Supply Management Magazine

Q: "I've been asked to review the legal services category but am struggling to find any spend information in our system, how would you recommend going about finding this information"

A: Alan Day managing director of State of Flux writes: Finding / collating spend information and completing a ‘spend analysis’ is difficult, but rewarding as you have hard data to provide a clearer picture of opportunities, challenge the way the business operates, and provide facts to build your negotiation case.

To start are usually two objectives, firstly to understand how the business currently operates; what is the historic organisation spend and with which suppliers? Secondly by understanding what the spend profile for the next X months likely to be with which products or services, I can produce a business forecast and determine where the opportunities will lie

1)       Historic spend,

Start with Accounts Payable (AP), however this may not be easy. Areas of difficulty arise in capturing the data, extracting the data, coordinating the data output from multiple AP systems, different or misclassified supplier category codes (i.e. Professional Services versus Legal Services) and hidden spend, i.e. paid for by employees credit card and claimed back as an expense.

There is no quick answer to these issues, there are companies that provide software solutions or even do it for you. There are companies who will re-code the supplier records into UNSPSC (http://www.unspsc.org/) or other formats. All these take time, usually a luxury we don’t have.

I recommend a number of approaches; talk to internal customers, I’m assuming the legal department is engaged, if not start now. They will know what they spend with whom and why.

Talk to suppliers, it’s a tough question ‘can you tell me how much we spend with you?’ Some people think it ruins your negotiation position, but not knowing spend puts you at a bigger disadvantage. Besides, you may get gems like, ‘you spend X, but we know how to save you money’. Remember, if they can’t tell you what you spend they aren’t managing you well as a customer…

Use any available AP information or even work back from next years budget or forecast to engage in serious number crunching or importantly, get Finance to help. There’s no substitute to trawling through the numbers, it’s not fun but you understand what’s going on.

2)       Future spend profile

This is important as in addition to helping build your negotiation case it highlights the two greatest areas of savings, Demand/Volume and Specification. If you understand the category spend forecast over the next XX months you can challenge these areas. Legal services is difficult (especially around specification), however there is opportunity to challenge what is done in-house versus externally and reduce demand/volume.

One approach to find forecasted Future spend is using information from Historic Spend and apply a trend or multiplier based on: next years forecast / budgets, the businesses strategic plans, historic growth trends and the internal customers plans and objectives.

There is no one data gathering approach; it can be a difficult, time-consuming exercise. But the value of doing this work comes with data analysis.  When producing analysis reports graphically present the data.  People can assimilate a graph’s message more quickly than a page of numbers.