- 15
- FEB
- 2011
Spending your way to advanced analytics: Can you climb the maturity ladder?
Author: Ben Ngobi - Categories: Spend Analytics
It is now a given that spend analysis is an enabler in identifying opportunities that improve procurement performance. To achieve this, procurement organisations go out, research the vendor market, identify a range of vendors, ask the vendors to pitch their wares and finally decide to go with one provider. The focus for some procurement organisations is more about how good the vendor is in integrating with the existing tools of the buying organisation.
Once an organisation adopts spend analysis, the cycle of long-term optimisation begins. In the short term, the key questions are more about what sorts of key performance indicators the organisation wants to produce? This is then followed by how do we increase the value of information that spend analysis provides? And, as companies move towards maturity, the key insights required are more about generating greater value beyond procurement.
A salient challenge is how we group users of spend analysis within specific categories to illustrate their ability to execute. In doing so, there is implicit recognition of various elements that determine or correlate to an organisation's capacity to develop its use of spend analysis tools. Surely, there should be an optimal timeframe at which users jump from one ability group to another, and in doing so, there will be a range of KPIs common across the various organisations.
A recently published PIU executive research report (the first of three parts) on spend analysis finds that procurement maturity may also be positively linked to procurement performance.
Marrying spend analysis maturity and procurement maturity presents an interesting mix because both are directly influenced by each other (in statistical speak, the two variables are interdependent). Some organisations may be very immature but go about launching expensive spend analysis ventures, when in fact they are still at the tactical level in their procurement operations. Again, PIU spend analysis research finds that businesses stand to lose between 5-10% of unrealised savings due to flaws within the procurement model, and a combination of factors such as available information within the organisation drives performance.
In conclusion, others may argue that the discourse above is irrelevant, and the key is achieving short-term cost-saving opportunities. Therefore, any vendor tools that support this objective are adequate. Again, this may be somewhat misconceived because being proactive goes far beyond short-term savings and more towards sophisticated optimisation where procurement drives organisation strategy using spend analysis. The challenge for the PIU is how we develop a maturity concept that groups ability to use spend analytic tools beyond procurement.
