Review of “The ABCs of Spend Analysis:Change the way you source”
Review of “The ABCs of Spend Analysis:Change the way you source”
The key point I took away from Change the way you source was this: “You never know what you might learn in a spend-analysis exercise – or what your suppliers might learn.But the lessons can prompt changes that improve supplier relations and supply chain-management.”
Benefits noted in the article are cost savings, stronger supplier relationships and decreasing lead times. Traditionally purchasing staffs think of spend analysis as a way to consolidate their own spend. Collected data is allowing commodity teams to redesign their sourcing practices.
Charles Dominick with Next Level Purchasing states, “The primary reason for conducting spend analysis is to identify opportunities for cost savings.When you look at the output of spend analysis, there are at least four indicators that are opportunities for cost savings.”
- Indirect # 1 – A large amount of spend in categories for which enterprise-wide contracts do not exist
- Indicator # 2 - A significant Purchase Price Variance (PPV) for a high-spend item or category
- Indicator # 3 – An unusually large number of suppliers for the money spent in that category
- Indicator # 4 – Rising prices over time
If you are currently doing spend analysis or plan to, you should read “The ABCs of Spend Analysis.” You need to get the full benefit of the article, as they say the whole picture. You will read about cost savings that you never thought about.Remember spend analysis is not just for saving money, it is used to improve processes.
Try this on your personal income. You would be surprised how much money you spend on gas, how much money goes for eating out, how much for entertainment and just how much it takes to maintain that life style you like and enjoy.
