It is crucial that organisations have clear visibility of what they are buying and how much they are spending. Yet few organisations have a good understanding of their spend visibility.
For most organisations complex indirect spend categories pose an opportunity for significant savings and efficiencies but are often seen as too challenging to address. Professional Services, Travel and Expense, Print and Marketing Procurement can represent substantial spends but require specialist expertise and technology platforms to achieve savings and efficiencies.
However, with cost pressures on most organisations, complex categories need to be considered a higher priority – especially as savings of up to 40% can be achieved. A good example is the category of Print and Marketing Services Procurement. Print and marketing services are surprisingly large spends for most organisations. Dependent on sector, this category can represent between 0.5% and 3% of revenues. Yet much of this spend falls outside the visibility and control of a formal procurement program making it difficult to evaluate spend.
The solution
To address these problems a good place to start is to initiate a spend analysis program. Carrying out a review of historical purchases and summarising the data by supplier, category and business department, is the best way to identify opportunities to save costs
A good spend analysis programme will identify areas where costs can be saved:
Spend analysis of categories
Categorising into types of spend typically reveals useful insights. Identifying categories where there is a lot of spend can indicate areas where a company is paying too much for a product or service.
Spend analysis of suppliers
Understanding which suppliers have been used, for what and how they have performed is a critical area of analysis. In many organisations, suppliers are given orders because they were “convenient”, “cheapest” or “wanted the order”. Additionally if there are a large number of suppliers within a category this could suggest that an organisation is not getting discounts that it could get if it optimised its supply base. Only with real information can suppliers be assessed on an ongoing basis.
Spend analysis of non-expert buyers
Purchasing professionals know how to get the best deals but the responsibility for buying certain materials is often delegated to junior staff with little or no experience or understanding of what they are ordering. When purchases are made by non-purchasing professionals it’s likely the prices being paid will be higher. When these areas are identified significant cost savings can be made.
Timing – when money is being spent
An understanding of when an order was placed can reveal variances in price due to utilisation of supplier resources. Prices drop when suppliers are eager for business, offering opportunities to reduce costs.
It is also important to identify categories where prices are increasing year after year as price creep will erode a company’s profit in the long term.
Making savings
As with any spend analysis programme, the conclusions and recommendations are where the real value is. In our experience of spend analysis projects for complex categories, especially marketing services and print, the key recommendations are:
- Gain senior procurement and marketing buy-in early
- Engage independent category experts
- Implement the best practice processes and tools to streamline sourcing and procurement processes
- Deploy the right strategy for the type of spend
- If you outsource, find a way of independently monitoring performance
- Ensure you monitor and provide objective feedback to your suppliers – collaboration delivers benefits to both buyers and suppliers
