HOTTOPICS [spend analysis]
BUILDING A DETAILED CATEGORY ANALYSIS By Jonathan White
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
Utilities & Energy
Waste & Environmental Services
Security Equipment & Services
6 | FEBRUARY/MARCH 2014
The official publication of NIGP.