considerations
stored on their existing cloud (or) in a cloud located in the same region as their HQ for legal
restrictions
COST
1 Enterprise Tools very expensive
implementation
ALTERNATIVE
Ram Raghuraman
Founder, BCube Global Solutions
Director, ISM India
ram@bcubeglobal.com
www.bcubeglobal.com