Strategic Sourcing

Spend Analysis
Strategic Sourcing and Negotiation Skills by
 Uncontrolled Spend
Uncontrolled Spend is characterized by:

• Lots of Transactions
• Purchasing not carried by buyers alone
• Lots of Suppliers with low spend per annum
• Lack of Formal Agreements
• Lot of Suppliers per commodity
• Lack of Standardized documents

Strategic Sourcing and Negotiation Skills by Sheikh Irfan

 Spend Data Management Defined
More simply, can you answer these questions?
• Which suppliers provide the greatest value to the enterprise?
• Which commodity and service areas represent the greatest sourcing opportunities for
spend reduction?
• What is my total spend by industry classification?
• Where is spend occurring with non-preferred suppliers?

Spend Data Management Defined

Spend data management – also referred to as spending analysis -- is the process of
aggregating, classifying, and using spend data for the purpose of reducing costs,
improving operational performance, and ensuring compliance

“How Can You Manage What You Don’t Measure?

Strategic Sourcing and Negotiation Skills by Sheikh Irfan
 Spend Analysis-Steps
Generally, there are five steps of effective spending analysis

1. Extract — support automated extraction of all spend data from

internal and external business systems.
2. Validate — ensure spending data files are accurate and
complete.
3.Cleanse and classify — enable efficient, accurate, and preferably
automated rationalization and classification of data elements and
attributes.
4. Enhance — enhance cleansed spending data with
complementary business information, including existing
contract terms, alternative parts references, suppliers’ financial
status and performance .
5. Analyze — Analyze gathered data with analytic tools.

Strategic Sourcing and Negotiation Skills by Sheikh Irfan

Spend Analysis-Data Management Framework

Strategic Sourcing and Negotiation Skills by Sheikh Irfan

 Why Spend Analysis Not Done?

• Lack of Awareness
• Lack of capabilities
• Not considered as core/Important activity
• Malpractices/Political reasons

Strategic Sourcing and Negotiation Skills by Sheikh Irfan

 Opportunity Identification
• Supplier Rationalization: Different divisions buying from different suppliers, each
offering a different price and terms.
• Demand Aggregation: For negotiating lower prices with suppliers.
• Preferred Suppliers: They can offer better rates and terms.
• Contractual Term Opportunities: Late Delivery, Quantity violations may be charged.
• Payment Terms Opportunity: Early payment can cause more financing charges.
• Invoice Processing Opportunity: Consolidated payment, less administrative time,
etc.

Strategic Sourcing and Negotiation Skills by Sheikh Irfan