local spend

By OMX | August 15, 2019

Sourcing local is often mandated in order to receive approvals in the energy or mining sector, or to win government bids in infrastructure, transportation or the defense/aerospace sectors. It is also increasingly performed by companies who are wanting to put their best foot forward in demonstrating their commitment to the local community and to maximizing socio-economic impacts or meet their environmental, social and governance (ESG) goals. Assessing your local expenditure throughout your supply chain can provide you with an accurate assessment of your business’s potential performance in a more strategic socio-economic sphere.  

 

By cataloging your business’ spend throughout the organization and supply chain, you will be able to track and reduce your expenses in the long run. With this information in mind, you will be able to pull together your company’s purchasing history while striving to maintain a business practice beyond the bottom line. You will want to be constantly forecasting how you will fulfill your local sourcing requirements, the cost of fulfillment and track your actual fulfillment in real-time. In turn, you can translate those findings into attractive visuals and the true, total impacts on jobs and gross domestic product (GDP).

 

Spend Analysis

 

OMX strives to support our clients in their tracking, managing, and reporting of local expenditure with the purpose of driving social license and strategic sourcing. Utilizing a comprehensive local spending tool will allow businesses to prosper in terms of supplier procurement and strategically define how their organization is improving the economy for stakeholder investment. We often work with companies or governments at the bid preparation stage or in preparing approvals for large, complex projects.

 

When businesses spend locally, they’re supporting the local economy and investing in the social landscape too. Not only are you promoting a healthy brand image but you’re generating data that mirrors an ethical and trustworthy business practice - something of which both stakeholders and investors value. 

 

With the obvious benefits aside, local spend analysis can only be fully employed when the data and metrics are correctly populated.  This will include every tier in your supply chain, which often enables you to discover small and diverse suppliers that exist lower in supply chains. This data will translate to metrics that can be tracked such as job creation and the actual impacts to GDP that your business or government organization will be or was specifically responsible for. In this guide, we will take you through what you need to know about generating a strategic report and how it can benefit your company.  

 

What is a Spend Analysis?

Disregarding the locality of an analysis, spend reporting is a crucial tool in tracking the expenditure and performance of strategic sourcing. When used correctly, you are able to track the different projects and divisions within your company to gather and identify your overall contribution to the local community. 

 

An analysis like this takes a deep dive into what your organization spends and identifies what these metrics mean in terms of your business’s financial position as well as its ESG contributions. Through this process, you are able to distinguish areas where money can be saved and how efficiency can be improved. It will also promote reducing the risk of unapproved spending while solidifying effective supplier relations.

 

Analyzing a company’s purchasing history will require you to answer specific questions in order to build strategic insights for the future. These questions include: 

  • What is being purchased and who is it being purchased from?
  • Who is approving these purchases?
  • Do these purchases have a strategic purpose? 
  • Are the suppliers providing fairly priced and quality goods that are delivered on time?
  • Is there room for improvement both in the budget as well as in the quality of the resources? 
Time Efficiency

 

How Do You Conduct a Local Spend Analysis?

Step One: Identify and Streamline Your Expenditure Figures

If your spending information is coming from a number of different sources, you will need to ensure that it’s streamlined into one standard format. Having a standardized data reading will reduce the risk of duplicate entries and errors throughout your analysis. OMX typically asks for a large spreadsheet to be filled in, called our Data Intake Form, which enables the data to be organized in a fashion that can be auto-uploaded into our online platform for automated, on-going, real-time, analysis. 

 

Step Two: Standardize Your Data

If your spending information is coming from a number of different sources, you will need to ensure that it’s streamlined into one standard format. Having a standardized data reading will reduce the risk of duplicate entries and errors throughout your analysis. OMX typically asks for a large spreadsheet to be filled in, called our Data Intake Form, which enables the data to be organized in a fashion that can be auto-uploaded into our online platform for automated, on-going, real-time, analysis. 

 

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Step Three: Identify Your Suppliers

For your local spend report, this step is particularly essential. Tracking your local suppliers across supply chain tiers and the scope of your socio-economic influence will be your best bet in achieving full visibility across the entire corporation. Within OMX, suppliers can be tagged based on their relationship with your organization. From there, you can track, analyze, and store information on those organizations in real-time. 

 

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Within your list of “tagged” suppliers, you should also tag the PO amounts, turnaround times, and additional key supply chain data. Once you have identified the companies supplying directly to your organization, it is helpful to identify lower-tier suppliers and subcontractors that have contributed, by requesting your immediate Tier 1 suppliers to provide this data through surveying features. Doing this will allow your organization to identify the full reach of its activities, often uncovering more diverse and local suppliers involved in your projects. 

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Step Four: Categorize Your Expenses

The purpose of this analytical tool is to see where your spend is going and which sourcing/partner activities can be leveraged more strategically. This analytical tool will require you to be as specific as you can be with your company orders, outsourcing materials, and even the extra workforce needed for particular tasks. For instance, classify suppliers by the type of product or service that they provide, location, company size and/or ownership. 

 

Among these costs, you should also list personnel, legal, travel, and other general expenses, including sourcing “internally” from other departments or related businesses. This step will allow you to identify which areas you’re supporting locally and build up the successes that you have supported.

 

Data Analysis

 

Step Five: Analyze Your Data

With your spending data consolidated, capturing key metrics and populating an overarching view of your local impacts will be much less of a headache. By doing so, you are able to present your stakeholders and investors with graphics, maps, and other data analytics to strategically develop the success story behind your organization’s local impacts, constantly updating it in real-time, enabling your organization to have a leg up over others by providing data to support claims. 

 

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What are the Benefits of Spending Local?

Directing your expenditure to a local market means that your business is promoting an ethical and sustainable business practice. In a world where ESG’s are more important than ever, it’s apparent that local spending is no longer a preference but a necessity for positive business growth. 

 

Outside of internal benefits, employing a local supply chain can produce the following benefits:

  • Create more jobs within local areas
  • Keep money in the community
  • Improve community investment
  • Reduce your environmental impact
  • Promote economic growth
  • Nurture entrepreneurship

 

The Bottom Line

Having full visibility in your corporation’s local impacts can help you win and keep sold strategic, complex projects, often where governments are stakeholders. It will also support ESG goals driven by the investment community and other outside stakeholders. By performing more strategic sourcing in general, you will tie your sourcing decisions to winning new business, turning suppliers into key partners for the long run.  

 

Tracking your local spend with data and visualizations will help you reach your internal targets and collaborate throughout your organization. In the process, you will also be contributing to the long term benefit of the local communities in which you operate, helping you recruit and maintain a strong labour force. 

 

Business Growth

 

Spending locally has clear benefits for both your company as well as your local economy. With the use of OMX’s local spend analysis platform, you will be able to seamlessly set up, track, and report on the positive impacts your business is having in the local environment. These metrics can then be used to your advantage throughout your procurement strategy, business development, and stakeholder relations functions. 

OMX

OMX is the world's most powerful procurement database and platform. We provides access to over 140,000 international companies by region, size, local content, certifications and capability, with effective web-based software tools to manage supplier and customer relationships collaboratively across an organization.

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