Good data, however, enhances a CPO’s role and they become more effective and create authority. How do you Improve your spend analysis visibility?
The Problem
One of the challenges facing new and existing CPOs is understanding where the money is spent, with which suppliers and for what services with a high degree of accuracy. This is a challenge I previously faced as a CPO and most of the people I work with have or have had the same challenge. There are lots of business benefits of having a clear view of your data by improving spend analysis visibility, that I will explain later in the article, but I also want to focus on the personal benefits to you as the CPO or Procurement manager for having this data and how much easier life can be when you are not worried about spend analysis as there is a full visibility of your third party spend and you know all the answers.
A Case Study
Don’t look stupid
After being a CPO for 6 months in a new company, I was about to get a new global Chief Financial Officer and I suspected that in my first interaction with him, one of the first questions he was going to ask me was how much money we spent with third party suppliers.
The problem was that I did not really know.
A fear started running through my body as, how after 6 months in the job did I not really know the answer to this fundamental question?
I had many excuses in my head for not knowing this such as the accountancy systems were set up against GL codes with over 50% not relating to what we spend the money on, multiple ERP systems across the company, use of purchase cards and travel booking systems that did not integrate back into the spend. This list of issues can be endless.
Excuses Don’t Work
I began to question why I had not fixed the spend analysis much earlier, I reflected and realised that I had lots of other priorities such as realising savings, reorganising the team, and building relationships with stakeholders but still, I needed this data, and I needed it fast.
The tough choice
I am sure some of the above reasons or other reasons may resonate with you. The only thing was that I did not want to be going into a meeting with a list of reasons why I did not have it or worse go in with a figure I did not believe. In my head, both options would impact me and the team’s credibility. I needed to Improve my spend analysis visibility.
What did I do?
I started asking all my category leads to pull the information of their category spend together. Like me, they were also very busy.
When I received the info back from the leads, I found it to be in different formats, levels of detail, categorisation etc. What I had encountered on a macro level my category had encounter at a micro level. I started to question why they had not fixed this before and it became clear that most of the team had accepted poor data as a norm and that this was just an issue that could not be fixed easily.
What was plan B?
At this point, I was desperate to get an answer. I found a contractor who was very thorough and detail oriented. He could see my frustrations at getting this answer and agreed to take downloads from the different systems that stored the data into Excel files and then manually cleanse it, code it, and ask questions from the team on it.
Although the contractor was excellent this was very time-consuming and labour-intensive, and he was doing this for over 6 weeks. We could only code the top spend suppliers in this 6-week period. I was reflecting that as soon as it was complete, this data would be out of date. How much effort and cost would it take to keep doing it and how could we ever understand the full spend?
This analysis really helped my team’s progress in category management which was another priority for me. All he had time to do was code each supplier line by line without an opportunity to look at specific data points such as cost centre analysis, country analysis in order to get a deeper understanding of the spend.
The Result
I got an Improve spend analysis visibility view I was comfortable w,ith for the meeting. It was not fully accurate, but I had enough confidence to go into the meeting as I knew the top spend was right.
I also had it in a consistent format which was very pleasing compared to where I had started from with the category leads.
Was there an even better way?
After the above exercise, I decided that Improving spend analysis visibility had to become a priority, so the contractor and I started looking at solutions.
- Should I employ 1-2 people to keep manually coding the data in Excel?
- Could we try and change the coding in the ERP system to make it more relevant for Procurement?
- Should we wait for the new ERP system to be deployed and be part of the change programme to deliver what we need in spend analytics?
- Could we buy some new software to help us do it?
- Should we give up on it as it is just too difficult to do now?
How I went evaluating the options:
| Options | Pros | Cons |
| Employ additional people & use Excel | • Could get on with it quickly | • Expensive to recruit • Reliant on Excel • Limited Functionality |
| Change the coding in the current ERP systems | • Able to easily reconcile with Finance | • Finance was not willing to change its general ledger coding • Significant costs and effort for dual matching codes |
| Wait for a new single ERP system | • Have one system that provides ‘one version of the truth’. | • The time it would take to deliver • Competing views on what Procurement vs finance wanted |
| Dedicated Spend analysis software | • Give category insight in a digestible way | • Finding a provider who understood procurement, strong software and easy to use |
| Give up | • Focus on other priorities that were critical to my role | • Credibility issues with me and my team • Unable to move forward quickly on category management • Harder to find savings |
Which options did I proceed with?
As you can see from the table above each option had pros and cons.
I progressed with 3 options above (additional employees, change coding in the current ERP system and wait for a new ERP system). I was hedging my bets between short and long term.
I had not selected the spend analytics solution as I felt the providers did not understand what I wanted, and I wanted to try and use existing company software we already had.
All 3 selected options gave me additional problems and none of them solved the problem at its core. Recruiting people was putting pressure on my headcount numbers with my boss and HR, I could not get finance to change their coding in the existing system as the current coding was too embedded in their ways of workings, the new ERP system was a two-year project so waiting for this to happen was taking too long.
The Solution
What did I need?
I needed to improve spend analysis visibility, I needed someone to come in and fix my spending problem quickly, timely and who understood how a procurement team operated and with strong software and a great roadmap (and of course at a great price). All the above options were giving me hassle and issues in their own way.
SpendQube came about from all my learnings above. We developed what I wanted:
- A tool that is simple to use.
- A tool built for category management.
- A tool that categorises my data correctly with little involvement from me and my team
- A tool that enriches my data
- A tool that can combine multiple data sets.
- A trusted advisor who would not just implement a tool but help me figure out how to best structure my spending, advice on pitfalls and provide best practices for my company.
The benefits of Spend Analysis
1. Identifying areas for cost savings: Good data can help the CPO identify areas where cost savings can be made by analysing spending patterns, identifying suppliers that provide better value for money, and highlighting areas of excessive spending. Thus Improving spend analysis visibility.
2. Mitigating risk: Data can help the CPO to identify potential risks and vulnerabilities within the supply chain. For example, by monitoring supplier performance metrics such as delivery times, quality, and compliance, the CPO can identify areas where there may be potential risks to the business and take corrective action.
3. Better supplier management: Data can help the CPO to better manage supplier relationships. By analysing supplier performance data, the CPO can identify areas for improvement and work collaboratively with suppliers to drive better performance and achieve better outcomes for the business.
4. Strategic decision-making: Data can provide the CPO with valuable insights that can inform strategic decision-making. By analysing data on supplier performance, market trends, and procurement metrics, the CPO can make informed decisions about which suppliers to work with, which products to procure, and which procurement strategies to employ.
