09 Jul 2010 Spend Analysis – the Key to Managing Through A Recession

What gets measured gets managed. It’s a slightly tired truism but it’s very relevant to Purchase to Pay and, sadly, often overlooked.

Most P2P (Purchase to Pay) projects are justified as a means to reduce cost. They introduce efficient processes that allows  purchasing payment and accounting functions to operate with fewer people. They create more responsive and agile purchasing environments and utilize leading edge technology to create synergy with suppliers. It is relatively rare that  P2P program is initiated in order to increase visibility of spend and deliver spend analysis capability. On the contrary, it is lack of visibility of spend that make the business case for P2P difficult to develop. If you don’t know how much you spend, with whom or how often you buy stuff, this makes it difficult to quantify the benefits of implementing P2P – and it’s a difficult sell to suggest that you need P2P in order to create the visibility you need to understand the benefits. It requires a leap of faith for a CFO to buy in to this type of justification.

Spend Analysis

Visibility, and the tools to understand what you see and interpret it, is crucial and with the prospect of a double dip recession, there is no time for complacency. A business will not exceed if it doesn’t know it’s competition. It won’t succeed if it doesn’t understand the changing needs of its customers. It won’t succeed if it doesn’t know how much capital it requires and it certainly won’t succeed if it doesn’t know how much it spends, with whom – and if it fails to understand, manage and mitigate the supplier risks in a recessionary and liquidity constrained stage of the economic cycle, it might as well give up now.

In a recent post by Jason Busch in Spend Matters he puts it very succinctly:

Make sure your spend analysis and P2P (including invoice automation) capabilities are fully in place and ramped up as soon as possible. If you don’t have visibility (both historic and forecast) into what you’re spending and who you’re doing business with, it’s not only impossible to act nimbly and take action when it comes to identifying at-risk suppliers, it’s also challenging to develop accurate forecasts into your current and future payment obligations — which directly impacts broader margin, EPS and financial forecasts