PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e

Supply Management and

Commodity Strategy
Development
Chapter 6
Spend Analysis
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.

CENGAGE LEARNING
MONCZKA HANDFIELD GIUNIPERO
PATTERSON

Overview

What is a spend analysis?

Ways to summarize spend
Data and analysis techniques
Team exercise
Actions to take after analysis

Spend

Purchasing & Supply Chain Management, 5e

Spend
What is spend?
Payments to outside entities where an
exchange occurs
Includes direct (COGS) and indirect costs,
custom duties, utilities, & administrative costs
Does not include employee pay, income tax,
depreciation, and other non-exchange costs

Represents the realized value of inputs

used to convert into outputs
But is the realized what is desired?
Purchasing & Supply Chain Management, 5e

Spend Analysis
Definition
Summarization of purchases across
within spend categories

or

Purpose
Understand values & patterns in supply
Reveal strengths or weaknesses
Identify spend categories requiring strategic plans

Well organized, relational data is a necessity

Transaction files with actual costs to suppliers
Itemized so to associate with categories
Expected costs & quality issues by item
Purchasing & Supply Chain Management, 5e

If I had six hours to chop down a tree,

I'd spend the first hour sharpening the
ax.
Abraham Lincoln

Analysis vs Strategy
Refer back to CSR template;
Of ~15 total pages, the analysis piece
is 5-7 pages, the bulk of the work
Combining the Supply Mgmt Situation
analysis (internal & external) and the
Category Analysis defines your Strategy
Dont get ahead of yourself; analyze
first, then develop strategy
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Conducting a Spend Analysis

Analyzing Spend
What categories received spend in the past year?
Who received the majority of the spend?
Which divisions spend matched the budget?

Evaluating Spend
Did the business receive what was paid for?
Did the suppliers charge an accurate price?
Where to combine volumes & standardize
purchases?

Pareto approach helps prioritize efforts

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Million $

Example: Spend by Category

400
350
300
250
200
150
100
50
0

Example: Supplier Count by Category

3,000
2,500
2,000
1,500
1,000
500
0

# of Suppliers

10

Example: Spend/Supplier by
Commodity
$6,000
$5,000

Spend/supplier (Million $)

$4,000
$3,000
$2,000
$1,000
$0

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PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e

2012 Cengage Learning. All rights reserved. May

not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.

Possible Actions Post-Analysis

High spend categories
More savings oppty/ROI here
Are you receiving specified
quality?

Supplier counts and supplier spend

Opportunities to rationalize supply base (decrease or increase)

Variance from expected

Contracted price vs PO/procure-to-pay
Contract enforceability

In sum, analysis should inform how to change

category supply elements
Spends Analysis Video
Purchasing & Supply Chain Management, 5e

13

Expectations for CSR Report

Spend analysis should

Reveal relative spend impact of category

Describe spend quantitatively / qualitatively
Show the scope and source of data used
Identify supply-base profile of spend
Variance from expectations
Areas of opportunity based on your analysis

Pareto charting is needed

Purchasing & Supply Chain Management, 5e

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Conclusion
Spend represents a cost, but also an
area of value & opportunity
Analysis should simplify & increase your
understanding of realized value of
inputs and potential savings
Spreadsheet tools useful, but key is
getting accurate data (in God we trust )
Then define your action plan for category
strategies
Purchasing & Supply Chain Management, 5e

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