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HOTTOPICS [spend analysis]

BUILDING A DETAILED CATEGORY ANALYSIS By Jonathan White

I

analysis, but the benefits can be significant. The first requirement for category analysis is that an organization’s expenditure be organized into meaningful categories. You may be able to use the commodity/cost/subjective/object codes that were applied to your spend as it worked its way through your accounts payable system. In other cases, you may have to undertake additional categorization effort and classify vendors or expenditure outside that system to obtain data robust enough for a category analysis. Bringing purchasing card expenditure into the analysis is also required to provide visibility of all expenditure. Once the data is joined and any categorization issues are rectified (which is outside the scope of this article) then you are on the way to building your initial category overview.

n the spring of 2013, NIGP’s strategic partner, Spikes Cavell, developed a Guide to Procurement Savings designed to show public sector procurement teams how they can use spend data to understand, change and measure their procurement function. Previous issues of Government Procurement have featured articles on understanding the current procurement situation through data and six different types of procurement savings that could be identified using that data. Now let’s take the next step and explore creating a category analysis across all parts of an organization’s expenditure. WHY CATEGORY ANALYSIS? A category analysis and management approach in procurement usually marks a distinct organizational change. Rather than departmental budget holders “going shopping,” there is a transition to well-organized, planned procurement efforts that offer better value and efficiency and leverage the organization’s buying power. Many public sector procurement departments are still living with fewer staff and resources available to carry out savings projects. Under such circumstances, it takes a deliberate and focused effort to overcome hurdles and carry out a category

CATEGORY OVERVIEW A high-level overview of spend by category provides you the necessary perspective to begin identifying categories where it makes the most sense to take action. (See Table I.) The action you take in one category may be very different than the action you take in another category, even though both deliver savings. Once you have a category overview, you can look for patterns and outliers in the data. Match those observations with an understanding of your

Overview of spend by category (Table 1) vCode Business Sector

Total Spend

Total Transactions

Total Suppliers

Construction

29,515,804.92

4,621

207

Financial Services

17,580,291.26

184

12

Utilities & Energy

13,576,382.87

559

28

Waste & Environmental Services

8,270,213.27

474

37

Information Technology

6,017,390.00

819

110

Security Equipment & Services

5,192,492.45

1,216

39

Vehicles

2,896,852.96

2,265

62

Professional Services

2,672,840.30

160

19

Facilities Management

2,400,015.99

1,359

76

Transportation Management

2,266,467.48

201

19

6 | FEBRUARY/MARCH 2014

Profile for NIGP

GovPro - February/March 2014  

The official publication of NIGP.

GovPro - February/March 2014  

The official publication of NIGP.

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