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SECTION 2.1 - SPEND MANAGEMENT
What visibility do organisations have of their overall expenditure on products and services? How can spend management be used to identify cost-saving opportunities? What are the most readily accessible cost-saving initiatives? Spend Management delivers visibility and control of spend on third- party products and services, and provides understanding of cost make- up and drivers. Analysis of spend should be the precursor of any sourcing activity, but it is not always an easy process. Not so much because it requires complex analysis but because spend information is scattered across the organisation, in different departments, business units and regions and is usually collated and reported in a way that meets the requirements of the finance department rather than procurement. Based on the fact that a lot of the organisations in the survey reported that management of spend occurs outside a central procurement function, we assume that gathering the spend data in the required format for analysis can be a time-consuming activity for these organisations. Irrespective of the challenges in gathering data and the technicalities in analysing it, 91.8% of our survey participants said they conduct a spend analysis exercise at least once a year. In our view this is the maximum interval that should be permitted before overall spend is reassessed. Only 5.1% of the organisations said they have never conducted such an analysis.
Figure 14: HOW OFTEN DO YOU CONDUCT AN ANALYSIS OF THE OVERALL THIRD-PARTY SPEND ON PRODUCTS AND SERVICES?
More than twice a year Once in a year Twice a year
44.9%
31.6%
15.3%
Never
5.1%
Ad hoc / on demand
2%
Once in two years
1%
0
10%
20%
30%
50%
40%
Analysis of spend can be done for reporting purposes and for monitoring spend against budget. This is the kind of analysis that the finance function and budget holders are mostly interested in. However, from a procurement perspective, spend analysis is an extremely useful tool for highlighting opportunities for better spend management, leading to cost savings. Procurement professionals can use this analysis to rationalise the supplier base, challenge internal demand, improve the invoicing process, restructure the way spend is recorded, change buying behaviours, prepare for a sourcing activity, assess the level of off- contract spend, understand market price changes, and so on.
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