Last week I introduced the term Sharp Spend Analysis©. Sharp can also mean to see clearly. A company that has a well-designed spend analysis will be better positioned to see opportunities to make better buying decisions. Targeted sourcing and spend data is essential if you want to identify cost savings opportunities quickly.
Companies and organizations normally have enormous amounts of data available. Regrettably, it often resides in different procurement, payment and financial systems.
This week I will provide a straightforward example of this issue. It is my belief that this will help you start to build better spend data sets and systems for your company.
The typical financial system is set up to group similar costs into a broader category. This will often make it easier to spot big changes but this approach will also obscure shifts in spending in sub-categories that offset each other.
Facilities expense is a general category and it doesn’t relate directly to revenue in most companies. It will typically include sub-categories like: rent, general repair and maintenance, janitorial, landscaping, snow removal, electrical, plumbing, signage, pest control and many others. The total spend in a general category like facilities won’t be very informative from a strategic sourcing perspective.
Each of these subcategories can contain multiple sourcing events. In addition, these sourcing events can occur at individual or multiple locations.
A sharp spend analysis© system will allow procurement teams to group like purchases so strategic sourcing across profit centers, divisions and product lines can become a reality.
Imagine how simple it would be to generate measurable cost savings if you knew what the company was spending by SKU, commodity or item for the entire company. What if you could then breakdown that same information by division, profit center and product line?
If you knew total spending for each supplier it would put you in a stronger negotiating position or help avoid a sourcing catastrophe if alternative suppliers are not known or identified.
Better data is helping organizations in all fields improve their performance. Sabermetrics is used in baseball to identify small situational advantages. For example, baseball managers now know the success rate a pitcher has against a batter in minute detail and in most game situations. This knowledge greatly increases the chance of making the right strategic decision every time.
Wouldn’t you like to have the same power in your sourcing group?
Action Step: What should you do next?
I would start by asking these questions:
What information do we have in each payment, procurement or financial system that will help us quickly identify strategic sourcing opportunities?
What steps do we need to take right now to gather the information that will help us grab low hanging fruit and generate tangible cost savings?
Next week I will offer more insight 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. One of the companies I represent has tools that can make your strategic sourcing efforts much more successful.
You Won’t Drift to Success©
Think about it.
Until Next Time, I Wish You Great Success in Your Business and in Your Life