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Understanding your organisational spend is pivotal to driving company profitability. Spend analytics is the process of analysing supplier spend in order to decrease costs, improve efficiency and to improve supplier relationships. Within the process organisational spend data is collected, cleansed, and categorised – ready for analysis. This is increasingly done through sophisticated spend analytics software – which automates the entire process. Alternatively, spend analysis projects can be mapped through a spend cube.
What is a Spend Cube?
A spend cube is a popular visual method for viewing spend data, in which data is expressed in a three-dimensional cube. The three dimensions signify:
1. Supplier – who are you buying the product / service from?
2. Category – what are you buying?
3. Cost centre – which stakeholders or end users are you purchasing the product / service for?
Figure 1: The Spend Cube (Source: SCB Procurement)
Ultimately a spend cube allows you to simplify current spend, aligning various sourcing activities across the organisation into a single procurement strategy and revealing which supplier contracts should be approached for renegotiation.
Benefits of Using Spend Cube Analysis
A spend cube is a snapshot of a company’s existing sourcing strategy, consolidated into an easily digestible, three-dimensional image. When used properly, the spend cube offers businesses reliable and comprehensive business information that can be used in strategic decision making. This tool also offers businesses a host of other benefits including:
• Spend Classification: Undoubtedly one of the most useful tasks associated with any spend analysis method, the segmentation of supplies purchased by the company into categories allows stakeholders to gain an oversight of the company’s purchasing activities and how efficient they are.
• Identifying purchase risk: Within the everyday operations of individual departments areas of purchasing risk can develop - often unnoticed until a risk event occurs that impacts the organisation. This may include the continual utilisation of suppliers who are falling short of delivering their contractual obligations (e.g., meeting supply deadlines or quality standards).
Spend analysis tools such as the spend cube can help to highlight such risks – such as the ongoing use of specific suppliers by multiple stakeholders / departments – so that future risks can be managed or avoided altogether.
• Focus on Medium to Long Term Strategy: When managing multiple different procurement projects, it is easy for organisations to slip into the habit of focussing on the day-to-day operational activities, without giving heed to an overall strategy. The result of this is often wasteful spend, missed cost reduction opportunities and increased purchase risk.
The regular use of a spend cube can help organisations to adhere to a focussed procurement strategy, increasing overall purchasing efficiency.
• A fresh pair of eyes: Spend cube analyses are often undertaken by outsourced procurement experts. Whilst this may be regarded as an unnecessary additional cost, a fresh pair of eyes can be very useful – even for larger organisations with a dedicated procurement team – for assessing more discrete risks which internal stakeholders may have missed.
Utilising a spend analytics expert can offer signification development potential, assisting businesses with market competitiveness, whilst ensuring a low level of supply chain risk.
• Identify Areas of Potential Improvement: Ultimately, the main aim of any spend analysis is to identify ways in which the company can leverage greater cost savings. A spend cube is a useful way to identify opportunities for greater buying power and economies of scale.
• Identify Wasteful Processes: A spend cube analysis can also help to highlight areas of the purchase process which add no real value to the organisation. Such activities can then be adapted to allow for greater efficiency and reduced costs
Should Your Business Use a Procurement Spend Cube?
A spend cube is an invaluable tool for many different organisations, however this method of spend analysis can be particularly useful for businesses looking to address excessive supplier spend, or for new procurement managers / directors who are looking to evaluate existing category spend and implement a new strategy.
How Can We Help?
Need help implementing a spend cube analysis for your business? Look no further.
We can help your business to consolidate organisation-wide data into a comprehensible analysis, so that you can understand your current position before you make any strategic decisions.
Our expertise also allows us to assist you when it comes to utilising proper procurement practises that will pay dividend. We can guide you in reviewing your existing supplier contracts and what to look for in new ones, so you avoid any automatic price increases, capacity limits, cancellation restrictions and beyond.
We also offer to oversee procurement projects from start to finish – managing your contracts and leading the transition process to ensure that new systems are delivered on time without supplier disputes.
For further advice or an initial consultation please get in touch at info@athena-commercial.co.uk.
