What is Spend Management? It’s Much More Than Spend Analysis
I often hear the terms “Spend Analysis” and “Spend Management” used together. Often they are lumped together as the same thing, or are loosely defined. So I’ve decided to make a very distinct differentiation between the two capabilities.
Many companies are doing some form of Spend Analysis.
- Collecting and integrating many diverse sources of company Spend data
- Classifying it to meaningful categories
- Reporting on it in many ways to learn and discover how savings can be obtained.
Often, this is done as a “snapshot”.
Sometimes, the data is refreshed periodically and a few back-end programs are put in place to monitor and report on Spend, Supplier, and savings information.
However, “Spend Management” is much more involved and more comprehensive than Spend Analysis.
Spend Management becomes much more rigorous as a permanent application within an organization.
It serves as an ongoing Spend tracking tool across a large spectrum of formal measurement.
As a result, much more frequent refreshes are involved, done in a very rigorous and structured manner.
It involves a back-end sub-system to specifically track defined Spend categories and performance factors.
Those can come from many sources, whether they are inside or outside of the organization’s data pool:
- Contract terms,
- Custom inputs,
- Outside benchmarks,
- Additional market,
- Supplier data from outside the organization,
This more mature and advanced capability is very valuable to organizations.
In order to integrate it with the corresponding organizational Spend, it helps conduct sourcing initiatives and capture key knowledge around that specific sourcing category.
The Spend Analysis data collection and classification becomes the foundation for gathering all organizational Spend data.
The Spend Management application allows for inclusion of more data, as well as very specific ongoing category-by-category measurements.
This becomes unlimited in the enterprises ability to monitor and truly manage Spend in many ways such as:
- Rebate programs,
- Diversity Spend relative to specific items,
- Managing the overall status of the sourcing program to continually capture the intended cost savings,
- Industry benchmarks,
- And much more…
It truly provides ongoing and comprehensive “Spend Management” and sophisticated Spend Intelligence.
“Spend Management” is a detailed capability to look at business Spend with many measurements in place.
Thus, Spend Management requires Spend data to be carved out and broken down into very specific groupings, so that consistent data is captured that provides meaningful management reporting on apples-to-apples comparisons.
Classify, isolate, refresh
These consistent comparisons, refresh to refresh, require 3 basic “Spend Analysis” foundational capabilities to be in place”:
- The ability to rigorously classify and link your Spend data to sourcing categories, with flexibility for ongoing changes.
- Isolate Sourcing categories as separate knowledge bases unto themselves. Incorporating additional supplier, item, and market data that does not exist in the organization, but can be easily captured from external sources.
- Link and refresh organizational Spend data to the specific sourcing category on a frequent basis, to drive many ongoing measurements and Spend Management parameters.
Until recently, the lack of master data management tools with data-driven capabilities in the market have made the above difficult to automate as an ongoing, integrated, and vibrant intelligent application.
A basic problem has been the inability to rigorously roll-up Spend data from UNSPSC codes, and other multiple classification schemas, to the specific organizational business Sourcing categories.
In the past, these data relationships have been difficult to maintain over time, especially as sourcing categories evolve and change with the organizations maturity with Sourcing programs and initiatives.
Organizations require Spend Management capabilities integrated with robust foundational Spend Analysis capabilities.
As they mature, they begin tracking and measuring specific Spend parameters by sourcing categories.
Spend Management is a more advanced capability that ensures expected savings are managed and realized over the longer haul, in a very formal manner.
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