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APQC's research shows that organizations with spend analysis programs have more efficient procurement processes that cost less.
With the ongoing focus on cost reduction, many orgaare devoting more time to spend management - the process by which they analyze their spending patterns to identify opportunities for long-term savings. One aspect of spend management that can have a profound effect on the supply chain is spend analysis, defined as the process of assessing the who, what, when, where, why, and how of an organization's expenditures. For its supply chain function, an organization should ask three questions as part of spend analysis:
* How much are we spending?
* With which suppliers?
* Are we getting what has been promised?
A spend analysis program can provide valuable visibility into an organization's procurement spending, which in turn allows the organization to consolidate both its suppliers and its spending.
Many organizations have taken advantage of the improvements that spend analysis can generate in their supply chain operations. APQC's Open Standards Benchmarking in procurement indicates that nearly 70 percent of responding organizations have initiated spend analysis programs. APQC also sought to determine how organizations that engage in spend analysis compare to others in key areas. Our research indicates that organizations with spend analysis programs have more efficient procurement operations and more robust supplier relationships. The benefits obtained by organizations with spend analysis can be seen in the areas of cost effectiveness, cycle time, process efficiency, and staff productivity.
Lower Overall Cost
For organizations that have initiated spend analysis programs, the overall cost to procure materials and services is much lower (see Exhibit 1). At the median, an organization with a spend analysis program and $5 billion in revenue would spend $8,500,000 (0.17%) on procurement activities, whereas a similarly-sized organization without a spend analysis program might spend $19,500,000 (0.39%) on the same activities. This represents an additional $11 million in procurement cost for organizations that do not engage in spend analysis.
The lower cost among organizations using...