In today’s fast-paced and constantly evolving business world, information is king. Many corporate strategies, whether created in the executive boardroom or by the professionals running day-to-day operations, are often fueled by a specific level of data culled across a variety of functions, processes, and categories. For the contemporary Chief Procurement Officer (“CPO”) and their departments, enterprise spend data can be a primary source of knowledge that can be used to improve operations and results across the entire source-to-settle process. In fact, for the past decade, leading procurement departments have relied on spend analysis to establish a deeper understanding of their enterprise’s current and historical spending habits, trends, and patterns, so that action can be taken to improve how, where, why, and with whom money is spent in the future. Leading procurement teams also use spend data to establish broader influence, place more spend under management, and guide better decision-making within the procurement department and by business and functional stakeholders beyond it. The companies that cite spend analysis as a prime directive in their core procurement program understand that in order to achieve true visibility into enterprise spend, suppliers, and risk, spend analysis is the driving fuel.
Like a huge, untapped oil field, raw spend data is the veritable “gold” that sits within the enterprise, buried in hidden crevasses and pumped throughout core company systems and programs. Spend data is truly the equivalent of buried oil in the corporate fields – left untouched and in its raw format, spend data, like oil in the ground, offers minimal value. The value of this “black gold” starts at its extraction, increases dramatically when it is “refined” through cleansing and classification processes, and peaks when it can fuel the processes and strategies that procurement and others within the enterprise use to prioritize projects and drive operations. A spend analysis process that is automated, repeatable, and scalable becomes a pipeline of value to sourcing and procurement pros tasked with driving savings, managing suppliers, and overseeing compliance.
The “Refinement” of Spend Data
Spend analysis follows a basic series of processes, including data extraction (from various enterprise systems and sources, such as ERP, general ledger, accounts payable, etc.), data cleansing (refinement to ensure that the data actually “means” something to procurement executives), and classification (for more powerful impact in understanding supplier-, spend- and category-specific aspects of enterprise spend). For an enterprise to truly drive strategic value from their spend data, a simple extraction plan is not nearly enough. These processes are sometimes overlooked by procurement professionals, leaving their greater organizations with “barrels” of data that have no true value or impact across the enterprise.
For example, data captured by ERP systems that is related to suppliers that provide services like contingent labor, business travel, ground transportation, and facilities services, among others may show spend amounts, but not much else. In order for CPOs and their teams to deep-dive into these spend areas and gain robust insights into the nuances of these complex spend categories, the data must be cleansed and classified properly before a proper analysis can occur. Uncleansed and unclassified spend data is the equivalent of unrefined oil – messy and chock full of volatile material – and essentially very different from the finished fuels that are needed to propel rockets and drive engines.
Final Thoughts
In this day and age, it should be codified procurement law that possessing a great understanding of and visibility into enterprise spend is better than not possessing these things. Procurement teams that take no action towards mining and refining the spend data that gushes within enterprise systems are destined for mediocrity, if not failure. But unlike oil prospecting, drilling for spend data is a low-risk undertaking. Many procurement teams, including a majority of the Best-in-Class, have used spend analysis to hit a sourcing and savings “well” of value that can generate royalties for many years. Next up — learning how Best-in-Class procurement teams leverage digital, automated spend analysis tools to extract value from their spend data. Stay tuned.
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