There is no improvement without action! Expenditure analysis applies this principle to procurement. Expenditure analysis is the first step towards improving procurement practices and lowering costs.
Optimising costs through expenditure analysis can be organised into three steps:
Not all companies have the same expenditure structure, and not all expenditure is analysed in the same way. For example, this could depend on whether the expenditure is related to strategic purchases or not.
Having said that, general principles can be identified to develop a system for expenditure analysis and, above all, to create ways of comparing the results obtained.
Thus, most expenditure analysis grids focus on four areas:
- The breakdown of expenditure by purchasing categories
- Trends in increased or reduced expenditure over three years
- The variation in expenditure by site and/or business unit
- The top 10 suppliers (or the top 20, as a way to account for a significant number of purchases overall)
In addition to these four quantitative areas, a qualitative expenditure analysis is also carried out in relation to:
- Adherence to processes: compliant purchase requests, purchase orders and invoices
- Process digitalisation rate
- Contract compliance
The expenditure analysis itself can be carried out using the raw data collected from the grid mentioned above.
The expenditure analysis gives an overall idea of how the company carries out its purchases:
- How much?
- From whom?
- Through which channels?
The goal is to identify areas for improvement:
- By comparing behaviours:
- Of departments and/or business units
- Of suppliers and partners
- By assessing compliance with:
The answers to these questions provide an insight into purchases from the perspective of efficiency. Ultimately, companies will be able to identify connections between behaviours and performance.
Generally, expenditure analysis just confirms what procurement departments already believed. In other words, following procedures or strictly timing deliveries rarely cause issues.
However, the benefit of an in-depth expenditure analysis is that it can provide a clear, documented and tangible view of respective performance.
Another notable benefit is the potential for improvement that the approach reveals:
- Demonstration of the suitability of procedures
- Identification of best practices
- Recognition of the most valuable supplier behaviours
- Approval of cross-departmental approaches within the company: procurement, finance and others
In conclusion, expenditure analysis is, above all, a way to take action. It fosters communication between procurement departments and other departments within the company, as well as with suppliers and partners. The advantage of this is that collective efficiency issues are shared better between teams, with substantial savings as an added bonus.
To learn more about expenditure analysis, read the article by Xavier Laurent, Director of Value-Added Services at Manutan France: What is expenditure analysis and how does it work?