29 April 2010 | Allie Anderson
Organisations are missing out on cost savings because of inadequate spend analysis, a report has found.
Strategic spend visibility: Untapped potential for cost reduction examined the impact of spend visibility and analysis on companies’ returns. It estimated the potential losses from poor practices to be millions of dollars in terms of unrealised cost savings.
It highlighted that companies should adopt a more strategic and organisation-wide approach to spend visibility to not only incorporate transparency of what is bought and from whom, but also identification, tracking, reporting and analysis.
This should not solely be the remit of procurement and supply chain management, the report said, but become practice in other departments including finance, HR, IT, marketing and legal. This would enable companies to catch savings opportunities that might otherwise have been missed.
For example, savings from strategic sourcing could be increased by up to 12 per cent with better spend analysis, according to the report. It could also help get more spend under the control of procurement, potentially from 25 per cent to more than 75 per cent, and result in better control of maverick spending and greater contract compliance.
The report estimates that, on average, 80 per cent of organisations’ spending is with less than 20 per cent of its suppliers. A better understanding of where money goes could lead to consolidation of the supply base, which in turn could generate savings. In addition, improved spend visibility could facilitate better risk analysis by, for example, identifying potential disruptions to the supply chain as a result of being overly dependent on a single source of supply.
The report was sponsored by spend management firm Rosslyn Analytics and based largely on input from its own customer base, which includes pharmaceutical giant Novartis and law firm Clifford Chance, together with additional research in the area.