Posted at 13:53h
in Spend Analysis
In part two of this short series of guest posts from REL Consultancy, manager Michael Wydra takes a closer look at how, once an indirect spend analysis is complete the insights gained can be turned to procurement’s advantage.
After analysing indirect spend on an aggregated level (see part one), the next step is to go into detail by gaining insight into the specific spend categories. Subcategories should be defined to reasonably group category spend. It can also make sense to capture certain supplier characteristics, such as region, spend contracted and contract expiration date.
Even where there is a valid contract, the business may not be actually buying according to the negotiated conditions. A catalogue with negotiated items and prices may be available but not used. Maverick spend, or purchases executed outside the boundaries of a contract, can be a reason for high purchasing costs as well as increased transaction costs. Ideally, an organisation should evaluate the percentage of targeted or negotiated cost savings lost because contracted rates from preferred suppliers were not used during the purchasing process. This is particularly a problem in indirect spending categories, where, on average, 12 percent is lost. Other opportunities include investigating lower-cost markets rather than sourcing locally. Measuring compliance is not easy but necessary to point out process weaknesses.