Spend Analysis

Methodology

Copyright State of Flux Ltd 2007

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Methodology

Collect spend data

Analyse spend data

Identify savings opportunities

Decide on implementation approach

Objectives Identify potential opportunities to strategically source goods and services to deliver significant business benefit

Recommend a strategic sourcing implementation programme based on potential benefits and ease of implementation of the sourcing categories

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Methodology

Collect spend data

Analyse spend data

Identify savings opportunities

Decide on implementation approach

Information request

Accounts Payable

Budgets

Procurement

Information received

Spend data categorised

Common Issues
Business Unit spend Category spend Supplier spend Invoice transactions PO transactions
Copyright State of Flux Ltd 2007

Difficult to get spend information Business objects not running Manual reports needed to be run No categorisations available

No budget records held by procurement Silo setting of budgets

Visibility of only 20% of total spend Reports only covers X% of total spend Difficult to extract data

Supplier spend Categories based on type Invoice of supplier transactions

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Methodology

Collect spend data

Analyse spend data

Identify savings opportunities

Decide on implementation approach

Cut and format data

Top 20 suppliers

Top 20 categories

Average transaction value

# of transactions per category

Supplier fragmentation

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Outputs
The spend analysis will enable us to understand the depth of the procurement support for the total CLIENT spend.
Example spend analysis output
Top Suppliers
Supplier A Supplier B Supplier C Supplier D Supplier E Inland Revenue Broadband Service Intern. Marconi Communications Hewlett Packard* Royal Mail Amec Utilities

Category Name
Category 1 Category 2 Category 3 Category 4 Category 5 Inland Revenue Broadband Communications IT Hardware Mail Utilities

Invoice Amount
155,996,698 134,033,912 96,124,180 46,314,553 39,877,941 27,376,287 26,083,582 15,303,414 15,105,955 14,186,841 13,409,455

Spend Total m

% Total spend

Cumulative spend m

Cumulative % spend

Comments Top 5 suppliers (0.08%) make up 40% of total spend (472m)

472m

40%

472m

40%

Saatchi & Saatchi

Kelly Communications ACL Autolease Liberate Technologies Nokia UK Sierra (UK) Motorola (BCS) Nagracard IBM United Kingdom Ltd Suppliers 20 - 100 Suppliers Flux 1,000 Copyright State of100 Ltd 2007

marketing/advertising
Communications Car lease/hire Set Top Box software Communications Contractor Communications Smartcard IT Hardware

12,241,226
12,189,459 12,120,322 11,332,049 11,308,573 10,952,267 10,852,582 10,437,200 9,102,197 281m 189m 24% 16% 965m 1,150m 81% 97% 212m 18% 684m 58%

Top 20 suppliers (0.4%) make up 58% of total spend Top 100 Suppliers make up 81% of total spend Top 1,000 suppliers make up 97% of total spend The remaining 3,500 supplier tail makes up 4% of total CLIENT spend Industry average organisational spend supported by procurement = 74.9%* Financial Services average organisational spend supported by procurement = 48.9%* CLIENT organisational spend supported by procurement = 20%
*Source: Centre for advanced purchasing September 2001

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Outputs
A CLIENT supplier/spend category analysis will be produced to understand the split of spend across the organisations categories and suppliers. Example category spend Key Points
Example Curve typical of most category areas statistics: 31m spend, 468 Suppliers, 80% spend = 65 suppliers (14%) 95% spend = 157 suppliers (34%) Average spend per supplier 66,000 302 suppliers spend less than 20,000
Strategies usually centred on; Reducing number of suppliers, Increasing spend through top 5 - 10 suppliers, Driving standardisation product / service specifications, processes and terms (and pricing) Implications Opportunity exists to remove low spend suppliers
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35m

30m

25m

Cumulative spend

20m

Cumulative spend graph

15m

10m

5m

Number of Vendors
Copyright State of Flux Ltd 2007

Outputs

Collect spend data

Analyse spend data

Identify savings opportunities

Decide on implementation approach

Group data by category

influencable category spend

Ability to leverage category

Common Approach
Percentage of the spend Apply sourcing likely to be influenced by tactics based on the introduction of supply strategic sourcing tactics management, business strategy Percentage of spend that and supplier can leverage Group development spend

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Methodology

Collect spend data

Analyse spend data

Identify savings opportunities

Decide on implementation approach

potential benefits ranking

ease of implementation ranking

Develop wave plan

Common Approach
Rate potential savings per category based on breadth and depth of cumulative supplier spend curve and category knowledge Rate ease of Compare and combine implementation based with Group category on technical strategies complexity, predictability and business risk,

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Outputs
A wave plan will be produced to highlight what areas should be addressed, when in order to deliver the highest savings impact
Example strategic sourcing wave plan
1,500,000

Temp/Casual Car lease

Consulting Couriers/freight Transport Financial services Water Hotels Conferences Builders Car rental Accounting Fire protection Bus/coach

Savings Estimate

1,000,000

IT Software Marketing/Events Media Publishing

Utilities Mail

500,000

Print Car Maintenance Graphics Electrical Svs Internet svs Distribution

Property Market Research Uniforms Car Parking

Facilities Construction Insurance Electricity Gas Maintenance

Security Cleaning

Catering
Waste Mgt Gardening
3.50 4.00 4.50

0 1.00

1.50

2.00

2.50

3.00

Ease of Implementation

Telecoms Mobile Instal Hardware Healthcare/safety Internet svs Copyright State of Flux Ltd 2007 Distribution

Computer Svs Warehousing Press

Vending Promotions Furniture/Fittings Reprographics Publications Salary Services Credit Services

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