Do You Know Specifically Where 80% of Your Spend is Going?
I often start a conversation with a client or prospective client with this question: “If you knew where 80% of your spend was going, how much better would your results be?”
Almost every person has responded that they would love to have better spend analytics but many factors seem to be in the way. They all know that better information would make them more effective.
Have you ever experienced a well-run program or platform? Of course, we all have.
There is often a beauty and a simplicity in how it runs.
The Olympics are a showcase of this. Watching a team or individual who knows what to do in every situation and executes flawlessly despite the pressure is a wonder to behold.
I marvel at the strength and agility of gymnasts and the seemingly effortless strokes of swimmers.
Sometimes the press will proclaim an individual to be an “overnight sensation”. This is so far from the truth. True champions have put in endless hours every day perfecting their craft to make it seem effortless to the rest of us. They have battled adversity, injuries and mental fatigue.
The takeaway is that every well-run system is the result of continuous effort every day. The people running it must have a passion to be great. If they don’t, they will settle for average when the battle gets tough or the naysayers come forth.
Every organization has the ability to strategically manage spend. If the 80/20 rule applies, then getting control at the base level of 20% of the items can yield tremendous benefits.
Unfortunately, quality spend analytics are the exception rather than the rule.
I would start the process of change by asking these three key questions:
- What information do we have available right now in each payment, procurement or financial system that will help calculate controllable spend?
- Do we have the ability to code at the SKU, item or commodity level?
- Can we aggregate or export information by vendor and/or project?
Even if you need to export the information to spreadsheets and use some of the advanced analytical tools for analysis, this should identify plenty of opportunities.
The ability to collect the base data in multiple buckets is essential to controlling spend.
Don’t ignore the human factor. Every individual that is part of the procurement cycle can point out flaws and opportunities to do things more efficiently.
Summary information can help you identify the big spend areas and that may be a good place to start.
Asking the CFO and CPO what areas of spend worry them the most is another great idea.
Expense lines that have consistently been over budget is one more place to focus.
How much information do you really need? A lot less than you might realize until you start asking questions and gathering the data you already have.
Based on my experience, the factors I covered today impact all organizations regardless of size. This isn’t just a problem for global organizations. It impacts large regional and local companies too.
A dedicated procurement professional can help you uncover opportunities and employing an outside expert is a proven way to get things done and avoid political turf wars.
Action Step: This type of analysis can yield big benefits especially for smaller or understaffed organizations. This is where a procurement professional like myself can provide guidance and expertise to help achieve measurable results. If you want to go explore this topic in greater detail, please contact me.
EC Sourcing Group is one of the companies I represent because their tools have been created by dedicated and experienced sourcing professionals. They know the day-to-day challenges your team faces and have built their tools to solve them. If you want to know how, I invite you to request a demo or 30-minute discovery conversation so you can experience the platform, process, people, and tools. You can reach me at 973-936-9672.
Next week I will continue on this same theme so your organization can improve your bottom line.
If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
You Won’t Drift to Success©
Think about it.
Until Next Time, I Wish You Great Success in Your Business and in Your Life
Mike Jeffries
Mike.Jeffries@ecsourcinggroup.com