Throughout 2009 companies were faced with flat or declining sales and pricing. To deal with these business pressures many companies used business intelligence to better control costs and align expenditures with revenue. A common area of focus was spend analysis and management because it provides many cost reduction opportunities including decreased material, services, and inventory costs, as well as decreased sourcing cycle times.
BI can help companies get a complete, clean, and consistent view of spend data by
Automating data collection from multiple sources
Automating data classification and cleansing
Enriching spend data with market data
Standardizing dashboards and reports
With better data management and access companies can get the visibility and insight they need to improve procurement performance.
- What materials has the procurement organization purchased this period? In what volumes and for what prices? How has that changed over time?
- How is the total landed cost of a material distributed across unit cost, and other carry costs? Has this changed?
- How many items do we carry on our material list? Has this increased over time? Can we consolidate or substitute items to maximize buying power?
- What types of requests (MRO, manufacturing job orders, MRP) by volume have been processed? Do patterns reveal opportunities for streamlining?
- Are different demand channels ordering similar commodities? Can we synchronize needs across channels or substitute materials for consolidated buying?
How many vendors have we purchased from this year? On average how much is spent per vendor in a specific period?
How do vendors rank by volume and revenue spent? How has that changed over time?
How many vendors do we have for a specific material or material group? What percentage of the volume is sourced from a single supplier?
How do prices compare across vendors for a specific material? Has this changed?
How do vendors compare across payment and delivery terms, quality of materials received, on time delivery, order and invoice accuracy?
- How many transactions are performed for various stages in the procurement cycle?
- How long does it take to move from one stage to the next in the procurement cycle?
- How do processing times relate to specific materials, vendors and buyers?
- What percentages of requisitions are declined? What are the reasons for rejection?
- How does this compare across commodities, and demand channels?
- Where are there opportunities for reducing non value added activities?
- How many requisitions, contracts, and purchase orders are processed across the organization by buyer? What is the average value of each transaction?
- How is each buyer’s activity distributed across vendors, materials and demand channels? Should buyer responsibilities be redistributed?
- Is there an opportunity to consolidate transactions with a vendor through one buyer?
- Are there opportunities for consolidating the purchase of certain materials with certain buyers?
Spend analysis can deliver quick and measurable return on investment through rationalization of supply base; decreased part proliferation; reduction in maverick (off-contract) spending; and elimination of pricing variance between divisions and plants. The business value is primarily driven by;
- Increasing Spend Under Management – According to the Aberdeen Group companies report an average increase in total spend under management of 39.4% after a spend analysis program is initiated. And they achieve a 5% to 20% cost savings for each new dollar of spend brought under management. (Spend Analysis: Pulling Back the Cover on Savings, October 2008)
- Increasing Contract Compliance – According to the Aberdeen Group companies report an average increase in contract compliance of 30.6% after a spend analysis program is initiated. By monitoring contract compliance companies are able to get more control over maverick spending and reduce procurement costs by driving more spend through preferred suppliers.
The following screenshots are from SAP BusinessObjects’ Spend Performance Management solution. It provides complete functionality from back end data management (ETL, de-duplication, classification, parent-child entity relationships) to front end access and analysis.
Dashboards are role based and configurable to only show the information relevant to the user. And users can drill down from high level metrics through multiple hierarchical category structures. In addition, the solution can be integrated with e-sourcing and contract lifecycle management systems.
In this screenshot the Laverton Plant project has a red status. By simply right mouse clicking the user can launch into the SAP ESourcing application to get more details.
The need for management does not end after a sourcing event has resulted in a finalized contract. Integrating spend analysis and sourcing activities helps companies track compliance to negotiated terms and ensure realization of savings opportunities.
An online demo is available at