A spend analytics expert has offered rookie procurement pros five key spend analytics measures to help them achieve solid cost reductions, whatever field of category management they are assigned to.
Writing for the online SCM information resource, Supply Chain Brain, Erin McFarlane begins with Total Vendor Spend (TVS). It requires procurement pros to liaise with finance partners to establish what the company standard for designating something as a vendor expense is, then aligning procurement’s number with the firm’s ledger dates and categories. TVS is important because it counts toward a firm’s revenue. Procurement practitioners need to be clear about how many companies this spend category covers as well as how many systems of record exist.
Next is getting a handle on Direct (purchases directly included in company products) vs Indirect (purchases that aren’t) Spend. For example, when a firm subcontracts to fulfil customer requirements, or when a vendor product is being sold directly to customers, both are direct spends. Though challenging, substantial cost reductions can be achieved with indirect spend – the items a firm buys to support its operations. These are less industry-specific items and canny procurement pros can squeeze some impressive savings from the marketplace.
Influenceable and Managed Spend. Influenceable spend refers to spend that procurement can alter through negotiation, shifting demand, or selecting different suppliers. It can include spend areas often seen as ‘procurement-unrelated’ such as loan repayments, lease or rent payments, postage, taxes, employee reimbursements. Savings can be made on all but may need negotiation with leadership to ‘get involved.’
Keeping an eye on the firm’s highest-spend suppliers (strategic suppliers) is crucial, especially in assessing supplier risk.
Last but by no means least in McFarlane’s list is Tail Spend Management. Purchases that represent only 20% of procurement’s total spend but are spread out over 80% of the company’s vendors. This area of spend, especially when augmented by automated tail spend management solutions, can be a great way to achieve impressive cost reductions.