Spend Analysis: Whatcha Looking For?<\/h3><\/div><\/div><\/div>PurchTips edition #126<\/p>\n<\/div>
How Can Spend Analysis Contribute To Savings?<\/h4><\/div><\/div><\/div>Simplified, spend analysis<\/a> is the systematic review of historical purchase data. The output of a spend analysis is a summary of purchases by various variables, such as category, supplier, and\/or business unit.<\/p>\nThe primary reason for conducting spend analysis is to identify opportunities for cost savings. When you look at the output of a spend analysis, there are at least four indicators that there are opportunities for cost savings:<\/p>\n
Indicator #1: A large amount of spend in categories for which enterprise-wide contracts do not exist. Today’s educated purchasing professionals can apply best practices (e.g., strategic sourcing) so that their companies minimize cost. However, when these best practices have not been utilized in a category or purchase decisions are left up to non-purchasing professionals, there is a likelihood that the company is overpaying for goods and services. So identifying areas where Purchasing should be more involved in getting contracts for those categories is a sound strategy for cost savings.<\/p>\n
Indicator #2: A significant Purchase Price Variance (PPV) for a high-spend item or category. PPV is the difference between the average price paid and a standard cost. When there is a large PPV, this indicates one of two things: either your standard cost is not valid or you are paying too much. In the latter case, you should consider taking some type of action, such as negotiating or sourcing, to ensure that you are paying a fair price.<\/p>\n
Indicator #3: An unusually large number suppliers for the money spent in that category. Purchasing 101: the more you buy from a single supplier, the better discount you’ll qualify for. If you’re buying from too many suppliers, you’re not leveraging your volume and likely not maximizing your discounts. Seeing a large number of suppliers in a category can tip you off that supplier consolidation can deliver savings to your organization through price reduction and also through the more advanced benefits of an optimized supply base.<\/p>\n
Indicator #4: Rising prices over time. If you’re paying more year after year, you simply need to pay more attention to the purchases in that category. With no one “minding the store,” price creep is likely to set in.<\/p>\n<\/div><\/div><\/div><\/div><\/div>
Do You Want a More Rewarding Procurement Career?<\/h5><\/div>![](\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2020\/12\/spsm_verify.jpg\" "\\"spsm_verify\\"")
<\/span><\/div>Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Well, guess what? Nothing will change unless you take action towards becoming a world-class procurement professional.<\/p>\n
Earning your SPSM Certification is the action to take if you want to bring the most modern procurement practices into your organization and achieve your career potential. Download the SPSM Certification Guide today to learn how to get started on your journey to a more rewarding procurement career!<\/p>\n<\/div>
Download<\/span><\/a><\/div><\/div><\/div>Need Better Performance From Your Procurement Team?<\/h5><\/div>![](\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2020\/12\/services.jpg\" "\\"services\\"")
<\/span><\/div>Are you a procurement leader whose team isn\u2019t achieving the results you know are possible? Maybe it\u2019s not enough cost savings. Or frustrating performance from the supply base. Or dissatisfied internal customers.<\/p>\n
You need a performance improvement plan that\u2019s easy to implement and quick to produce results. The NLPA can help.<\/p>\n
Download our whitepaper \u201cThe Procurement Leader\u2019s Guide To A More Successful Team.\u201d You\u2019ll learn the 7 steps for transforming your staff into a results-producing, world-class procurement team.<\/p>\n<\/div>
PurchTips edition #126<\/p>\n<\/div>
How Can Spend Analysis Contribute To Savings?<\/h4><\/div><\/div><\/div>Simplified, spend analysis<\/a> is the systematic review of historical purchase data. The output of a spend analysis is a summary of purchases by various variables, such as category, supplier, and\/or business unit.<\/p>\nThe primary reason for conducting spend analysis is to identify opportunities for cost savings. When you look at the output of a spend analysis, there are at least four indicators that there are opportunities for cost savings:<\/p>\n
Indicator #1: A large amount of spend in categories for which enterprise-wide contracts do not exist. Today’s educated purchasing professionals can apply best practices (e.g., strategic sourcing) so that their companies minimize cost. However, when these best practices have not been utilized in a category or purchase decisions are left up to non-purchasing professionals, there is a likelihood that the company is overpaying for goods and services. So identifying areas where Purchasing should be more involved in getting contracts for those categories is a sound strategy for cost savings.<\/p>\n
Indicator #2: A significant Purchase Price Variance (PPV) for a high-spend item or category. PPV is the difference between the average price paid and a standard cost. When there is a large PPV, this indicates one of two things: either your standard cost is not valid or you are paying too much. In the latter case, you should consider taking some type of action, such as negotiating or sourcing, to ensure that you are paying a fair price.<\/p>\n
Indicator #3: An unusually large number suppliers for the money spent in that category. Purchasing 101: the more you buy from a single supplier, the better discount you’ll qualify for. If you’re buying from too many suppliers, you’re not leveraging your volume and likely not maximizing your discounts. Seeing a large number of suppliers in a category can tip you off that supplier consolidation can deliver savings to your organization through price reduction and also through the more advanced benefits of an optimized supply base.<\/p>\n
Indicator #4: Rising prices over time. If you’re paying more year after year, you simply need to pay more attention to the purchases in that category. With no one “minding the store,” price creep is likely to set in.<\/p>\n<\/div><\/div><\/div><\/div><\/div>
Do You Want a More Rewarding Procurement Career?<\/h5><\/div><\/span><\/div>Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Well, guess what? Nothing will change unless you take action towards becoming a world-class procurement professional.<\/p>\n
Earning your SPSM Certification is the action to take if you want to bring the most modern procurement practices into your organization and achieve your career potential. Download the SPSM Certification Guide today to learn how to get started on your journey to a more rewarding procurement career!<\/p>\n<\/div>
Download<\/span><\/a><\/div><\/div><\/div>Need Better Performance From Your Procurement Team?<\/h5><\/div><\/span><\/div>Are you a procurement leader whose team isn\u2019t achieving the results you know are possible? Maybe it\u2019s not enough cost savings. Or frustrating performance from the supply base. Or dissatisfied internal customers.<\/p>\n
You need a performance improvement plan that\u2019s easy to implement and quick to produce results. The NLPA can help.<\/p>\n
Download our whitepaper \u201cThe Procurement Leader\u2019s Guide To A More Successful Team.\u201d You\u2019ll learn the 7 steps for transforming your staff into a results-producing, world-class procurement team.<\/p>\n<\/div>
Simplified, spend analysis<\/a> is the systematic review of historical purchase data. The output of a spend analysis is a summary of purchases by various variables, such as category, supplier, and\/or business unit.<\/p>\n The primary reason for conducting spend analysis is to identify opportunities for cost savings. When you look at the output of a spend analysis, there are at least four indicators that there are opportunities for cost savings:<\/p>\n Indicator #1: A large amount of spend in categories for which enterprise-wide contracts do not exist. Today’s educated purchasing professionals can apply best practices (e.g., strategic sourcing) so that their companies minimize cost. However, when these best practices have not been utilized in a category or purchase decisions are left up to non-purchasing professionals, there is a likelihood that the company is overpaying for goods and services. So identifying areas where Purchasing should be more involved in getting contracts for those categories is a sound strategy for cost savings.<\/p>\n Indicator #2: A significant Purchase Price Variance (PPV) for a high-spend item or category. PPV is the difference between the average price paid and a standard cost. When there is a large PPV, this indicates one of two things: either your standard cost is not valid or you are paying too much. In the latter case, you should consider taking some type of action, such as negotiating or sourcing, to ensure that you are paying a fair price.<\/p>\n Indicator #3: An unusually large number suppliers for the money spent in that category. Purchasing 101: the more you buy from a single supplier, the better discount you’ll qualify for. If you’re buying from too many suppliers, you’re not leveraging your volume and likely not maximizing your discounts. Seeing a large number of suppliers in a category can tip you off that supplier consolidation can deliver savings to your organization through price reduction and also through the more advanced benefits of an optimized supply base.<\/p>\n Indicator #4: Rising prices over time. If you’re paying more year after year, you simply need to pay more attention to the purchases in that category. With no one “minding the store,” price creep is likely to set in.<\/p>\n<\/div><\/div><\/div><\/div><\/div> Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Well, guess what? Nothing will change unless you take action towards becoming a world-class procurement professional.<\/p>\n Earning your SPSM Certification is the action to take if you want to bring the most modern procurement practices into your organization and achieve your career potential. Download the SPSM Certification Guide today to learn how to get started on your journey to a more rewarding procurement career!<\/p>\n<\/div> Are you a procurement leader whose team isn\u2019t achieving the results you know are possible? Maybe it\u2019s not enough cost savings. Or frustrating performance from the supply base. Or dissatisfied internal customers.<\/p>\n You need a performance improvement plan that\u2019s easy to implement and quick to produce results. The NLPA can help.<\/p>\n Download our whitepaper \u201cThe Procurement Leader\u2019s Guide To A More Successful Team.\u201d You\u2019ll learn the 7 steps for transforming your staff into a results-producing, world-class procurement team.<\/p>\n<\/div>Do You Want a More Rewarding Procurement Career?<\/h5><\/div>
<\/span><\/div>Need Better Performance From Your Procurement Team?<\/h5><\/div>
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![](\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2020\/12\/services-contracting.jpg\" "\\"services-contracting\\"")
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