Identifying and achieving cost savings dissertation goes directly to the companys bottom-line, immediately increasing profitability. The current economic recession has placed a larger, brighter spotlight on cost reduction activities than ever before. Savings stories vary depending on the size of the spend and the nature of the commodity. Spend Analysis can save an organization 200 on a first pass look at p-card spend or save millions of dollars on initial freight analysis. Some large companies with aggressive and mature spend analysis practices performed throughout their organization credit it with saving over 40 million per year. Why some companies overlook the benefits of Formal Spend Analysis every company tracks some information about their spend. They usually have some basic understanding of how much it costs to provide their product or service so that they can price their deliverables correctly.
They still did not understand their spend at the level of detail required for sourcing purposes; data was collected at levels that were too high and was not useful to drive meaningful leverage and savings. Deciding to invest in a new round of professional and more comprehensive spend Analysis and incorporating Global Spend enabled them to discover millions of dollars in hidden opportunities that they could have been saving every year. Which Companies Benefit the most from Spend Analysis Companies who typically perform spend analysis have gone beyond tactical purchasing and are adopting strategic sourcing disciplines. These companies may have 50 million in spend or billions of dollars in spend. Companies of all sizes dissertation share the need for more data, and more intelligence, which will lead to greater savings opportunities. Modern, cost-effective tools have helped progressive purchasing organizations realize that there is too much savings at risk not to collect and analyze spending data. Looking at spend across the company and managing it better is an untapped capability for many companies. The rewards of Spend Analysis are dramatic and easily justified for companies with: Annual revenues of 500,000,000 or higher More than 25,000 suppliers 50 or more different category codes Spend Analysis makes companies more competitive and more profitable.
If you apply this to a worldwide organization with many sites and many systems, the potential for finding better purchasing methods is exponential. The larger the company the larger the data sets that must be collected and managed (spend is much more broad and difficult to analyze within a larger company) but the scope of savings is also much larger. There is so much data to sort through that companies need spend analysis tools that are specifically designed to compile factors and identify opportunities for savings. Sometimes uncovering opportunities in a few commodities can save millions of dollars. The risks of Putting off Spend Analysis: The longer you wait the more money you waste In 2000, a fortune 200 health Care manufacturing Company decided to have an internal it resource consolidate a few databases reflecting the primary us spend within the organization. Accounts payable data was added (few line item details) along with some supplier enrichment data that had been captured for a small subset of the suppliers. Because the organization was at the beginning of a large sap implementation, they deemed this level of information to be adequate in the short term. Some small savings were achieved as the consolidated database was analyzed but, after 6 years of implementing sap, spend details were still not available as needed for deeper sourcing needs.
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What you don't know costs you money! There's a common saying, "you don't know what you don't know." In the absence of happiest a spend Analysis project, companies won't know what they don't know. Not knowing what and where you're spending means not knowing where you can save. Organizations that collect more data and classify it to their sourcing categories discover more opportunities for leveraging suppliers. These may be opportunities that were completely hidden from view (this is especially true for disparate and geographically spread-out companies).
Spend resides in multiple systems (ap, po, p-cards, budget, Expenses, finance, etc) and it might be different systems for different divisions or entities. By integrating all of this granular data, companies can achieve greater insight into expenditure areas that were not previously visible. Most companies identify 100-400 different categories of expenditure breakdown where the number of purchases made from multiple suppliers reveals opportunities for leveraging price and volume discounts. Company spend can be compared to household expenditures. If a household collected detailed data on purchases for a few years, classifying all the expenditures for item categories such as food, rent, property, glassware, software, etc., then it's likely the household would discover better ways to make purchases in the future. Many households have the potential to save thousands of dollars with this simple, detailed spend analysis.
Data-driven Spend Analysis means more capabilities and savings opportunities at less cost. Spend Analysis Basics, spend Analysis Approaches: In-house Efforts, because Spend Analysis appears to be a straightforward database application, in-house personnel (typically it staff) are often eager to take on the challenge of building a spend Analysis system using tools at hand. These tools may be On-Line Analytical Processing (olap) databases such as Hyperion or sql server; or ordinary relational databases like microsoft Access; or even bi systems such as Business Objects, cognos, or sap. Few of these efforts succeed, because data mapping, hierarchy organization, and refreshing of data become problematic and burdensome over time without technology specifically developed to enable them. However, at least one leading e-sourcing vendor in the 1990's produced a spend Analysis system using a third-party olap database, a third-party olap viewer, and third-party services for cleansing and mapping spend data without ever developing any of its own technology.
So there is at least an existence proof that it is possible to build an in-house Spend Analysis system from existing components and services, albeit an expensive one. Manual Approach, spend Analysis can be performed with nothing more than ordinary tools like excel and a sharp pencil. Many sourcing consultants, for whom Spend Analysis is a necessary prerequisite to any advanced sourcing effort, still use largely manual techniques. The problem with manual spend analyses is that they are not repeatable; they are one-off efforts that support one-off sourcing projects. Thus, most of the effort is thrown away and is unable to be re-used the next time spend information is required. Starting in the early 1990's, a few vendors began offering custom Spend Analysis systems. Then in the late 1990's, a much larger number of vendors began to produce Spend Analysis applications; now, in 2007, every e-sourcing suite vendor offers a spend Analysis application, as do several independent vendors, despite significant consolidation in the space. The choices available to customers now range from inexpensive desktop solutions to to seven-figure all-in-one servicessoftware offerings.
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Technical evolution: New Advanced Capabilities and Criteria. With greater customer success at each level, newer technology continues to push advancements in Spend Analysis. Riding the wave of Business Intelligence. Data was always king but Business Intelligence has made it a rock star. Business Intelligence tools are making data easier to manage, store, maintain and classify. Better access to data is thank allowing businesses to employ evidence-based decision making at all levels of their organizations. The ease of collecting data is driving organizations to look at how they can best use the information. Spend Analysis is one of the ways that businesses are extending the power of Business Intelligence data by connecting the information about a product or service with the people responsible for choosing suppliers and negotiating prices. The additional availability of data is increasing demand for data-driven business solutions and Spend Analysis is no exception to this trend.
Many companies are embracing the idea that they can't afford not to incorporate spend analysis into their spend management system. How Spend Analysis Fits into the overall sourcing Process. Spend Analysis is actually the first step in Spend Management workflow. When organizations begin implementing Spend Management they typically start with some form of strategic sourcing, choosing an obvious commodity based on highly visible factors such as quantity purchased, number of suppliers, or widely varying price points. Eventually organizations run through low hanging fruit and realize that in order to manage their costs they must understand where they are spending their resources: what goods and services they are purchasing, how often, list at what cost, and from which suppliers. The process of collecting and classifying this information is Spend Analysis. Functional evolution: Organizations start with Spend Classification, eventually achieving Spend Visibility, before progressing to Organizational Spend Management.
What is unique about spend analysis is that each user community needs to look at the same data in different ways at the same time same data, different reports. Leadership needs to see the data in broader, aggregated groups, while sourcing power users need greater detail to drive specific commodity decisions. The evolution of Spend Analysis, spend Analysis has recently emerged as a larger, more integral piece of corporate spend management. Formerly, spend analysis was primarily the purview of big companies with large amounts of spend under management and significant internal budgets for managing that spend. New technology, new methods of collecting and managing spend data, along with the growing acceptance that in order to manage your spend you have to understand it, have raised interest in spend analysis from companies of all sizes. In a challenging economy with many companies experiencing sales that are either trending down or flat, managing costs may be the only way for companies to improve their bottom line. In recent years, spend analysis tools have made dramatic functional and technical improvements while the costs have gone down. The affordability and power of new tools and technology are proving less sophisticated spreadsheet and gut-feel methods of analysis to be inferior.
Technically, spend analysis is the process of aggregating, classifying, and leveraging spend data for the purpose of gaining visibility into cost reduction, performance plan improvement, and contract compliance opportunities. It is part of an overall spend management and visibility process that includes the analysis, award, and monitoring of corporate spend. Additionally, it is the first and last step of the strategic sourcing process that drives total value. Generic spend analysis enables one to answer the following questions: Who is buying, what, from whom. When (optionally) Where, at what price, who needs it? However, good spend analysis is much more than that. It is the process of organizing a companys spend in such a way that one can understand it, slice it, dice it and uncover hidden savings opportunities. Additionally, it impacts more than just the sourcing team. Spend analysis / visibility serves three internal user community groups: leadership and CxOs: who need up-to-date reports to drive strategic direction.
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Spend Analysis and Opportunity Assessment, there's Gold in Them There hills. Executive summary, there's a common saying, "you don't know what you don't know." In the absence of a spend Analysis project, companies won't know what they don't know. Not knowing what and where you're spending means not knowing where you can save, especially the more disparate and geographically spread-out you are. To find the real savings opportunities, organizations must paint a true picture of the spending landscape by utilizing Spend Analysis tools to look at more detail, look at spend of international sites, and break down spend into more refined categories. The improved availability of data yielded by a spend Visibility analysis tool allows businesses to employ evidence-based decision making at all levels of their organization. Data-driven Spend Analysis means more capabilities and savings opportunities at lesser cost. Sometimes, uncovering opportunities in just a few commodities can save millions of dollars. Statistics taken from 100 customer engagements show a minimum savings of 10x's the roi on the Spend Analysis project. What is Spend Analysis: What is it?