Where does spend cube data come from?
Past spend informs the future baseline
One of the foundational requirements of a strategic sourcing initiative is to build a spend cube. ?The spend cube is a record of past spend volume and costs that can be projected forward to create a forward-looking baseline of projected usage and cost. The forward-looking baseline helps prioritize (where are the biggest spends?), to inform negotiations with suppliers, and to establish a reference for calculating savings that result from sourcing initiatives.
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A spend cube is more than a list of suppliers
Summarizing spend by supplier or category is a useful first step to ensure that all procurement costs have been accounted for, and to prioritize sourcing efforts.? But a list of suppliers by category showing annual spend is not a spend cube.? There is no need to boil the ocean, but the actual “spend cube” must include granular detail on what is purchased, when, by whom, from which supplier, for what price, for those categories that are of interest.?
?To be useful, a spend cube must be provide granular detail about procurements in three dimensions:? ?
Category strategies link demand to supply
Sourcing categories should be defined by strategic intent.? Usually, categories of goods and services map to competing suppliers, and not to internal usage.? For example, some facility maintenance spend will map to “HVAC” defined as products and services provided by HVAC suppliers, rather than to “building maintenance”.
Diverse sources needed to build cube for diverse categories
The data in the spend cube must be granular enough to see trends and patterns in usage and in pricing over time, and to validate how business drivers relate to procurement within the category.
Because procurement processes can vary so greatly from category to category, the practitioner may be need to draw on multiple sources of data and information to build the spend cube.? The table below lists potential sources of information to build a spend cube. Note that some of these sources will only be needed for specific categories or as a backup.
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Conclusion
Building a spend cube is both organic and opportunistic.? Typically, a primary source of structured data provided by Finance such as a PO or A/P database will provide the majority of information needed. But sourcing priorities should not be defined by the ease of finding information but rather by the business value of the strategy. High value strategies build on robust and granular information which may require diligence and creativity to compile.
I collaborate with Axtom, a procurement pioneer who has developed an automated contracting and negotiation platform that uses generative AI to manage supplier interactions.? Axtom's spend cube module uses AI to find patterns and trends and to discern opportunities for cost reduction. ? If you are interested in learning more, please reach out to me.
Authorship?
The author, Peter Benda, is a 30 year management consultant.? His client work includes strategic sourcing and supply chain management, workforce effectiveness, front line productivity improvement, governance design, and data analysis.? His industry experience includes mining, utilities, manufacturing, financial services, transportation, defense R&D, federal and state agencies, and technology startups.? He has published market research and holds several patents.
This article was written without the aid of generative AI.? Opinions and content are the author’s own.
Keywords
#strategicsourcing #spendcube #procurement #accountspayable #purchaseorder #PO #MRP #ERP #BOM #BillofMaterials #categorymanagement #mining #oilandgas #retail #Ai