Data Exploration

Finding Savings Opportunities

Ask the Obvious Questions

Your company’s purchasing and payment activities produce a lot of potentially valuable data. But data is just data until it’s transformed into something more: information. Information taken from various sources eventually leads to conclusions and then to insight. The best part is that you don’t have to be a statistician or a mathematician to perform an analysis which delivers real value to the organization.

Many high-end consulting firms emphasize the difficulty of classifying the data and the importance of getting 100% of it under the microscope. This claim is intimidating for organizations just starting out on the journey. The reality is that spend analysis is a straightforward business process just like any other. A motivated individual with the right tool and guidance can help an organization make substantial improvements in the status quo simply by shedding more light on spending. Over time, process refinements lead to greater insights and more savings that go directly to the bottom line.

Focus on Differences, Rather than Similarities

The goal of spend analysis is simple: find the difference between what the organization thinks is happening with spending and what is actually happening. A spend analyst accomplishes this by searching for spending patterns that are anomalies, or in some way different from what he or she expects to see. Something in the data may be missing, or it may stand out because it’s so different from the rest of the numbers.

The most common way to identify anomalies in spend data is to compare the spending pattern in one group to that of another group where you would expect similarities. Or, compare the spend with one vendor to the spend with that same vendor in a previous period. Similarly, you can compare the spend for a specific category of spend with a vendor, such as PCs, for example, with that of a similar vendor. There is no limit to the number of ways you can “slice and dice” your spend data, the key is to decide what constitutes reasonableness for your organization.

When you find something unusual, look closer and ask questions.

  • Why are the prices for this item higher than prices for similar items?
  • Why is spending in a specific category higher for this group than for any of the others?
  • How come third quarter spending for IT equipment exceeds spending for the same period in previous years?
  • Why did spending with this supplier and spending for that commodity change significantly from last year? Are the two related? Which groups were responsible for the changes?
  • Questions Lead to Savings Opportunities

    Anomalies in your spend data can often be explained by this initiative or that mandate. At other times, the anomalies can point to problems. The good news is that they almost always represent opportunities for improvement, which is the point of performing the analysis in the first place. By exploring the oddities, you bring visibility to the cause and open the discussion about a solution.

    Solutions come in many forms and some will be painfully simple, such as issuing a communication about a preferred supplier. Other solutions will be more complicated and may involve flawed or outdated processes, other organizations, and company politics. The important thing to remember is that solutions, whether simple or complex, will always present opportunities to save money and improve processes by:

  • reducing waste
  • managing demand
  • identifying fraud or off-contract spending
  • automating or otherwise improving a process
  • reducing the number of suppliers
  • improving supplier compliance
  • consolidating buying among groups
  • initiating a sourcing exercise, etc.
  • While computers are good at collecting data, the actual analyses are best done by those with knowledge of the organization and its processes. The analyst plays a key role in the health of the entire purchase-to-pay process. He or she is the one to spot unusual occurrences, make sense of them, identify likely causes and bring them to the attention of those who can affect a solution.