Spend reduction programs always start with a thorough spend analysis to identify the unrealized savings potentials in different purchasing categories. This, however, is usually more difficult than it sounds due to geographical, organizational and data challenges. Below, I discuss how to tackle these problems.
Challenges in potential identification
Although companies have developed their data management capabilities a lot during recent years, challenges still exist. Typically, organizations begin their business intelligence projects with sales data. This is understandable as top management is often measured and awarded based on the KPI’s built around turnover and EBIT development. Next phases typically include inventory and pricing related data, leaving sourcing related data among the last ones.
Even more importantly, Capacent has noted, that spend is often followed on a very high level. Many companies are satisfied if they can divide spend into direct and indirect categories, and into a supplier level. If a company reporting is on this level, it is very hard to clearly picture the savings potentials.
We need to answer the following questions to really understand sourcing possibilities:
– What percentage of items have a lower price level this year compared to last year?
– Which suppliers have especially increased their prices – and why?
– Do we use the same suppliers among categories between different sites/factories/building sites?
– Have we considered all spend consolidation potential?
– When was the last time suppliers were properly tendered, and when were the contracts negotiated?
– Did we cover all the important elements in our last negotiation round?
Standardized data for effective identification
Various sourcing projects in different industries have taught us to tackle these problems effectively. Data challenges are solved with a standardized data gathering template that works effectively throughout diverse types of industries. Due to the standardization, data can be directly transferred to the state-of-the-art spend analysis BI tool, which quickly indicates the biggest problem – and potential areas. You get valuable information and you do not need to design and build your own BI tool to analyze your spend and to find your potential.
In addition to the standardization of the data template, Capacent has standardized the data gathering and analyzing processes as well. By utilizing tested project methods, we can promise you two times larger results in half the time, compared to managing all the struggles by yourself.
″ It is easy to forget that every month counts, when talking about savings – typically one or two months faster implementation will pay back the total investment to a development initiative.
Feel free to contact Capacent sourcing experts to really understand your sourcing possibilities:
– Do you want to find out what is your potential?
– Were you able to answer the questions asked in this blog?
– Do you already hope for faster results?
We are happy to discuss your specific targets and challenges and share some ideas we have gathered along the way.