How to use a Procurement Spend Analysis Dashboard

A Procurement Spend Analysis Dashboard provides a central location to aggregate multiple data sources, into a single trusted data source, that monitor, analyse and control. Creating a Spend Analysis Dashboard, aligned with the company objectives, gives procurement the spend analysis they need, to take the necessary sourcing actions required to stay in control.

Procurement departments, may use several different types of Dashboards, the following list provides sample examples of procurement and spend analytics dashboard (s) :

• Procurement Spend Analysis

• Procurement Savings Dashboard

• Supply Chain Dashboard

• Category Management Dashboard

• Procurement Supplier Performance Dashboard

• Procurement KPI Dashboard

Why a Spend Analysis Dashboard is important?

Spend Analysis is an important method of Spend Data Visualisation, Supplier Sourcing, Cost Saving and Budget Tracking. A Spend Analysis Dashboard is a way to visualise, simplify and share complex information, in manner that provides procurement management with timely and accurate spend analysis reports.

Spend Analysis Dashboard: Video Tutorial

Spend Analysis Video explains the four Standard views and provides a executive summary of the Procurement Spend Profile, including the company, procurement category, and spend profile for each supplier.

Spend Analysis Dashboard video will show the Following

• Organisation Summary

• Supplier Summary

• Line Item Review

• Text Analysis

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Heatmap Graph

The Heat map chart, is designed to give a quick representation of the high value Spend Categories.

Chart (Spend Analysis Heatmap Graph), is a visualization of a company’s annual spend.

Showing which categories have the highest spend value and is denoted by the size of box, the larger the box, the larger the spend value.

The Heat Map Chart represents data in a tabular format with standard colour ranges, the size of the Boxes, represents the highest Spend Categories.

The Description at the top of each box represents the Level 1 Category, at the bottom is the annual spend Value.

Other attributes can be added like No of Suppliers, No of orders etc.

Location Map Graph

The location map is a standard offering within Power BI. Within Spend Analysis Dashboard this chart is important as it can show the following:

• Facility location, Depot, Office, Workshop, Plant etc for the Client

• Can show the location of each supplier

these charts can me created using the name of the city or town, with more precise location using Geo Mapping Latitude and Longitude co-ordinates, this chart gives and an example of the location, the size of the Circle indicates the spend value, this shows at a glance the locations with the greatest spend denoted by the Bubble size.

Waterfall Chart

A waterfall chart, is a data visualization that helps in understanding the cumulative effect of sequentially introduced positive or negative values. These intermediate values can either be time based or category based. In this case the Waterfall chart has been automatically put into a Category called Pareto analysis.

The Spend profile data is automatically categorised into 3 buckets,

A = 80% of the spend value, typically 20% of suppliers make this up. This is where the highest spend Suppliers are based.

B= 90% of the Spend Profile Value

C= 100 % of the Spend Profile Value - Sometimes referred to as the Tail Spend or Long Tails

Cost Centre Spend

Within Spend Analysis, it is very important to see the department or cost centre a transaction is booked to. For Spend Analysis, each transaction will have been processed using the The chart of accounts, each purchase order or accounts payable information, will then have to been aligned into the financial systems.

Each department will hold an annual budget, which each month this is reconciled to show the status and remaining value for the budget holder.

Within a procurement spend analysis, it is important to know who you spent money with, but also, who in the company bought the goods or service and which functional area will this cost be booked to. Cost Centre Information is key, because many functions may have their own preferred supplier and in some cases procurement may offer an alternative cost reduction or service.

Procurement function works to provide sourcing, that should have the budget holder as an integral part of the sourcing decision.

Spend By General Ledger

Spend by General Ledger codes, are taken from the Company Chart of Accounts, they provide procurement with a map of the internal financial reporting structure, and supports analysis. The Ledger is a financial system, normally two entry that first receipts goods or service then allocates them to a cost centre, thus helping the Spend Analysis process.

The table called Spend Analysis GL , shows an example of this from our test data, It shows the General Ledger account, the General Ledger Description, the Spend Value or Spend Profile and the number of suppliers per code.

In many cases, the GL codes, are pretty high level and don’t support in depth line item classification, however, is some case General Ledger codes are use directly to Classify as a first pass, there are other factors that need to be taken into account, such as Item Description or PO Description.

What is Spend Analysis Supplier ?

Spend Analysis by supplier, is an aggregation of complete supplier spend within a given time period, normally an annual Value or 12 month worth of Spend. The supplier name is aggregated into a Normalised Supplier, this is then rolled up into an Annual Value, this takes into account Purchase orders or Accounts Payable Spend information, this is sometimes referred to a the Supplier or Vendor Spend Profile.

The Analysis of Spend is also date driven, that shows in the first pass, the receipt date or Invoice Posting date, this is then shown in a times series chart, the table attached simply show a descending list of suppliers sorted by annual spend. These data are then complied and mainly used with contract data - that show the invoice value as well as any contract details, in this view we have omitted the contract data at this stage as we explore the principles of Spend Analysis.

Spend by Category

According to CIPS Category Management is a strategic approach to procurement where organisations segment their spend into areas which contain similar or related products enabling focus opportunities for consolidation and efficiency.

Category Management may involve the splitting of direct and indirect products or services or may relate to the dissecting of products or services by value, supplier, type or volume. Associated theories that can be used to help the dissecting of products or services are Pareto (80/20 rule) and ABC Analysis. From these models it is possible to see where high levels of spend are being accrued and where focus should be placed.

In this example Spend Analysis by Category shows a list of Categories at level 1 in descending order with Micro, Chassis, Keyboards making up the Top 3 categories, these form the basis for Sourcing Roadmaps and Opportunity Assessment or Cost Reduction initiatives.

Spend Analysis Supplier Category Graph

Category spend analysis example in the following table that shows the Supplier Name , by spend Category for that given Period and provides a spend analytics dashboard and spend reports that are aligned to the category plan.

Payment Terms Spend Analysis?

In Commercial relationships, both parties agree upon a contractual agreement, of when to pay and when to be paid, normally Supplier Payment Terms are several days after the invoice is submitted. Payment Terms are usually paid on 30, 60, 90 days after the invoice is submitted by the Supplier. A list of standard payments terms can found here. In short, they are as follows:

• 0 days

• 5 days

• 14 days

• 30 days

• 45 days

• 60 days

• 90 days

• 120 days

Payment terms are normally, agreed at the supplier on boarding stage and are legally binding, Spend Analysis Payment Terms Graph shows a bar chart of historical spend values shown by Payment Days. The reason and order of the charts shown is that many suppliers can have multiple supplier IDs on the system and in many cases have different payment terms and thus provides procurement the opportunity to true up the terms.

A reduction in payment terms impacts cash flow, there maybe an need to protect cash management, therefore, push or increase the payment days, this may came at increased price or premium, in other cases can be used to maybe pay sooner, but at a lower unit cost. In Spend Analysis Payment Terms are normally described as text, thus a mapping table may need to be used to convert these terms into a numeric value, this will then be used later to conduct Spend Analytics and help build what if Scenarios, by changing target payment terms assumptions.