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Spend analysis

How do we spend?
The basis of strategic sourcing and category management

Jean-Louis Moreau
Business Consultant & Interim Executive

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Spend analysis
Benefits
• The window into strategic sourcing → Enabler to strategic
sourcing and category management.
• Improved visibility in third-party expenditures (TPE).
• Allow for opportunity identification → “Buy less, Buy better,
Buy cheaper” methodology.
• Increased control over third-party expenditures.
• Enable risk management over TPE → A key process of SM.
• All functions benefit from a Spend Analysis Program.
• …

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Spend analysis
Steps
• Procurement (Category) classification → Commonly
underestimated but crucial to the next steps, and will remain
for many years once initially implemented…
• Gather data from multiple sources, Account Payables, ERP,
PO’s, P-cards, Supplier systems, …
• If available, use big data and internet of things outputs.
• Data cleaning and enrichment.
• Spend Discovery → Multi-cube approach to make data
meaningful (Categories, direct-indirect, suppliers, BU’s,
geography, process, buyers, authorized or not,…)

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Spend analysis
Sup-
pliers
PO’s AP Spend data

Bu’s
P- Direct

cards BU 1 Geography
Indirect Zone 1 Zone 2
BU 2

Classification

Raw data
Cleaning

Enrichment

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Spend analysis
Procurement classification
• First step prior to any data analysis
• Define product groups or categories: Consistent families of
product or services, facing a specific supply market, for which
a purchasing strategy can be elaborated.
• Classification/Coding systems exist such as UNSPSC or CPV
codes developed by the European Union.
• Far better is to develop a specific system to fit own needs.
• All functions should be involved in the classification process.
• Many possibilities of classification: by Function, Destination,
Usage, User, Manufacturing process, …
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Spend analysis
Spend discovery
• Data should be accurate, reliable and presented to be
relevant/meaningful for the user.
- Spend per product group / supplier.
- Number of SKU’s per product group.
- Number of suppliers per product group.
- Number of potential suppliers.
• Same data as above per BU / Region / Country / Location.
• Depending on available technology to produce results.

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Spend analysis
Identify
Perform Redistribute
Savings
Benchmarks Sourcing
Opportunities
Spend Data

Manage Improve
Quantify
Supplier Legal
Savings
Relationships Compliance

Reduce Recover
Improve
Maverick Over-
Processes
Spend payments

Manage Improve
Manage
Co-operative Diversity
Risks
spend Spend

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Spend analysis
Key success factors of a Spend Analysis project
• Know your data, accuracy, reliability, relevance.
• Garbage in, garbage out … Keep it clean as much as possible.
• Technology should support the business, not drive it.
• Team alignment is key to support the organization.
• Improve organizational visibility to follow user adoption.
• Measure constantly, report frequently.
• Demonstrate benefits to all functions.
• Procurement Portfolio Analysis with the appropriate
techniques (Constraints, Kraljic, …) is the link between Spend
Analysis and Strategic Sourcing/Category Management.
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Thank you
Questions?
Next steps

https://www.jlmconsultant.com

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