Less than half (42%) of all procurement departments have a standardized spend analysis process.

I recently exchanged notes with a colleague who commented that recently, CPO Rising seems to have been very focused on operational procurement and complex spend management over the past month or two. ‘How could this be?” I wondered, after all sourcing is my favorite topic. Based on our traffic which runs about 20% higher on sourcing days, it is also a favorite of our readers. So, I did a quick analysis. Hmm… It has been some time since our series on The Four Pillars of the Modern Strategic Sourcing Program……

Anyway, I progressed quickly through Kübler-Ross’ five stages of grief and have to say that there’s nodenying it. My colleague’s comments were spot on; and, I accept the blame (I only hit two of the five stages). It is true that we offer a broad selection of topics on CPO Rising that are drawn from our team of analysts. We do this by design, in large part, because the role of the CPO is expanding and the topics that matter to them extend beyond any one area. We’re also drawn to and work on an expanded number of research projects that cut across the full department – my soon to be released, CPO Rising 2015: The Agility Agenda is a great example.

But, let me say this, ahead of my next major study focused on the State of Strategic Sourcing due at the end of Q2, we plan to turn our sourcing volume up (to 11! to 12! to 14! all the way to 15! 2015, that is! And yes, like every tall building, we skip #13 because it’s bad luck not to). That doesn’t mean we will become “all sourcing, all the time” but it means more articles like the ones in our early years when our readers “came for the sourcing and stayed for the CPO themes.”

My recent large, global sourcing study focused on the value that procurement departments generated when they took a holistic view of strategic sourcing and linked their processes and connected the dots. In this, our newly created “Connecting the Sourcing Dots for Greater Value” Series, we will quantify, discuss, and analyze the benefits that enterprises realize when they link the sourcing sub-processes. Today, I will address the value that is generated when you connect spend analysis with sourcing. Because this is such a fundamental component to value, this will not be the only time we tackle it. OK? Straight to it:

  • Spend analysis is both the process and the tools by which enterprise procurement and sourcing teams gather spend data, analyze it, and make smarter spending decisions from it. As a result, teams can understand how much they spent with a supplier in a given year, in a given category, under given terms, and by a given method.
  • Less than half (42%) of all procurement departments have a standardized spend analysis process.
  • Automated spend analysis tools pull all this data in a repeatable way into a regular reporting format that can be analyzed by sourcing professionals for faster decision making.
  • Less than 40% of all procurement departments (37%) utilize an automated spend analysis process.
  • When armed with spend intelligence, sourcing teams can and should leverage it during the sourcing process. By analyzing their historical spend information, their contract terms and conditions, and current market conditions, sourcing teams can determine whether or not a new sourcing project should be conducted. They can also prioritize the project based upon the potential to drive value (like savings) or other factors, like unfavorable contract terms, a shift in business requirements, or simply the size of the spend.
  • While 62% of procurement groups do leverage spend data to identify sourcing opportunities, the lack of automation and standardization as noted above offers very little comfort that this is being done consistently well by many procurement departments.

Leveraging any one of the strategic sourcing processes or tools by itself – particularly eSourcing – is a good start (and really, no sourcing process can be considered “strategic” in 2015 if it does not include eSourcing). But greater value is derived when sourcing teams implement and link all four pillars of the modern strategic sourcing program – spend analysis, sourcing/eSourcing, contract management, and supplier management. By linking these processes and pivoting off of one another, sourcing teams can derive a whole that is greater than the sum of its parts.

The fact of the matter is that long-term sourcing and procurement excellence begins and ends with visibility. As we crank our sourcing volume up to 2015, we think it’s time that sourcing teams turn their spend analysis volumes up too.