Spend Analysis a Top Priority, But Not Widely Adopted...Yet

Companies may not be running with open arms into spend analysis solutions, but there are definite benefits to be had for those that do.


Companies may not be running with open arms into spend analysis solutions, but there are definite benefits to be had for those that do.

Gaining enterprise-wide visibility into their companies' spend is a top priority for a cross-section of supply and demand chain practitioners. And while only a minority of companies currently are using spend analysis consistently to set a baseline for sourcing activities, interest in spend analysis is increasing and appears set to fuel a boom in the use of analytical tools, according to the results of a recent survey by Capital Consulting & Management Inc. (CCMI), a supply chain management consultancy based in Alexandria, Va.

The survey, conducted in conjunction with Supply & Demand Chain Executive magazine, included responses from more than 400 purchasing managers and corporate executives who completed an online questionnaire in November and December 2003.

Respondents represented a cross-section of industries, including high-tech manufacturing, consumer products, automotive and government. The average revenue of responding companies was approximately $2 billion, with about a third of respondents from Fortune 500 companies. A significant number of companies under $100 million and from $100 million to $500 million were also included.

In its report on the survey, CCMI notes that gaining "visibility into spending across multiple locations or divisions to help leverage spending and source more strategically" ranked as the most frequently cited single action to help respondents' companies improve their sourcing performance, with 25 percent of respondents holding this view.
A further 24 percent cited increased use of cross-functional teams, while respondents named supplier performance monitoring and deploying better tools for contract compliance less frequently as top priorities (19 percent and 17 percent, respectively).

The availability of online tools for requests for proposals (RFPs) and auctions ranked lowest, at 7 percent, which CCMI suggests could reflect the broad adoption of these tools or perhaps the need to have spend visibility and other capabilities in place before pursuing online RFPs and auctions.

But perhaps the survey's most surprising result was the number of companies not practicing spend analysis consistently. About half of the respondents said their companies use spend analysis "sometimes," usually when data are already easily available or when the spending magnitude is large, while 14 percent use spend data infrequently or not at all.

"The penetration of spend analysis is still pretty limited in Corporate America today," says Scott Elliff, president of CCMI, who points out that just one-third (32 percent) of respondents in the survey reported that their companies use spend analysis all the time to help set a baseline for sourcing activities, and only 20 percent said they are currently using spend analysis software. "That's surprising," Elliff says, "because spend analysis solutions have been around for several years now, but the uptake seems to have been constrained in some way or another."

The survey results suggest several possible reasons for the sluggish adoption of spend analysis, including cultural issues. For example, a majority of respondents (54 percent) cited the absence of a strategic sourcing process and mindset within their organizations as a key limitation to improving their procurement processes, while 32 percent pointed to a lack of organizational know-how as a limiting factor.

Technical hurdles also appear to play a role. A total of 41 percent of the respondents ranked their inability to get data from disparate systems as the greatest challenge to effectively gathering the raw information necessary for spend analysis, and 31 percent said that they lacked the analytical tools necessary to identify savings opportunities.

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