“How far back should we look,” this is among the first questions a Procurement team should ask themselves when collecting data for a spend analysis. The answer depends on the type of product or service you’re in the market for. For commodity purchases, a year’s worth of data is typically sufficient. A month worth of office supply orders won’t tell us much about typical usage.
Sometimes it’s necessary to go back even further. Take Capital Expenses, for example. Several years might pass between these purchases, and these periods will likely prove relevant to your analysis. The moral of the story? Failing to collect enough historical spend data poses considerable risks. At a minimum, you could find yourself developing an inaccurate or ineffective market basket for your sourcing initiative. Worst still, you might mistakenly exclude important supplier relationships from your analysis.