June 24, 2010
The value of using spend analysis tools has been well-documented, but without proper application of the technology in play, the benefits won’t last.
A new white paper by Sourcing Innovation asserts that if an organization embarks on a traditional tactically oriented spend analysis and visibility program, its opportunities for savings will be short-lived.
The company reveals that the value curve for spend analysis programs tends to flatten out within one to three years. The stellar ROI experienced in the early days of adoption tends to taper to a point where the platform does little more than help buyers maintain negotiated cost reduction and catch maverick spend.
Sourcing Innovation says that the savings dwindle so rapidly because of limited data. If the only information feeding the spend analysis program comes from the accounts payable department, it is likely only identifying top spend buckets (by supplier, category and commodity) and, correspondingly, the low-hanging fruit. Since this analysis is relatively quick and easy to do once there is visibility into this data, and since a good spend visibility program will decrease sourcing cycle time by as much as 75 percent, it does not take long for the average organization to exhaust its savings opportunities.
This doesn’t have to be so. If companies factor other types of data—for example, invoice information, which can identify overpayments and uncollected rebates—the savings can be multiplied year after year.
“And if the data is enriched, a whole plethora of new opportunities open up,” the report reads. “Adding diversity data allows an organization to target government minority and women business enterprises (MWBE) programs. Third-party corporate data can be used in fraud detection. Carbon footprint data enables regulatory compliance. The opportunities, and savings, become endless.”