While the imperatives today are more focused on providing enhanced products and services to customers, there is no denying that controlling cost is still a strategic and critical task that most organizations need to manage. The primary criterion to evaluate the efficacy of a CFO's tenure is the ability to manage and drive down annual spend. While on the one hand, the customer is at the center, and the pressure is to squeeze savings while maintaining or enhancing customer experience. Strategic sourcing becomes one of the most critical functions, tasked to help organizations achieve this intricate balancing act of reducing cost while enhancing customer experience. Materials spend constitute a significant percentage of spend and SAP MM is the module that focuses on materials management. A wide range of business processes falls under the SAP MM (Materials Management) module, from purchasing to inventory management. Such an extensive portfolio of business processes also means much data being generated and captured. As SAPinsiders highlighted in our research reports like Process Automation and SAP S/4HANA, as well as in Process Automation in Supply Chain, capturing this data to generate visibility into these processes is critical. However, the crux is not just capturing the data. The value of capturing that data can be realized only through analytics. That is why SAPinsiders indicated a need for focused research on data and analytics in the supply chain. To cater to this interest, SAPinsider will publish a research report, Supply Chain Analytics, and Data Management, in Feb 2023. This article will highlight how one of the analytics technologies covered in the report, spend analytics, can help generate value in SAP MM business processes. Strategic sourcing professionals have many tools they can leverage to find cost efficiencies. However, at the core of it all is visibility into spend. Professionals need visibility into their current spending data, in granular detail, to identify savings opportunities. However, the visibility that many organizations have is highly fragmented. Data may reside in spreadsheets or siloed systems, subject to different standards, organizations, and data quality. This significantly hinders the ability of an organization to get a clear, organization-wide view of an organization's spend. The need for organizations in this quagmire is for a tool that provides them an integrated, granular view of spend, and the recent pandemic has accentuated this need. We have seen a shift from a focus on strategic sourcing analysis to an organization-wide spend management initiative. In the post-Covid world, there is an increased focus on understanding the total spend and having the granular visibility to drill down by department, by SKU, by category. This is where spend analysis tools come into the picture.

What is Spend Analysis?

In simple terms, spend analysis is a single, integrated application that allows organizations to establish a process to analyze their historical spending methodically. The application organizes spending data in many different structures, like supplier hierarchies, commodity alignment, and spend amount. To illustrate this through an example, from a procurement manager perspective, it can help answer key questions like:

• Which parts are the top spend categories?
• Which parts are top spend categories?
• What has been the trend for the last few years?
• How many suppliers for these parts?  What was the volume for each of these suppliers?
• How many of them are preferred suppliers?
• What percentage of this spending was managed through contracts with suppliers?
• Which area presents the most significant risk in terms of costs and supply?

Now that we have simply introduced the concept of spend analysis let us formalize the definition of spend analysis. As the Chartered Institute of Procurement & Supply (CIPS) defines it: " A spend analysis is a process for analyzing the historical spend (purchasing) data of an organization to provide answers to questions concerning spend visibility, compliance, and control (Pandit and Marmaris, 2008). The spend analysis aims to inform strategies that realize savings on total spending and better purchasing and supply management outcomes (Pandit and Marmaris, 2008). It is often the first step in aligning a firm’s sourcing strategy with its competitive strategy. Firms need to aggregate total purchases across all organizational divisions to analyze all goods and services purchased and forecast future purchases (Rendon, 2005). The objective (output) of the spend analysis is to produce a fully documented understanding of the company’s prior and future spend for supplies and services, segregated by users and suppliers (Rendon, 2005)."  A key point to understand is the difference between a spend analysis and a spend analysis tool. A spend analysis tool essentially helps organizations build that structure around their spend data which many of them lack, and provides an interface to the end-user. The backend enrichment, harmonization, and integration of data, coupled with a front-end application that allows users to slice and dice the data the way they want, provides organizations with the actual capability of spend analysis.

Spend Analytics Opportunities in SAP MM

Let us first list the business processes that are relevant in the context of this discussion:

• Request for Quotation
• Purchase Requisition Process
• Raw Material Purchase
• Pipeline Material Purchase
• Third-Party Purchases
• Asset Purchase
• Service Purchase
• Sub-contracting
• Consignment
• Consumption-Based Planning

If you are familiar with spend analytics solutions, you can already see why there is a strong business case to integrate spend analytics solutions with SAP MM strongly. Many organizations already do this, but there is significant data latency. What this means is that historical data is generally loaded into spend cubes. But in today's context, organizations can build spend analytics capabilities that tap into data more frequently. Building this type of architecture is simple, and you will generally leverage your existing data infrastructure like a data hub. This data hub will frequently "refresh" the underlying data infrastructure for your spend analytics capabilities. Low-latency (relatively) benefits for spend analytics data can be significant. Organizations may lose millions every year due to direct and indirect spending that, though within the parameters of contracts, may not have been optimal. These transactions are discovered much later and may have happened several times, leading to lost opportunities for cost savings.

What does this mean for SAPinsider?

Understand the current state of your spend data. A critical first step is to understand where your spend data resides. The data may be fragmented across many systems, and it is imperative that you develop a comprehensive view of this fragmented landscape. This early documentation will be an important input in developing the spend cube component of your spend analysis solution and will also help you realistically plan your project timelines. Determine key data points required. The next step is to understand the data points you need. This will consist of data points fundamental to spend analysis like transaction date, transaction description, vendor name, spend amount etc., as well as additional data points that enrich the information and are critical for extracting actual value from a spend analysis solution. Define roles for end-users prudently. Not all data should be or needs to be accessed by all users of the solution. Hence defining roles and associated views is another critical consideration. A careful mapping of the roles and responsibilities of all prospective users is essential to determine the level and type of access they will have to the solution. Leverage the business rules library to its full potential. While the spend data cube forms the foundation of your spend analysis solution, the business rules library is the brain behind a differentiated spend analysis solution. You must capture all unique nuances of your business whenever you can, in the form of business rules in this component. Leveraging the expert knowledge of your people is essential in this initiative.