Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How a Buyer Used Spend Audits to Recover Millions
Transcript
- Lucas: So there’s this moment every procurement team hits — you’ve got your strategic suppliers locked in, your contracts are in place, everyone’s hitting their KPIs — and you start to wonder, where’s the next big saving going to come from? Luna: Right, the low-hanging fruit is gone, and you’re left wondering if you’re already at peak efficiency. Lucas: Exactly. And one of the most underutilized tools for finding that next layer of savings is the spend audit. Not the kind finance runs once a year to close the books — I mean a surgical, category-by-category review of every dollar that left the building. Luna: I’ve seen companies treat spend audits like a checkbox exercise. They pull a report, skim it, call it done. But the teams that really dig in find things that are almost embarrassing in hindsight. Lucas: Yeah, and that’s exactly the story I want to talk about today. A mid-sized manufacturer — let’s call them Acme Manufacturing, about 500 employees, $200 million in revenue — they did a proper spend audit and recovered $4.7 million in annual savings. I got the full breakdown from their VP of Procurement, a woman named Sarah Chen. Luna: Four point seven million — that’s real money. What was the trigger? Did something go wrong? Lucas: Not exactly. They were actually doing fine. Margins were healthy, suppliers were performing. But the CEO came back from a conference and said, ‘I keep hearing about procurement driving value beyond cost cutting — show me what that looks like here.’ So Sarah’s team decided to run a zero-based spend audit. They started from scratch, no assumptions about what was necessary or optimized. Luna: That’s a huge lift. How did they even begin? Lucas: They pulled every transaction for the previous twelve months — about 14,000 invoices from 1,200 suppliers. Then they classified everything into three buckets: strategic spend, leverageable spend, and tail spend. The tail spend — the long tail of small, infrequent purchases — that’s where they found most of the leakage. Luna: Tail spend is notorious. It’s often unmanaged, no contracts, no competitive pricing. But it adds up. Lucas: In their case, tail spend represented only 8 percent of total spend by value, but it accounted for 70 percent of their supplier count. And when they looked closer, they realized a lot of those purchases were going to suppliers who were already on their preferred list for other categories — but at higher prices because the buying was happening outside the contract. Maverick buying, pure and simple. Luna: So someone in engineering needed a specific type of fastener, went to a distributor they knew, and paid list price — even though the company had a contract with that same distributor for a different category with a 15 percent discount. Lucas: Exactly that scenario. They found over $1.2 million in maverick spend alone. The fix wasn’t complicated — they worked with their procurement systems team to enforce catalog buying in the ERP, and they trained the engineering team on the correct purchasing path. But the audit is what surfaced it. Luna: So that’s the first chunk. What else turned up? Lucas: Next they looked at their top 50 suppliers by spend. For each one, they calculated what they called the ‘price variance index’ — basically, the gap between the contract price and the actual invoice price over the year. And they found that even with their strategic suppliers, there were systematic pricing errors. Wrong discounts applied, expired promotional pricing that hadn’t been renegotiated, even double billing on a few line items. Luna: That’s almost always a systems issue — the contract terms aren’t flowing correctly into the purchase order system. Lucas: Right. Sarah’s team recovered about $800,000 through price corrections and credits. But the bigger win was process: they set up quarterly price audits with each major supplier going forward. So instead of catching errors a year later, they catch them within ninety days. Luna: Smart. And I bet that also changes the relationship dynamic — now you’re proactively managing pricing, not just reacting to invoices. Lucas: Yeah, exactly. The third area they tackled was supplier duplication. Because they had so many suppliers in the tail, they found multiple vendors providing identical services — three different janitorial companies for three different buildings, two different office supply vendors, four different IT hardware resellers. By consolidating, they negotiated better rates and cut administrative overhead. Luna: Consolidation is a classic move, but the audit gave them the data to do it credibly. They could show each supplier, ‘Here’s your volume, here’s the competition’s pricing, match it or we move.’ Lucas: Exactly. They consolidated about 200 tail suppliers into 40 preferred vendors and saved another $1.5 million. Then they looked at something more subtle: payment terms. They had suppliers offering 2 percent net 10, but the company was paying on day 45 anyway — leaving money on the table. They restructured their payment processes to capture early payment discounts, which added about $700,000. Luna: So let me add that up — $1.2 million from maverick, $800k from pricing errors, $1.5 million from consolidation, $700k from early payment discounts — that’s $4.2 million. Plus maybe $500k in other adjustments, gets you to the $4.7 million. Lucas: You’re spot on. And the total cost of the audit — Sarah’s team spent about six weeks on it, with some external help — was around $150,000. So a 31-to-1 return on investment for a six-week project. Luna: That’s the kind of number that gets a CFO’s attention. But I have to ask — how sustainable are these savings? Once you fix the pricing errors and consolidate, you’re done, right? Lucas: Sarah would argue that the real value is the ongoing process. They now run a mini spend audit every quarter, focused on one category at a time. The first year they found $4.7 million, the second year they found another $1.8 million. It’s not a one-time windfall — it’s a muscle you build. Luna: That makes sense. And it’s also a great way to keep procurement visible in the organization. Every quarter, you’re presenting numbers to the leadership team. Lucas: Exactly. It shifts procurement from a cost center to a profit driver. And honestly, that’s the kind of story that makes me think about why we do this show in the first place. Luna: What do you mean? Lucas: Look, we spend a lot of time talking about specific tactics — hedging, scorecards, co-location — because those are the tools that actually move the needle for buyers. But none of that happens if you don’t have the data. The spend audit is the foundation. And making this show — diving into these stories week after week — takes a certain amount of foundation too. Luna: Yeah, I think about that. We don’t run ads, we don’t have sponsors, and we want to keep it that way. The only reason we can keep going is because a handful of listeners chip in a few bucks a month through Buy Me a Coffee. Lucas: Right. It’s at buy me a coffee dot com slash fexingo. And it’s not about some big ask — it’s just that if these conversations have helped you think differently about your work, throwing in five bucks helps us keep the lights on. No pressure, seriously. Luna: And we mean that. We’re not going anywhere either way. But it is nice to know that the people who get value from it are the ones who keep it going. Lucas: Alright. Back to the audit. One more thing Sarah mentioned that I found really clever — they used the audit data to redesign their supplier onboarding process. Before, any department could add a supplier with almost no oversight. After the audit, new suppliers have to go through a standard vetting that includes a pricing benchmark against existing suppliers. Luna: So you’re preventing the problem at the source instead of cleaning it up later. That’s a great long-term play. Lucas: Exactly. And it’s a perfect example of how a spend audit isn’t just about finding money — it’s about building intelligence into your procurement system. Sarah’s team now has a much clearer picture of their supply base, their pricing benchmarks, and their risk exposure. That data becomes a strategic asset. Luna: I think the key takeaway here is that any procurement team, regardless of size, can do a version of this. You don’t need a massive data team or a fancy tool. You just need the discipline to look at your own data honestly. Lucas: Yeah, and the willingness to find the embarrassing stuff. Because every company leaks money — the question is whether you’re willing to find it. Luna: So for someone listening who wants to run their first spend audit, what’s the first step? Lucas: Sarah’s advice: start with your top 10 suppliers by spend and your bottom 100 by frequency. That gives you the biggest potential wins and the biggest chaos simultaneously. Run a simple price variance report, look for duplicates, and check your payment terms. Even a week-long mini audit on those two groups will likely uncover something. Luna: And if you find something, don’t try to fix it all at once. Prioritize the biggest impact items and tackle them one at a time. Lucas: Right. It’s a marathon, not a sprint. But the first step is just pulling the data. And that’s free. Luna: Speaking of free, next episode we’re going to look at how one buyer used supplier collaboration to reduce new product development timelines by 40 percent. That’s a great story. Lucas: Looking forward to it. For now, I’m Lucas. Luna: And I’m Luna. Lucas: This has been The Buyer’s Side with Fexingo. See you next time.