Spend Visibility: Bottom-line Strategy To Attain Cost Savings

Introduction Spend Visibility Our quality Guru Mr Edward Deming had rightly said, ?If you can?t measure it, you can?t manage it?. This statement of Mr. Deming goes in line with achieving the visibility of spend in an organization up to an item level. It says until and unless we achieve the visibility up to an item level, implementing any other strategy is like just surfing on the surface rather than going deep into the matter. This is why companies are unable to realize the true cost saving of many of the project and quantify the results properly. Spend Visibility is the basic of all the cost saving strategy. Purchasing happens at the material level not at the category level. We do not purchase items as mechanical or electrical items but we buy conveyors, belts, bearings etc., even the materials are classified under various categories as per various specification. Hence proper categorization of materials is the key to spend analysis. Proper organization of data and the classification done in an appropriate way can help a lot in proper analysis of spend which a company can do even internally. The entire spend analysis revolves around three basic data ? Commodity, Supplier and the Cost center. While analyzing the spend sheet of many companies I found a common problem in most of the spend sheet i.e. the poor quality of data. The Survey report by Aberdeen says that 38 % of the companies which were surveyed agrees that spend analysis is their top strategy and achieving spend visibility is the prime focus for the entire organization. Another study by Aberdeen group reveals that about 1/3rd of the organizations do not have a proper program to execute spends analysis for their organization. The organizations which have spend analysis in place; they do the collection and analysis of data manually. But manual data collection will not solve the problem as there is always high probability of human error in data entry. Success of spend analysis depends upon quality and consistency of product and supplier related data. The reason for failure of spends analysis are:- 1) Poor quality of data 2) Changing business needs 3) Manual data collection system The use of technology can help the organization in automating the data entry. Current technologies can generate the auto reports or even a dashboard integrated with the company?s ERP systems can give current status of all spends against the target or comparison with last year spend or projection of the future spend or whatever way expected through customization. But the key lies in automating the data entry. With the accurate data even the report generated manually will give accurate result and help in proper decision making.