Spend Insights Learned: Sharing the Virtues of Spend Analysis
Virtues are characteristics, such as truthfulness, humility, and courage. Going back to philosophers like Plato and Aristotle, they examined the concept of virtue in their writings by providing answers to the questions “How should I live my life?” or “How should I act in this situation?”
In this same spirit, I wanted to recollect some of the “virtues” or characteristics of how procurement organizations can effectively use spend analysis.
From discussions with experts, some of the obvious answers to why spend analysis matters link back to identifying opportunities for cost savings. But when we look a little deeper and understand the nuances of these experiences, each of the individuals we interviewed reveals the virtues of spend analysis by sharing their story of how they are helping their organizations maintain fiscal responsibility and become better stewards of corporate resources.
Here are some thoughts from procurement leaders we spoke with over the course of the year that reveal the virtues of spend analysis:
Virtue #1 – Establish a “single source of truth” to create awareness
At the beginning of the year, we spoke to Stuart Andrews, Director of Global Indirect Procurement at Zebra Technologies. What caught my attention during our discussion was the notion of how this scanning technology leader is using spend analysis to set the stage for better awareness across business units. By providing the discovery of where spend is going across a global footprint, Stuart has used spend analysis to create a “single source of truth” in what has become an essential tenet for his team to demonstrate and influence spending behavior.
During our conversation, Stuart noted that “Today we’ve gone to our stakeholders with spend analysis using the right taxonomy and start to show them what the opportunities look like. This is where you start to find that they may think they are spending all their money with a certain supplier but find out it’s half that, and the other half is spent by another department. At the end of the day, it is often eye-opening for our stakeholders when we are able to have that discussion.”
Virtue #2 – Increase influence by creating consensus
Later in the year, we caught up with Harvard University’s CPO Sara Malconian. Our discussion with her was eye-opening in how a globally recognized university like Harvard operates. But what was most interesting is how their strategic procurement team leads strategic sourcing and P2P strategies for the university in a decentralized procurement environment.
One main theme we came away with during our discussion was the goal of bringing together distinct cultures within the university. Sara and her team use spend analysis for identifying common benefits and building consensus across twelve unique schools with their own mission.
During our conversation, Sara noted that “Helping the university to manage its expenses, especially in a decentralized environment, is tough. If everyone is looking at their own bottom line, they can solve the problem for them, but that’s inefficient. So, we [in procurement] want to be able to work with everyone and say yes, you have a problem that is also shared with other groups. This is where spend analytics really helps because we can bring the broader enterprise view and pull more people together to solve the same problems in a better manner, so we can get the cost down overall and help Harvard maintain its prestigious status.”
Virtue #3 – Be a good steward of your finances
Another enjoyable and educational conversation was with Tom Nash, the Corporate VP and CPO at American Red Cross. A veteran in procurement, Tom helped shed light on the diversity of this $3 billion business.
While most people think of the Red Cross as just the humanitarian organization, their blood business covers 40% of the US blood supply in terms of collecting the blood, testing it, and then selling that to hospital customers as a life-giving product. And with the latest on Hurricane Dorian, there is not a better organization that should get recognized for what it does.
During our discussion, Tom revealed that “American Red Cross has invested in spend analysis to give us that visibility, transparency, and categorization of what that spend actually looks like. And why do we do that? Very simply, we are trying to make sure that of the dollars we have, we are being good stewards of our donor dollars as well as the money that we make in our hospital business and our training business. We are like anyone else; we need a return on our investment. So, this [spend analysis] is very critical for us in terms of business performance to have a better handle on our third-party spend.”
Virtue #4 – Know the limits of technology investments based on organizational maturity
Finally, one of the most revealing conversations around the application of spend analysis technology was with Erik Sternisha. As the VP Lead of Procurement Operations / Center of Excellence at Cushman & Wakefield, Erik shared the value of spend analysis from their industry in real estate management and the importance of managing a supply base that is extremely fragmented.
Erik shared that since there are not a lot of global or even national suppliers, creating a centralized spend cube as part of spend analysis efforts has been imperative to bring all the spend information together in one place.
Moreover, in the M&A and divestitures world, organizations are often faced with quickly bringing in new tools and systems, where procurement frequently plays a large role in promoting the synergies. In this context, Erik noted the difficulty demonstrating a cost-benefit analysis of spending money on a spend cube or spend analysis, whether that’s the cost of a tool itself and/or the resources to do it, especially since procurement professionals typically live in a very tight budget realm.
During our conversation, Erik shared, “From my personal kind of perspective/experience/strategy to approaching procurement technologies, I’d say in general I kind of believe in a best-of-breed working with kind of one suite provider who’s going to provide every procurement module, every technology to you… I think unless you have a very mature organization across the board—again, not just procurement—you really don’t actually realize the benefits of that kind of end-to-end source the pay process.”
Interested in learning how other industry leaders are using spend analytics to transform their business? Watch this webinar with Horizon’s Senior Director of Procurement and Supplier Management on-demand.