A simple overview to retail direct & in direct purchases spend analysis in 7 simple steps

1. An Overview About Retail Purchases Spend Analysis inAn Overview About Retail Purchases Spend Analysis in
7 Simple Steps.7 Simple Steps.
Presented By:
DLVishnu Kumar
B.Tech || MBA || PGDMM
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2. S. No Topics Page No
1 What is Spend Analysis 3
2 Why do we need Spend Analysis 4
3 Spend Cube 4
4 Spend Analysis Tools 4
5 Types of Spend 5
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6 Types of Data Sources 5
7 Types of Categorisation 5
8 Outline of Spend Analysis 5
9 Common types of Spend Analysis 6
10 Retail Purchase Spend Analysis in 7 Simple Steps 7
11 Example for Retail Purchases Spend Analysis 8

3. What is Spend AnalysisWhat is Spend Analysis
Spend Analysis is the process of aggregating, classifying, leveraging spend data for the purpose of cost
reduction, performance improvement, and greater compliance. Spend analysis is important as it is the first
step in the identification of possible savings opportunities.
It is part of the spend management process, which includes the analysis, award, tracking of corporate spend,
the first & last step of strategic sourcing process. Spend management is important because it is the only way
to insure capture the savings after negotiating & one of the best ways to insure compliance with relevant
regulations.
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4. Why do we need Spend AnalysisWhy do we need Spend Analysis
•Greater Visibility: Tracks every $ spent across multiple categories including Indirect spending.
•Improve Relationships: Improves 360 degree relationships with Suppliers, Customers, stakeholders.
•Identify areas of Opportunity: Fetches insights from company’s past historical spending & create savings
opportunities.
•Increase Productivity & Efficiency: Focuses more on key deliverables.
•Better Decision Making: Make fact based decisions with data made available thru systems.
Finally all the points results in Lower Overall Costs which contributes to company’s bottom line savings.
SpendSpend CubeCube
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SpendSpend CubeCube
Spend Analysis should help company in 3 decision making dimensions.
1. What are we buying?
2. From who are we buying?
3. For who are we buying?
Spend Analysis ToolsSpend Analysis Tools
1. SAP ARIBA
2. ZYCUS
3. Accenture Procurian
4. I2 Technologies
5. Bravo Solutions.

5. Types of SpendTypes of Spend
Direct Spend:
Spend on Goods & Merchandises
that directly influences the product
sales which company is selling.
Example:
•Commodities(Grocery Staples etc.)
•Parts & Sub Assemblies.
Indirect Spend:
Spend on Goods & Services, that
enables or supports primary sales.
Example:
•Travel, Stationary.
•IT, Capital Goods,
•MRO & Utilities,
•Car Rentals, Books &
Subscriptions
Tail Spend:
The Bottom 10% of
Indirect Spend is known
as Tail Spend.
Example:
•One off purchases that
fall below a certain
threshold (say $10K).
•Purchasing done at
plant level by internal
departments
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Types of DataTypes of Data SourcesSources
A. Accounts Payable: Contains 95% of company’s spending data. Also like G/L, PO, etc.
B. Other Sources: 1. Internal (Invoices, HR data).
2. External (Supplier Spend, Data in Public Domain like Internet).
Types of CategorizationTypes of Categorization
1. UNSPSC 2. FSC 3. NAICS 4. NIC 5. Company Own/Inbuilt Category.
Outline of Spend AnalysisOutline of Spend Analysis
Spend Analysis Helps in tracking benefits like, drives PO compliance & Cost Recovery & Minimize Leakage
& helps Finance & Budgeting Team in Projecting Future Cash Flows.

6. Cost per unit weight Analysis: Performed to compare similar parts/products & cost/unit should be similar.
This is helpful to understand layers/internal parts of a product which contributes to different costs.
Part price history Analysis: Plotting trend of a part/commodity price over 2 years & identify opportunities to
renegotiate lower prices in case of unjustified price increase in the past.
Pricing Brackets/ EOQ Analysis: Identifies optimum bracket quantity or EOQ/MBQ within available brackets.
Can only be applicable on parts/products/commodities that have running contracts that contains pricing
brackets.
Indexed Pricing Analysis: Identifies relationship between material prices & part cost & helps to identify
opportunities for index based pricing & renegotiation.
Currency Opportunity Analysis: Identifies cost reduction opportunity by switching prices between currencies.
This believes in assumption that manufacturer should be paid in the local currency of manufacturing country.
Common
Types
Of
Spend
Analysis
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Freight Analysis: A way to obtain visibility in to freight costs associated with procuring goods from suppliers.
This focuses on selecting a best approach to optimise freight costs.
VAT Analysis: VAT is a tax that is accessed at each phase of the process where value is added to raw materials
or components or services by different suppliers. It is usually recovered when a supplier sells his product to
the next supplier in the chain. VAT Leakage can some times occur when trying to recover VAT from foreign
suppliers.
Warranty Cost Recovery: This incurs due to defective products from suppliers. This includes both labor costs &
product & sub product costs.
Payment Terms Analysis: Identifies deviation to standard payment terms. Intention is to negotiate with
suppliers to pay them on standard terms so that savings can be realised from holding cash.
Part Family Analysis: Optimum way of categorizing parts into a family & identifies cost outliers within same
part & potential parts for cost reduction which don’t belong to same parts family due to different processes.

7. Retail Purchase Spend Analysis in 7 Simple StepsRetail Purchase Spend Analysis in 7 Simple Steps
A spend analysis allows to remove traditional roadblocks to spend management & gains insight into operational
ineffectiveness which is important in order to improve company’s sourcing success.
There are a total of the 7 steps mandatory to conducting a proper spend analysis.They are as follows.
1. Identify:All the existing sources available for company’s spend data, from all the internal departments, plants &
business units.This includes AP, general ledger, Pcard, petty cash bills, procurement systems(ARIBA, ZYCUS),etc. Mostly
the spend data dump can be requested from the Finance department.
2. Gather:Consolidating all spend data into one central database.This can be difficult if data is in different formats/ERP,
different languages & different currencies, However there are programs like MS EXCEL etc., which can be imported &
available specifically designed to perform this task.
3. Cleanse: It means spotting & correcting errors in descriptions & transactions, as well as standardizing the spend data
for easy viewing like aligning, bordering etc.for easy viewing like aligning, bordering etc.
4. Group: Grouping suppliers for better supplier management. Purchases made from Parle Group, Parle Agro, or Parle
Foods should all be grouped together, since they’re the same supplier.Also called as Supplier Normalisation.
5. Categorise:Whether using UNSPSC,own company-specific categories, it needs to be able to determine where
company’s money is being spent/exhausted.Examples for Indirect purchases includes stationary, marketing, travel, legal,
IT etc. & for direct purchases includes retail FMCG products like Grocery, Hair-Personal Care etc must be categorised
appropriately.
6. Analyse: It means analysing paid invoices spend values. Ensuring that negotiated best contract deals per supplier now
that all of ongoing company’s spend is identified per supplier & all of company’s retail buyers are purchasing from
preferred /contracted suppliers. Reduce the number of suppliers per category.
7. Repeat: Performing once a spend analysis is a good start to identifying savings, however this process needs to
continually updating for ongoing data to ensure that contract terms are being adhered to & buyers are purchasing from
preferred suppliers & that savings opportunities are being identified.

8. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
1. Gather all the paid invoices
supplier wise data from the
Accounts Payable Dept .
2. Select the column Supplier
and go to SHEET 2 &
perform paste special
values.
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9. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
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1. Remove all duplicate values as per above screen shots from supplier column.

10. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
1. Create a new column
with name Category in
SHEET2 & put all
suppliers with
category head name as
per above screen
shots.
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11. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
1. Go to SHEET 1 &
create a new column
with name Category &
use formula
VLOOKUP to pull
data from SHEET 2 as
per screen shot.
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12. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
1. Now the data in
SHEET 1 is ready with
required data. Check
for consistency in
formulaVLOOKUP as
per screen shot.
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13. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
1. Now select the table
from SHEET1 & create
PIVOT table as per
screen shot.
2. Select on New Work
sheet & press OK.
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14. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
1. Now select
the table
from
SHEET1 &
create
PIVOT table
as per
screen shot.
2. Select on
NewWork
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NewWork
sheet &
press OK.
3. Now we can
compare
Total Spend
value from
SHEET 2 &
SHEET 1 as
values
40,32,200
are equal.

15. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
1. Now select the
table except
grand values &
go to Insert
Menu & select
Pie Chart
Option in
SHEET 4.
2. Select 2D Pie
1st chart & click
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1st chart & click
on OK.

16. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
1. Now right click
on PIE CHART
& select option
ADD DATA
LABELS in
SHEET 4.
2. Finally this is
our SPEND
DATA for each
CATEGORY
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CATEGORY
wise.
3. FOOD
category has
highest spend
value followed
by BEVERAGES
category & so
on.

17. Example for Retail Purchases Spend AnalysisExample for Retail Purchases Spend Analysis
1. Now that we
don’t require
PIE CHART,
we can delete
it in SHEET 4.
2. We can also
prepare
PIVOTTABLE
for analysing
SPENDVALUE
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SPENDVALUE
in terms of
Supplier wise.
3. Here FOOD
category has
highest spend
value, so it can
be analysed
which food
suppliers with
highest invoice
values.

18. For
Your
Valuable
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Time
&
Patience