7 benefits of collaborative spend analysis
Public sector organizations really do buy many of the same goods and services, even among sectors as diverse in their missions as local government and higher education.
To better identify collaborative procurement opportunities, organizations need a way to break down their respective data silos. However, the chances of a group of independent organizations implementing a common accounts payable or ERP system with the same data structures at the same time are slim to none. Therefore, spend analysis provides the most efficient and effective means to bring data together to provide the needed visibility.
So what are the benefits of carrying out a collaborative spend analysis to take advantage of this common expenditure?
1. Top priority: Procurement savings
Whether it's saving time, money or resources, there's no reason to suggest that collaborative procurement is (or should be) about anything more than organizations looking to survive in a tough economic environment with reduced budgets. Doing a collaborative spend analysis to save money really is a given, so what else is possible?
2. Transform ad-hoc to proactive and reactive to strategic
Most folks can imagine a scenario in which their local purchasing group (NIGP chapter, local collaborative, council of government purchasing committee) gets together to discuss potential joint bids and contracts. A benefit of a collaborative spend analysis is the ability to take what is typically a reactive and ad-hoc conversation about collaboration and transform it into a proactive and strategic discussion. A collaborative spend analysis project will provide the group with the visibility to plan the most effective time to carry out a joint competitive solicitation for a commonly procured good or service and to have a firm understanding of which members of the group are buying those goods or services already and from whom.
3. Shift leverage to the public
Where the goods and services needs do overlap among organizations, the balance of information in most cases still lies with the vendor in competitive negotiations. The vendor typically has better information on the spend patterns of a group of local organizations than the organizations themselves. Furthermore, the vendor knows whether or not they are charging different organizations different prices for the same goods and services, how much each is buying and exactly what they are buying. Bringing data together in a collaborative spend analysis can often correct this informational power imbalance. If the group knows how much it spends with all vendors on a particular category of goods and services, it can arrive at the negotiating table with buying power that the vendor doesn't even know exists.
4. Lower vendor risk, lower pricing
Not surprisingly, vendors don't just set prices based on market conditions and cost of sale. The more risk in the contract, either from a lack of orders being made or in not being able to scale up fast enough to deliver the volume of goods and services required, the greater margin the vendor factors into their pricing for contract risk. For indefinite quantity contracts (into which category the vast majority of group purchasing organizations and state contracts fall), the risk to the vendor of getting anywhere between 0 and too many orders is huge, and this risk is reflected in the pricing. If the vendor knows that, based on history, they are going to supply roughly 1,000 widgets to a group of organizations, they can determine their pricing based on 1,000, rather than anywhere between 0 and too many.
5. Administrative efficiencies
This isn't to say that cooperatives, group purchasing organizations and state contracts are bad because they are indefinite quantity contracts. Piggybacking on others' contracts can create significant administrative efficiencies as well as drive time and cost down. Most advantageously, by working as a collaborative group in a collaborative spend analysis project, piggybacking can be taken one step further by splitting up the research into best pricing among the membership. Rather than always carry out a group competitive solicitation, there is the opportunity for various members of the group to take responsibility for assessing each other's pricing for a particular category of goods or services. By comparing this pricing to group purchasing and state contracts, the group can make use of the procurement method that provides the best prices, best value, most favorable terms, and takes into account other factors that would impact the group's decision.
6. Reallocation of resources and sharing during crisis
Not surprisingly, disaster and emergency planning has become a savings opportunity as well as a safety priority. In reality, if the group is purchasing goods and services from the same vendors and there is a reasonable amount of consistency in the goods purchased, it makes it much easier for the group members to reallocate resources (one member buying up spare inventory from other group members who have too much) or to share resources in times of crisis (parts for snow plows, text books, emergency generators/supplies).
7. Impact on local, small, diverse businesses
One final criticism of collaborative procurement is that it could have a detrimental effect on spend with small, local or minority-owned businesses. But through a collaborative spend analysis, this doesn't have to be the case because the group has the information to anticipate potential effects of collaborative decisions on those businesses before any action is taken. The push and pull between saving money and spending money in the local economy and with small and minority-owned businesses will not go away, but at least when the data is aggregated in one place, the impact can be properly assessed before group or individual decisions are made.
The above benefits of collaborative spend analysis don't just happen, and they all can only begin after the group's spend data is transformed into a consistent, normalized format and put into a single database for analysis.
Jonathan White, territory director for Spikes Cavell, Inc., which equips decision makers in the public sector with the business intelligence, online tools and analytical insight to transform the way they procure goods and services. The Spikes Cavell Observatory is an online platform that facilitates delivery of spend and contract visibility quickly, affordably and with little effort on the agency's or institution's part.