Spend Matters welcomes a guest post from Jim Wetekamp of BravoSolution.

In my last post, I talked about the immense opportunity organizations have to cut costs and drive company-wide value with closed-loop spend analysis and how not enough organizations are taking advantage of it. The best procurement teams go beyond cost cutting to make a real impact on their company's valuation -- and their success stems from taking a more holistic approach to spend analysis, with powerful data.

While typical spend analysis weighs information like AP/GL data, purchase order data, P-Card data, supplier content, expense and travel data, invoice data and contract information, closed-loop spend analysis extends that data collection to paint a more detailed picture. Additional procurement data is analyzed, including goods receipt data, transactional and survey-based supplier performance data, procurement plans and forecasts, savings initiatives, and commodity tracking details. The procurement team can then segment this data by location, supplier, and spend category to discover an organization's true buying position and make decisions based on hard data, not spend assumptions.

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Spend Matters welcomes a guest post from Jim Wetekamp of BravoSolution.

Spend analysis -- in its most basic form -- is a common practice used throughout the procurement world. It provides immense visibility into enterprise-wide spend, answering crucial questions like:

• How much am I spending?
• Who am I spending it with?
• In which categories do I spend the most?
• Where are my opportunities for saving and spending more money?
• Can I achieve better terms of service?

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Please click here and here for previous posts in this series. This series of articles is based on insights from the following Spend Matters Perspective: Spend Analysis -- Making Quantum Leaps: Exploring the Realm of Possibility and Untapped Savings with Three New Strategies.

In looking at the impact good data -- and analyzed good data! -- can have on contracting and supplier development initiatives, it's important to understand, just to use one example, how a lack of validation of rate cards and checking of invoices leaves an organization at risk on pricing. But in all cases, the aim should not be just to recover overcharges through analysis -- the key is to discover the underlying reasons for the discrepancies, and to ensure that the vendor is able to adhere to the agreed pricing in future. In this process, it is essential to make sure that the procurement resources leading the charge have access to the right level of detail and that rate card SKUs match invoice data.

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Please click here for the first post in this series. This series of articles is based on insights from the following Spend Matters Perspective: Spend Analysis -- Making Quantum Leaps: Exploring the Realm of Possibility and Untapped Savings with Three New Strategies.

Spend analysis tools can help with far more than just setting sourcing strategy. Organizations that get the most from spend analysis investments use data to reorient how they look at contracting approaches and focus on supplier behaviors and development activity. Within procurement, there's often a belief that a specific type of established process and/or technology implementation will in and of itself create a set of outcomes. But unless procurement and finance departments work with suppliers to change behavior by putting hard data at the core of sourcing, contracting and compliance (e.g., purchase order) processes, the best intent and dollars spent on procurement transformation and P2P systems deployment will be for naught. Fortunately, new approaches to spend analysis not only help cement processes, strategies and the use of transaction-management technologies -- they also help keep suppliers honest.

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This post is based on insights from the following Spend Matters Perspective: Spend Analysis -- Making Quantum Leaps: Exploring the Realm of Possibility and Untapped Savings with Three New Strategies.

Many of us who grew up with early spend analysis tools or hand-built Access databases filled with tons of great unwashed spend data are well aware of the challenges of assembling even a basic spend cube using legacy approaches. Clearly, first generation dedicated spend analysis tools and solutions -- including non-software components that incorporated a variety of data acquisition, cleansing, classification and refresh services -- lifted a tremendous burden from do-it-yourself types. Flash-forward to less than a decade later and it's no longer about getting to a single "spend" cube, but rather to create dozens of cubes in all kinds of areas. It's about bringing together a range of new datasets that include traditional sources of spend information (such as AP information) plus a range of additional data sources. For some time, simple AP spend cubes have incorporated relatively basic enrichment-type data, such as diversity status, contract status, payment terms, and purchase orders (POs).

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Even though Michael Lamoureux (Sourcing Innovation) and I love to quibble (and as some folks know, escalate our rhetoric from time to time) I have to lavish unrestricted praise on a new book he just co-authored: Spend Visibility: An Implementation Guide. Authored by Michael and Lexington Analytics' Bernard Gunther, the book, available for free via the previous link, provides the most comprehensive look at basic and advanced spend analysis applications and cubes I've seen anywhere. Yes, it's biased toward the application of certain types of tools that enable the simple creation of multiple cubes with highly diverse datasets. But in more advanced spend analysis scenarios, this certainly goes with the territory. And the book steers completely clear of mentioning specific technologies or vendors.

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In the first post in this series, I provided a few war stories (and lessons) about how my company, Azul Partners (the parent of Spend Matters, MetalMiner and some other ventures), has learned from our buying mistakes as we've scaled the business. In the next installment of this analysis, I'll share some additional tips from a recent WSJ column that caught my eye. Perhaps not surprisingly, author Barbara Haislip makes some recommendations that are useful for even larger companies and procurement team members looking to small business for possible buying inspiration. One suggestion, on the shipping side, doesn't go far enough in my opinion. The idea, automated address verification to avoid order returns from incorrect ship to addresses, has been around in manually for some time. Using a tool to show employees the costs of their own shipping decisions (e.g., priority overnight vs. standard overnight) would be more valuable. Moreover, companies with any material volume of small parcel spend -- even small ones -- would be well advised to work through intermediaries that may have special rates with preferred carriers (Costco used to have a pre-paid plan with DHL that we used, for example). Regardless, all companies should audit, on a monthly basis, the actual performance of the carrier and should request immediate credits for performance specifications not met. Trust me, the credits will be real.

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Far too many companies we speak with mistakenly believe that buying supply chain risk management enrichment data (e.g., supplier financial scores/ratings) as part of a spend analysis deployment is enough to actually reduce risk in their supply base. Aside from the fact that spend analysis platforms do not allow companies to easily take action when it comes to evaluating alternative options and/or developing suppliers in need, there are other more insidious ways that this "partial" solution to supply risk is leading companies to have a false sense of hope that doing something is enough. Consider the following example of how a company might leverage an existing toolset as a foundation to enrich supplier records with risk information in the hopes of gaining early warning of supplier bankruptcies:

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Even though many would argue that spend analysis itself is likely to yield greater transparency into government spending and corruption, it's still a remarkable accomplishment for a government grant to come with eProcurement strings. But in Jamaica, courtesy of the Inter-American Development Bank (IDB), just such a situation is developing. Specifically, the Jamaican government is receiving a $79.6 million dollar grant, of which the Jamaican government must spend $1.2 million (either internally budgeted or from the proceeds) on a "state of the art eProcurement system." According to one of the executives at the organization making the grant, "the IDB, in disbursing the grant, had identified the strengthening of public financial and performance management as one of the key pillars to ensure that the public resources are equitably and efficiently used." The story suggests that technology will help "tighten the loopholes and vulnerability that lead to abuse of the system and corruption."

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