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Now that you have collected data sets representing at least one year's worth of spend across all operating units within the organization, the next step is to consolidate and standardize your information. It is important to note that, at this point, the goal is to identify project areas. Capturing line‐item details (such as product purchased, quantity, and price) comes later.

If you are consolidating data yourself, review each data set to determine which columns of information are important. Transaction Date, Supplier Name, and Spend are the three most critical pieces of information. You may want to capture other data as well. Pull this information out of each individual data set and add it to a new consolidated spreadsheet file that includes a column indicating which data set the information came from. For instance, if you pull data for a particular location (let us say location X) out of an AP report for that location, add a column called Location and indicate location X, then add a column called Source Data and indicate AP report.

Once the data are consolidated, it is time to standardize and categorize it. Sort the data by the Supplier field, and create a new column called Cleansed Supplier Name. As discussed previously in this chapter, you may find that each data set has multiple names for a particular supplier. You might even see multiple names within the same data set. Let us use FedEx as an example. If your company makes payments to FedEx, you will probably see this supplier listed as FedEx, Federal Express, FedEx Corp, and so on. In the cleansed supplier name field, standardize all these different options to a single name. Repeat the process for all lines of data.

At this stage, it may not make sense to standardize supplier names across 100% of the data. If you are dealing with hundreds of thousands of records, this could be a very tedious task. If that is the case, utilize the 80/20 rule. Run a pivot table on the data by supplier, then total up the spend. Identify which suppliers make up 80% of the total spend and focus your efforts on standardizing those supplier names. Ignoring 20% of the spend may seem troublesome, but keep in mind that within this data, there are likely to be repeat entries for the same supplier (for example, FedX instead of FedEx). At this point, we are simply identifying target areas. Once we identify worthwhile projects, we then focus on collecting more detailed information. At that point, we will look more closely at the FedX data.

Once you have cleansed and standardized supplier names, it is time to group the data into sourcing categories. Sourcing categories are essentially high‐level identifiers that indicate suppliers that provide the same or similar services. Grouping them together allows you to identify project areas and, eventually, leverage opportunities.

Creating your category list is the first real step in the spend analysis process—turning data into information. Spend analysis is not an exact science. There is no single right or wrong way to do it, but there are some best practices worth considering.

First, be general in your initial classification. Start at the highest level of categorization you can identify. You'll drill down later in the process. For example, you may know that Staples is used for pens and pencils, and Xerox is used for paper products, but categorizing them in different buckets is not appropriate at this time. At its base, the initial spend classification is looking to identify which suppliers provide the same or similar services. Right now, you may use Staples for some items and Xerox for others, but a potential sourcing strategy might be to consolidate all of this spend with a single supplier. So, for now, classify both suppliers under the category Administrative Supplies.

Many suppliers provide a wide range of goods and services. This makes it difficult to classify by name alone. If you have managed to capture any line‐item usage details in your initial data collection, this information can be used to classify the supplier. If a single supplier performs multiple different services or provides multiple, very different types of goods, only one high‐level classification for the supplier should be applied at this time. The final stage of spend analysis is an overall opportunity assessment. Understanding the full impact of a supplier relationship is critical to identifying these opportunities. This high‐level classification will aid that analysis. We'll go into much more detail on the spend analysis and classification processes later in the book.

Once you have completed the initial classification, it is time to start ranking categories for further analysis. Run a pivot table that shows spend by category, then sort the data by spend. You can now see which categories contain the highest spend and therefore have the greatest impact on the organization.

TABLE 2.3 Pivot Table with Category and Supplier

Sum of Total Spend
Category	Supplier Name	Total
Facilities maintenance	Sai Elevator Company	$ 1,421,000
	Waste Services Incorporated	$ 908,312
	Steven's HVAC	$ 532,127
	Complete Maintenance Solutions	$ 444,893
	Heating and Cooling Supply Company	$ 364,459
	Universal Plumbing Associates	$ 320,276
	Jan‐Tactic Cleaning Services	$ 200,555
	Maintenance Supplies Unlimited	$ 143,264
Facilities maintenance total		$ 4,334,886
Marketing	Franklin Advertising Agency	$ 2,170,000
	Budget Print Services	$ 989,767
	Color True Graphic Design	$ 270,312
	National Printing	$ 95,000
	Standard Market Research of New York	$ 62,123
Marketing total		$ 3,587,202
Administrative expense	Office Max Incorp.	$ 750,309
	Federal Express Corporation	$ 546,999
	Warehouse Direct	$ 506,380
	U.S. Postal Service	$ 413,075
	Xerox	$ 311,189
	United Parcel Service	$ 281,406
Administration total		$ 2,809,358
Grand total		$10,731,446

Now, add the Supplier column to the pivot table. You can now see how many suppliers make up each category of spend. Table 2.3 provides an example of an analysis of spend by category and supplier.

When ranking categories, you are essentially determining the order in which you plan to drill down further into the data. Factors to consider when developing your ranking include how much spend is included within a category, how many suppliers are included with in a category, which categories have not been sourced recently, and which categories can be sourced most quickly (and with the least resistance). Understanding your company culture is important for properly managing this step. For example, depending on the industry you serve, the Marketing category will probably be high up your list in terms of both spend and suppliers utilized. However, many Marketing departments rely on close relationships with their suppliers and maintain tight control over their supplier selection process. This may cause them to be very reluctant to work with people outside of the Marketing department on supplier selection or supplier negotiations. If you are unfamiliar with sourcing and purchasing in the Marketing category (or you get the impression that there is high resistance from Marketing), you may not want to identify this area as a starting point. Instead, focus on areas of the organization that are more open to change or are less politically sensitive.

This is not to say that Marketing spend should not be examined. The purpose of a Strategic Sourcing initiative is to reduce costs and hopefully create significant savings opportunities in the area of Marketing. However, building sponsorship and buy‐in to the process is critical, and sometimes the best way to do that is by showing some positive results from previous initiative. Starting with a department that is reluctant to engage will not help you build that business case.

Now that you have ranked the categories, it is time to subcategorize the information into projects. During this stage, you are identifying what you consider to be distinct Strategic Sourcing initiatives, each with its own project plan, timeline, and sourcing strategy. In doing this, you are developing a preliminary sourcing strategy based on leverage points—grouping the spend in a way that provides the best opportunity for a supplier to reduce price, improve service levels, or provide additional incentives.

At this stage, you probably won't have a clear understanding of price points, a full understanding of the supply base (capacity issues, regional variances, service differentiators, etc.), or other aspects that could create leverage; all you know is spend by supplier and category.

Start with the categories that you have ranked the highest. Review the suppliers in the category and determine the types of products or services they provide. Ask yourself the following questions:

 Are there other suppliers in the category that provide the same or similar products or services?

 Is there overlap between what is being supplied in this category and another category?

 Can I include spend from two different suppliers in the same bid?

The easiest way to answer these questions is to think about the suppliers that you would want to participate in the bid process. When thinking about administrative supplies, you may want to invite Staples to a bid for paper, but you probably would not invite Xerox to a bid for other office supplies. So your subcategory now becomes Office Supplies. Down the road you might find it necessary to segment paper into its own bid, or you might decide to allow Xerox to participate in the paper portion of the office supplies bid, but it is not necessary to make that decision at this time. Conversely, you might know that Konica Minolta sells your company copiers and printers, which Staples or most other suppliers of office supplies (or paper products) do not. Therefore, your subcategory for Konica Minolta would be either copiers or office equipment.

Now that your subcategories are laid out, run a new pivot table to determine which subcategories have the greatest spend and number of suppliers. This should be similar to when you initially categorized the data. Now, rank your subcategories (or projects) based on the order in which you want to source them, remembering that you want to tackle quick‐win projects first to demonstrate the success of your initiative. You now have a preliminary sourcing road map with a list of potential projects. An example of a simple project road map is provided in Table 2.4.

TABLE 2.4 Project Road Map

Project	Total Spend	Total Suppliers	Ranking
Elevator maintenance	$1,421,000	1	1
Office supplies	$1,256,689	2	1
Shipping and postage	$1,241,480	3	1
Maintenance supplies	$ 588,157	2	1
Copiers and paper	$ 311,189	1	1
Printing	$1,084,767	2	2
Garbage disposal	$ 908,312	1	2
HVAC services	$ 896,586	2	2
Advertising	$2,170,000	1	3
Plumbing services	$ 320,276	1	3
Janitorial services	$ 200,555	1	3
Graphic design	$ 270,312	1	4
Market research	$ 62,123	1	4