Spend Analysis

The 4C approach that can improve your spend analysis

The organizations need to have a full view of its functions in order to transform to the better. Procurement requires the control and hold of the total spend done by the different departments. Since the organization has multiple ERPs for different categories, it becomes difficult to combine a preview of the overall spend done. Spend analysis nowadays is preferred by most of the companies with the help of technological advancements such as performance automation, allocation of the budget, business intelligence, approval workflows, guiding rules and more. These indicators are helpful in tracking transactional purchases but a spend forecast can only be gained by having a clear view of the organization’s accurate spend. This forecast not only let the CPO plan strategically for the future spend but also get the idea that how the spend of the company changed through all the years.

In order to measure and control the company’s spending, a spend analysis must be done constantly which gives the ability to control the spend better. The spend data help the company from the start of the sourcing to the pay cycle. The 4 Cs of the spend analysis are described below:

  1. Collaboration:

Spend analysis enable the company to identify the similar purchases done with the suppliers. In order to shortlist the best suppliers for the given category, the purchases and the costs must be evaluated. It helps the company to find the best suppliers that deliver low cost but efficient services. These suppliers provide better services at minimal costs and let the organizations collaborate with them. The supplier-buyer relation is very crucial in maintaining long-term healthy relationships with a specific supplier and leads to cost-savings and economies of scale.

  1. Consolidation:

An effective spend analysis is the combination of all the spends made by the entire business units of an organization. For a large organization that consists of various ERPs, a consolidated and united view is necessary to understand the costs and volume linked to the spend.

  1. Classification:

Once the consolidation is done, another important thing is to classify the spend according to the various categories involved. The organizations must make sure that their spend is being classified properly with the accurate name given to each purchase so that it can be analyzed further at small levels. It helps to understand where the money is utilized and realizing the need for the transformation of negotiating practices with each vendor. Duplicate, excess and maverick purchases also unfold in this step.

  1. Command:

The spend analysis done with the right techniques enable the managers to make better and informed decisions. They now are aware of their spend and are also capable of benchmarks for future savings by controlling and reducing non-compliant spend, improvement in performance and consolidation of the suppliers.

The 4 Cs approach provides the holistic report giving information of the total spend of the organization specified with the categories, suppliers etc which enable the CPOs to take effective decisions.

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