How to review my supplier spend?

Reviewing your supplier spend can feel like a huge task, especially for the first time. Here is a step by step guide as to what to do.

Step One – Find out what your spend is.

They say that the first step is the hardest to take. In this case it has never been more true.

Supply chains grow over time and different business areas. If you have not reviewed before or for some time it is going to take real effort to collate all the spend to identify who you are spending with.

Ultimately no supplier works for free so the best resource is going to be your finance department. Collate a list of company (or individual) name plus the amount spent. Use a defined period of time, such as the last full year of accounts. Once you have this list, cross reference with your suppliers own data and compare the two.

WARNING. This usually is one of the hardest steps in terms of how time consuming it is. As a general rule of thumb we say aim for 80-90% accuracy rather than 100% if time and resources are scarce.

Step Two – Who you use

Once you know WHAT you spend, you need to understand WHO you are spending it on.

Categorise your spend into sub sections. These will include items such as;

• Rent and Rates
• Insurance
• Marketing
• Legal Fees
• IT hardware and software
• Travel and Accommodation
• Car fleet services
• Consultants
• Materials
• Professional Services
• Conferences and Entertaining
• Uniforms/PPE

Step Three – Why are you spending where you are

Simply put, are you spending what you should be?

Using the sub categories created, start reviewing category by category. Items such as rates and rent are likely pre-agreed and non negotiable so put these to one side.

Other categories such as legal spend and professional services are well wort reviewing in more detail.

Ask yourself; do you have the right suppliers for the right spend? Are you spending lots on legal firms even though you have internal legal resource?

Step Four – agree your strategy with stakeholders

This bit is important. Work with the various folk who are buying the services and agree a strategy moving forward.

This may be a full review of a category, a simple renegotiation of existing contracts, or even an agreement to stop outsourcing a function.

Step Five – Implementation

Start making some savings! If you are using two firms and one is cheaper than the other, only use the cheaper one. Or renegotiate the second firms fee to fall in line with the first.

Ensure that every benefit and saving you make is recorded.

Want a ready made tool to look at analysis? Try this.

More specific guidance on how to review your legal spend sub category can be found here.

If you are looking to manage your spend once you have identified what it is, a good tool can be found here.