by Jan Malasek | Jul 13, 2023 | Strategic Sourcing
By Gary Long – Vice President, Client Services Let’s say you’re committed to reducing costs whether it be direct materials or indirect materials and services. Where do you start? This article covers the essential steps for conducting a spend assessment which has a number of key challenges from “dirty data” to stakeholder alignment. Step #1 – Data CollectionA good starting point is understanding exactly what you purchase currently, from whom do you buy it and at what cost; what is commonly referred to as a “spend cube”. This is easier said than done, especially if your company has multiple divisions, multiple systems etc. A typical starting point is collecting an Accounts Payable file or files covering one to two years of purchasing activity. Step #2 – Data Cleansing & NormalizationThe data first needs to be cleansed and normalized (IBM vs International Business Machines vs I.B.M.) before you begin to identify where the opportunities might be. This step is not to be taken lightly as it can be painstaking work. Hopefully you have a tool that can help with this, or you may utilize a third-party who has an intelligent tool (helps with categorization) and may choose to do the work somewhere where labor rates are not as expensive (e.g. India, Eastern Europe). Step #3 – Data MiningOnce the spend cube is developed, then what? You need to search for potential opportunities. Look for evidence that spend is fragmented across a given category or categories of spend. If your company is buying laptops, whether with the same specifications or different, from five different suppliers, at different pricing levels, that would...
