The procurement function and spend management play a key role in any company's competitiveness and sustainability. As such, spend mapping and strategic sourcing have become essential strategic tools in procurement operations and supply chain management. It helps identify savings opportunities to optimise and rationalise company expenditure. To create an effective spend mapping, it's essential to organise in project mode with a clear objective and dedicated procurement teams, following these five main steps.
The importance of spend mapping
Spend mapping encompasses the entire process of collecting, cleansing, classifying and analysing spend data. By definition, this spend analysis provides a visual representation of all spending within your company, offering both visibility and detailed breakdowns by spend categories. The primary objective of this approach is to improve procurement performance through actionable insights.
The Chartered Institute of Procurement & Supply (CIPS) emphasises all the benefits of this approach: "[It’s] a process that analyses the historical spend data of your organisation to provide answers to questions concerning spend visibility, compliance and control. It helps to identify risks and opportunities and gives you a useful overview of your organisations costs that will help procurement to redirect spend where it will add value, or a competitive advantage. It helps you to leverage suppliers and refine your sourcing strategy."
Step 1: Identifying sources
The first step involves identifying the information that needs to be collected for spend mapping, as well as the stakeholders to engage within your company to obtain it. This naturally includes the procurement team, but also management control, supplier performance management, general services, IT department, human resources, communications... It's important to define the procedures and timelines for obtaining this data with all different business units.
It's equally important to verify the quality and consistency of the information through spend analysis tools. This can be done by requesting the same data from suppliers for comparison. This action also helps strengthen trust and collaboration with your partners.
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The ordering site/department;
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Supplier name;
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Unique supplier number;
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Purchase orders/contract/quote reference;
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Order amount (excluding tax);
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Order date;
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Detailed order description (items and quantities);
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Corresponding invoice reference;
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Invoice amount (excluding tax).
Step 2: Collecting data
The second step of spend mapping focuses on data collection. You can gather data from multiple stakeholders, that can collect and complete this information themselves to save time. Following this, it's essential to consolidate this database while ensuring there are no errors, duplicates, or inconsistencies throughout.
This spend analysis process is long and complex when information is stored in multiple formats across different data sources. It's (relatively) simpler when the company uses integrated spend analysis software, although it's important to remember that some purchases are made outside standard processes. It's crucial to identify this "maverick spend" and include it in the spend mapping to have a realistic view of your company's direct and indirect spend.
Step 3: Segmenting your procurement
The third step focuses on intelligently organising and structuring information. This involves building a procurement framework adapted to the company's context and activity. You can rely on standard classification systems like UNSPSC and ECLASS, or create your own categories specific to your company.
Spend mapping can extend to four dimensions, but generally operates across two to three dimensions. This exercise works like a funnel: Each procurement segment can be grouped by spend categories, then by product categories. It's also important to note that a procurement category can evolve over time, depending on the supplier market.
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ABC analysis is inspired by Pareto's law, also known as the 80/20 rule. This helps prioritise procurement categories according to their weight in the company's total spend.
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The Kraljic matrix aims to identify the strategic weight of various procurement categories, based on the strategic importance of purchases and the complexity of the supplier market.
Step 4: Analysing this information
The fourth step involves transforming all this data into information, then into knowledge, and finally into an action plan. This is truly a business intelligence process for better procurement.
Spend mapping then highlights the procurement segments and volumes assigned to each supplier, engaged by each business unit, or associated with contracts. Analysing this data helps identify informative trends and various types of issues, such as overpaid invoices, currency conversion fees, unexplained expenditures, failing processes... Based on this information and market knowledge, the procurement department establishes an action plan.
To go further and discover concrete strategies that enhance procurement performance, you can read our article on winning procurement strategies.
Step 5: Presenting the results
The fifth step focuses on presenting the results of spend mapping to procurement leaders. Through dashboards and reports by product category, procurement segment, or suppliers, the company's procurement behaviours are brought to light.
This is the opportunity to submit action proposals. For maximum efficiency, each action is presented in detail, with its advantages and disadvantages, potential managers, deadlines... Once validated, these actions are implemented and closely monitored through real-time spend analysis. It's important to regularly update this mapping to measure the impact of each decision.
Spend mapping thus constitutes an essential management tool for procurement teams. This structured and systematic approach enables the procurement function to make more informed decisions and achieve its objectives, particularly in terms of cost savings. This work can go even further through the use of spend analysis solutions based on Artificial Intelligence for stronger supplier relationships and enhanced spend visibility.