Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Used Spend Analytics to Cut Costs 12 Percent
Transcript
- Lucas: You know, there's a figure that's been stuck in my head lately—the average organization leaks somewhere between eight and twelve percent of its total spend through what's called maverick buying and duplicate payments. That's per the Institute for Supply Management. Luna: That's a huge number. For a company with two hundred million in annual spend, we're talking up to twenty-four million dollars just vanishing. Lucas: Exactly. And one procurement team I looked at recently—a Midwest industrial manufacturer with roughly that spend—decided they were going to find that leak. They built a spend analytics function from scratch, and over eighteen months they identified twelve percent in savings they didn't know existed. Luna: Twelve percent. So they actually got the upper end of that range. How did they do it? Lucas: Before I get into the specifics—and you might find this interesting because it's really about the discipline of looking at the data—I should mention that we keep this show free of ads by design. If these conversations have helped you think differently about procurement, you can support that at buy me a coffee dot com slash fexingo. It's a simple way to keep us independent. Luna: Yeah, and it's entirely listener-funded, which we're proud of. Okay, so how did that team even start? Lucas: They began by hiring a dedicated data analyst—someone who understood both procurement and IT. Her first task was to pull together data from three sources: the ERP system, the corporate purchasing card program, and the accounts payable invoice database. Luna: I'm guessing those three systems didn't talk to each other nicely. Lucas: They did not. She had to build a 'spend cube'—a combined view that unified everything by supplier, category, and transaction type. That alone took about three months because the master data was a mess. The same supplier might be entered as 'Acme Corp', 'Acme Corporation', and 'Acme Inc.' Luna: Classic. So they cleaned that up first? Lucas: Right. Once the data was clean, they started running reports. The first big finding: fifteen percent of total spend was completely off-contract. People were buying from preferred suppliers but without the agreed pricing, or from non-approved suppliers altogether. Luna: So that's the maverick spending piece. What about duplicate payments? Lucas: That came next. By matching invoice numbers and amounts across AP, they found about two percent of payments were duplicates—often because a supplier sent the same invoice twice and nobody caught it. Over a year that added up to over a million dollars. Luna: And that's just pure waste. So what was their action plan? Lucas: They tackled off-contract spend first. The procurement team enforced a policy that all purchases must go through a catalog of approved suppliers with negotiated prices. To make it easy, they built an internal e-procurement system that only showed those options. Compliance jumped from 85 percent to 97 percent within six months. Luna: And the duplicate payments—they must have automated that. Lucas: Exactly. They implemented an automated three-way matching system: purchase order versus goods receipt versus invoice. If anything didn't match, the payment was flagged for review. That eliminated the duplicates almost entirely. Luna: Okay, so they closed the leaks. But how does that get to twelve percent savings? I get the duplicate payment recovery, but off-contract spend might not be higher prices—just non-compliant. Lucas: That's the clever part. Once they had high compliance, they went back to their top suppliers and said, 'We can guarantee that ninety-seven percent of our spend with you will be under contract. In exchange, we want a five percent volume discount.' Most suppliers agreed because the predictability was valuable to them. Luna: So the savings came from the renegotiation enabled by the data, not just the data itself. Lucas: Exactly. The analytics gave them the leverage to negotiate from a position of knowledge. And they also found errors in the supplier master—for example, one supplier had been charging a higher price for a part because they'd been entered under the wrong category. That alone recovered a few hundred thousand. Luna: Wow. So what was the biggest hurdle? I'm guessing getting the data wasn't easy, but was there resistance from the business units? Lucas: That was the hardest part. Plant managers felt the new policy restricted their flexibility. So the procurement team built a 'savings dashboard' that showed each plant how much they were saving by using approved suppliers. Once they saw the numbers in their own budgets, buy-in came quickly. Luna: So it became a tool for the internal customer, not a constraint. Lucas: Right. The dashboard was updated weekly and visible to everyone. It showed total savings, compliance rate by category, and even flagged potential maverick spend in real time. That transparency turned procurement from a gatekeeper into a partner. Luna: I can see how that would change the conversation. So what was the final tally? Lucas: Over eighteen months, they realized twelve percent in savings against their baseline spend—about twenty-four million dollars. And that's recurring. The first year they had one-time recoveries from duplicates, but the ongoing discounts and compliance improvements continue year after year. Luna: And the cost of the analytics function? One analyst and the e-procurement system—probably paid for itself in the first quarter. Lucas: Absolutely. The whole initiative cost less than half a million, so the return on investment was enormous. The lesson is that before you negotiate a single price, you should know what you're actually spending. And that's not always obvious without the data. Luna: It's a good reminder that the biggest savings often come from fixing the basics first. Thanks, Lucas. Lucas: Thanks, Luna. And if you want to see a breakdown of that twelve percent—we'll have a link in the show notes to a case study from the manufacturer. Till next time.