In Part 1 of our MRO Spend Reduction blog, we
discussed how Inventory Optimization and Disposition can reveal quick returns
and long-term cost savings. In Part 2, we dive into the next layer of MRO Spend
Reduction, which can be revealed through a detailed Spend Analysis.
In
the fast-paced, ever-changing world of MRO, the reality is that many companies can't tell definitively
what items they bought, who they bought them from, and how much they bought them
for within the last month, let alone the past year. P-cards, free text
descriptions, VMI one line invoices: these are all contributors to poor data
and limited spend visibility. Without access to this critical business insight,
purchasing and procurement departments are essentially operating blind and
unaware of inefficiencies.
Spot buys, price variances, non compliances,
costly OEM items, and a multitude of vendors are just a few of the significant
cost savings opportunities that can be revealed through a detailed spend
analysis. In order to truly understand and leverage these valuable savings, you
must first collect 12-24 months transactional purchase history. The data should
include, at minimum, the following fields:
·
Internal part number
·
Part description (This may
be divided into distinct fields: noun, modifier, description, notes)
·
Manufacturer
·
Manufacturer part number
·
Unit Cost
·
Quantity purchased
·
Unit of measure (Unit of
Purchase vs. Issue)
·
Vendor part number
·
Vendor number
·
Vendor name
·
Invoice number
·
Invoice date
·
Purchase order number
·
Purchase order date
·
Item receipt date by
purchase order number
A detailed Spend Analysis is broken into three
parts: Commodity Spend Analysis, Vendor Spend Analysis, and Itemized Spend
Analysis. Within
the Commodity Spend Analysis, each unique item will be segmented into its
respective commodity bucket (product group), where the total SKUs and dollar
value by commodity will be calculated. Next, the Vendor Spend Analysis will
assess and calculate the total spend per vendor, as well as, the commodity
spend per vendor. Finally, the Itemized Spend Analysis will reveal lowest price
paid, highest price paid, price variances through the preferred vendor, price
variances across all vendors, and OEM vs. MRO price variances.
Once
the Spend Analysis is complete, the work is not over. Now, you must apply the
findings. Using these valuable reports, the Procurement team can begin to
tender and leverage MRO spend by product group, consolidate the vendor base, establish
preferred vendor programs, enforce compliance amongst purchasing staff and
preferred vendors, and interchange costly OEM items for generic MRO items at a
fraction of the cost.
For
more information and samples of a real life Spend Analysis, visit www.imaltd.com or contact info@imaltd.com.
