__________________
Is profit made when you buy or when you sell?

My answer to that would be yes. Involved with a lot of governement procurement and would say that it is definately necessary to create a standard and not deviate from it or relax it in any circumstances. I think however that in the private sector where there is normally better control on codification and inventory in general in some instances it might be relaxed a bit. All IMO of course

" codification of items and the effort involved with accurate goods / services descriptions. Whilst the UNSPSC (http://www.unspsc.org) provides a comprehensive system for coding items"

What I find very interesting is that many people don't actually understand what the difference is between codification and cataloguing. The perception that implementing UNSPSC will “describe” your items is not correct. Implementing UNSPSC will only allow you to group similar items together, which of cause are great for spend analysis purposes. The problem that we see with many end-users is that allocating a category code to “un-coded” spend (free text or direct, depending on terminology used!) is a step too far. They will abuse either a default or frequently used code, rather than go through the process of finding the appropriate category code!

First Question: What is the ratio between “coded” and “un-coded” spend? Coded meaning there is an item code with a description that is used (could be stocked or non-stocked) and “un-coded” meaning no item code and end-user would typically complete the description.

Second Question: What is the ratio between spend controlled through purchasing system (order number etc) vs. spend through financial instruments, bypassing procurement?

Agree with you on the UNSPSC comment, you can only generically classify items to a point and then you need to define your items/materials as per the relevant business. What you could do to try and minimise the problem of un-coded spend is to :



1 – Create a new or use an obsolete field on a purchase order as a second description field

2 - determine the typical items that would be bought as un-coded and “code” high level items for these, e.g. create an item 1034 – “Pen–Blue”

3 – Then remove access to add text to the standard Purchase Order (PO) Item description field in the ERP system.

4 – What the user then typically needs to do is to select a coded item, in this case 1034, which would the load the description “Pen–Blue” on the standard PO item description line, and then allow the user to add further specifications in the second description field. This forces the user to think about what he/she is requesting picking the supplier needs to have a relevant description to deliver the appropriate item. Picking “Pen-Blue” as an item and then adding “ please deliver 50 ink toners” as the second description will not go down well with a supplier and will probably cause some form of confirmation and order correction.



This, again, is not a 100% fool proof, but should enforce some more control on un-coded spend. Reporting will then typically done for spend on the item 1034 – “Pen–Blue”.



As far as the ratios go:



Coded/Un-coded spend – Across the board, 65% of items bought as coded and 35% bought as un-coded. This ratio will differ for various industries depending on the variety and level of standardization of business processes.



Procurement Controlled/Un-controlled spend: Ideally, 100% of spend should be controlled by procurement as normally they are the ones that have to answer for spend figures etc. Again, realistically, if a business could try and get as close to 80% of their spend controlled by procurement as they can, they would do well.

Total procurement spend resides in the management accounts - NOT the procurement systems.

Your AP, CB and verified GL's (inter company etc.) is the source off ALL spend.

Roy: hammer hits nail !

1) Ratio lies far more towards non-coded (but lesser transactions)
2) Ration lies far more towards bypassing

Multi Billion Rand revenue companies have huge spend areas not going through any procurement system what so ever:
a) Insurance
b) Bank Charges
c) Utilities (Electricity)
d) ... and the list can continue.

In order to establish a type of "spend inteligence" your information captured at AP/CB level should be accurate.

I have been busy with a Spend Analsys investigation for the past few years and South Africa is NOT ready for such spend analysis tools available in US/UK (Ariba, Emptoris ect).

Currently we have found a local (believe it or not) solution assiting in achieveing spend visability.

__________________
Jacques Fourie
Director Operations
Wanama Solutions
+27836450618
www.wanama.co.za
jacques.fourie@wanama.co.za