The journey from spend visibility to actionable procurement insights
Piecing together the spend data jigsaw
Complete visibility of an organisations spend data is the bed-rock of procurement excellence.
High quality spend data is the basis for the core procurement processes; from strategic planning to supplier management, category management and contract management, through sourcing and negotiation to compliance, governance and reporting.
The quality of spend analytics is directly proportional to the profit impact procurement can bring.
The problem for many organisations is in getting their hands on this.
Issue 1 - It's usually based on data created for another purpose
The base data for procurement is the accounts payable transaction data - the definitive record of what a company has paid, to whom and for what.
Overlaid on that will be purchase order data sets, expense claim data sets, purchasing card data sets and any catalogue order data.
One of the biggest issues about this is that accounts payable data is good for financial reporting but not good for procurement.
In order to get from ‘accounting numbers’ to actionable, supply-market intelligence requires a process of data aggregation, cleansing, validation and then detailed, transaction-level categorisation.
The data needs to sit in supply-market categories - not accounting buckets.
Issue 2 - Systems
As accounts payable data sits inside the finance system or an ERP system, it’s not always straightforward to actually see it. Of course, the finance department can run reports but they are finance reports, not procurement reports.
In order to transform the data it needs to be extracted and in many organisations this can be problematic, cumbersome and time consuming.
Issue 3 - Complexity multiplied
Data rarely originates from a single source. Often multiple systems and different data sets are involved.
In many instances data might be drawn from multiple companies, multiple subsidiaries, multiple charts of accounts, multiple languages, acquisitions, diversifications, restructures….the complexity builds.
The more complex the organisation, the harder it is to piece together the picture.
Issue 4 - Scale often makes things even harder
The bigger the organisation, the harder it seems to get good spend analytics.
Centralised ownership of procurement spend data is often a rarity. More often than not it sits across an organisation, making it very difficult to formalise.
Head of European Procurement
This is a huge undertaking. We have over 50 individual business entities, each with their own ways of capturing spend data and each with varying levels of cooperation in providing us with what we need
So how to go about it?
A global law firm, which had grown rapidly following a number of large scale regional mergers, wanted to create complete transparency of its spend as a first - and crucial - step in informing a centralised approach to procurement.
With a polycentric structure and a significant number of individual business entities around the world, the task seemed daunting.
Working with input and guidance from an external procurement partner, specialising in the creation of spend analytics, a strategy was formulated which would include a four step process:
Step One: Gaining senior level stakeholder backing and support.
With each business entity capturing data in different ways and with varying levels of on-the-ground engagement, it was agreed that a carefully constructed message from the firm's influential Global CFO would be issued at the commencement of each individual activity. Communicating what was required, why the activity was important for the firm and the local advantages would play a key role in shaping expectations and encouraging cooperation.
Step Two: Testing the model
A small number of entities were selected to test the process with. These were selected on the basis of being the most straight forward, least problematic and generally supportive areas of the firm to begin with.
Local points of contact were contacted directly, with an introduction from the Global CFO.
A data template, outlining exactly what information was required was issued and the process of extraction began. The subsequent data feeds were cleansed and categorised by a uniquely formed analytics team, with a spend analytics platform used to begin visualising the outputs in a centralised system.
This was played back to the local leads, to further validate and 'sense check' what was being created. Following this input, further tweaking and additional validation, final analytics outputs were created.
A method for enabling regular spend updates was tested, to ensure this process would be easy to achieve once this initially complex and time consuming activity was completed.
Step Three: Rolling the approach out to the firm's big spend areas
With the process now tried and tested, the major part of the project could be implemented, with the aim of taking 80% of the firm's biggest spend areas and business entities through the journey.
Each individual entity would, as in the test phase, be contacted by the global CFO, with clear guidance on what data would be required, analysis, categorisation, validation and final modifications all played back at a local level.
Slowly, over the course of 3 months, the global spend picture began to emerge.
The data refresh approach tested in the previous step could also now be set in motion, with the aim of achieving complete quarterly updates and as much real time insight as possible.
Step Four: Completing the jigsaw
As the lion's share of the spend came together, a final push would be required to include the smaller spend / small entity elements remaining.
The final output included several striking benefits:
- For the first time in its history, the firm achieved complete visibility of all supplier expenditure across all global business entities.
- Crucial 'value add' was created through expert consultancy input - helping to turn basic spend intelligence into actionable insights.
- A programme of activity to deliver substantial enhancements to global procurement was created, with the aim of securing improved value for money for the firm and substantial financial savings.
Points to consider
- Creating excellent spend analytics can be a challenge but is possible given the right resource
- In instances where this will be complex, starting out small and testing the approach first is an excellent way of saving time and unblocking barriers
- Getting it right can be an excellent way of identifying quantified opportunities for savings and engaging stakeholders in any programme of cost reduction