SpendLogic works with government primes and subs to unlock organizational savings and fix procurement compliance issues. Our software solves the top three CPSR findings: Price Analysis, Commercial Item Determinations, and Source Justifications. In this video, we will show you how to use SpendLogic to create a price analysis based on price history that will pass audit every time.
Hi, I’m Patrick Mathern, founder of SpendLogic. We work with government primes and subs to unlock organizational savings and fixed procurement compliance issues. In this short video tutorial, I’m going to show you how to use SpendLogic to create a FAR-compliant price analysis report using prior prices paid. Let’s get started.
To start a new price analysis, from any screen in SpendLogic, click the New Report button at the top of the screen and click Price Analysis. You’ll see that you have two tabs on this screen. You won’t be able to advance to the Parts tab until the Procurement tab has been completed. Work through each of the elements on this screen, making sure to answer each question, and when you’ve reached the bottom, click Next.
You’ve now arrived at the Parts screen. At this point, you can choose to either add parts or service. In this tutorial, we’ll cover Parts. For services, also known as rates and factors, check out the services tutorial at spendlogic.com/help. Click the Add Part button to add your first part. Start entering the part number you’re analyzing.
You’ll notice that a list of matching part numbers appears. You can either choose from this list or scroll to the bottom and add a new part. Once you choose a part, the description is filled in for you. Enter the quantity of parts that you’re analyzing and click Add. Your parts page now shows a line item for the part that you just added. At this point, you have two actions available, edit and delete. When you complete this line item, you’ll also have the ability to download and copy this report.
If you need to add additional parts, follow the same process by clicking Add Parts again. Do this for each part you intend to include in this PO. You can always return to this tab and add additional parts later. Click the edit pencil on the line that you just created. This brings you to the next tab, which has been renamed to match the part you’re currently editing. When you’re working on a PO with multiple parts, this is an easy way to keep track of which part it is that you’re working on.
SpendLogic first checks to see if there are reports in the system available for you to repurpose. This screen shows all the available reports. Review the list and if you see one that can be updated and repurposed, copy it by choosing the Select button. Doing this can save a lot of time since it reuses data that has already been entered. In this case, we’re going to create a new report from scratch, so click Create a New Report.
The recommendation wizard can help you determine which method to use for your analysis. For this video, we’re going to skip the wizard by choosing Historical Pricing below. For the first time, we’re now able to see the full analysis screen for this part. In the upper left, you can see the analysis and proposed values. This will update as you work through the analysis screens.
Below, you can see the steps that will be required to complete the analysis. Your current step is highlighted with a blue banner. We’re currently on part number and quantity. The steps below this may change based on the inputs on later screens. If you need to get to a prior step, you can click it in this left-hand navigation menu. Go ahead and click Next on this page.
We’ve now moved down to the Historical Pricing Details step in the left-hand navigation. On this screen, SpendLogic is asking some basic compliance questions. The first question asks how the historical price was determined to be reasonable. Recall that in order to rely on history, the prior price must be determined to be reasonable in and of itself. The choices may differ from what’s shown on this screen depending on your company’s policies and procedures. The next question relates to terms and conditions.
Next, you’re required to upload a copy of the previous analysis or competition that was referred to in the first question on this screen. Click Add File and the uploader will allow you to attach a file to this report. This file will then be made available to anyone that downloads a copy of this report. Click Next. The purpose of the proposed price detail screen is to enter details related to proposed price.
Clicking the input box for current delivery date allows you to type in a date using the month, day, year format. To eliminate the possibility of formatting errors, click the calendar icon to bring up a date chooser. The date you enter in this box should refer to the midpoint of deliveries. This is used for escalation purposes in a later step. Proposed price per unit refers to the price proposed by the supplier.
Be sure to enter only the recurring price per unit in this box. Non-recurring is handled on the next line. When you’re done with this page, click Next. On the Basis price screen, SpendLogic is gathering information about the basis price. This price is what SpendLogic will use to calculate the final analysis value. From this point forward, only the analysis total price in the upper left-hand corner will change.
Unless you go back to the Proposed Price Detail step, proposed total price will not change. Enter the details of the most recent purchase order, including the PO number, quantity, price, and delivery day. Total Units Produced To Date is used in applying an improvement or learning curve in a later step. However, if you do know the total number of units that this supplier has produced, enter it here.
Remember, this refers to the total units produced by the supplier for all customers and clients, not just your company. In order to demonstrate this functionality, I’m going to enter a value of 100 units. Click Next. The escalation screen corrects for differences in timing between historical and current procurements. The basic concept is that a dollar yesterday doesn’t buy the same amount of goods and services as a dollar today.
The first question asks whether you want to use separate indices for labor and material. If you have a breakdown of cost elements and therefore know what percent of the purchase each of these represents, choose Yes. Otherwise, choose No. Note that improvement curve calculations are only possible if yes is chosen here. For that reason, I’m going to choose Yes. Approximate Material ratio refers to the percentage of total price that is attributable to material costs versus labor costs.
If you have a prior cost analysis that was completed for this part or something roughly similar, that’s a great source for this information. You can also ask the supplier for an approximate percentage breakdown. In this case, I relied on a prior cost analysis to calculate that 60% of the cost lies in material. Indicate whether you obtained this information from the supplier or used prior experience. This becomes a note in the final report.
These indices are based on Bureau of Labor Statistics, which produce pricing indices by NAICS code. By choosing the index that most closely relates to the NAICS code of the item you’re buying, SpendLogic uses the information entered in previous screens to calculate an escalation factor. This is automatically applied in the analysis value in the upper left portion of the screen. Click Next.
If there’s a difference in quantity between the prior and current purchases, the next screen you see will be quantity correction. If quantities are equal, this screen is not needed and therefore will not be available to you. You’ll see in the header that SpendLogic notes whether a price increase or decrease is expected. The basic logic is that if you’re buying more items this time than last time, you should be receiving a discount.
If fewer items are being purchased now, then a price increase would be expected. The first item asks whether an adjustment to price due to quantity differences is required. If you have a reason to believe that a price differential should not be required, choose No and explain it in the text box. Typically, an adjustment is required and you’ll be choosing Yes. After choosing Yes, a dropdown list is shown.
I’ll go through each of these items in this list now. The first option is appropriate if you have known prices for multiple quantities. By choosing this item, you’re asked to provide an explanation of where the data is coming from. The data below is formatted to accept price bands for various quantities. Enter the appropriate start and end units in the related price. For instance, if you know the price for quantities 2 through 5, if you only know the pricing for single quantities, say 25 units, then start and end would both be 25.
You need at least three points to make this function work. However, you can always add more. In fact, the more points you have, the more reliable your final calculation will be. Once you fill in this page, you’re going to get a graph. This is a regression that plots the proposed price along with the known data points. Take a minute to review the graph and make sure that it makes sense.
SpendLogic runs multiple regressions in the background and recommends whichever one has the highest R-squared value. R-squared is a statistics term that refers to how well the data entered fits on a line on a graph and ranges from 0% to 100%. The higher the R-squared, the better your data is when graphed. Generally, look for an R-squared to be 90% or better.
If you have a particularly low R-squared value, it’s recommended you use a different method for quantity correction. The second option for quantity correction is to apply standard DOD factors. This works similar to inputting multiple prices and quantities, but rather than using data to identify a curve, SpendLogic creates its own curve using a slope of 95%. If you choose this option, no further input is required.
SpendLogic automatically makes the calculations and applies the result. The last option is one that will likely be used very rarely. If you know the price correction factor that’s required for the difference in quantity, you can input it directly here. SpendLogic will apply whatever value you input. Anything less than 100% will decrease price. Anything greater than 100% will serve to increase price.
Make sure to be complete when you enter your rationale. Once you’ve completed this screen, click Next. On the improvement curve screen, you can indicate the improvement curve slope that is applied. Note that this will only apply to the labor portion of the price, which SpendLogic calculates using the labor material split that was entered on the escalation page. Some industry standard slopes are shown at the top of the page, or you can input a slope that you’ve calculated using production actuals.
Be sure to indicate both a slope and the rationale that supports your choice. Then click Next. Complexity Adjustment allows you to modify the analysis value based on differences between what you’re purchasing and the item that was shown as the basis. Indicate whether the item you’re buying is identical or similar to using the dropdown. I’m going to choose similar to so that I can demonstrate this functionality.
The first input asked for a part number. If the basis price data used up to this point was for a slightly different part than is actually being purchased, enter that part number here. In this case, I’ll indicate that the basis historical data was from a slightly different dash number. Next, you’re asked to identify the similarities of the items. Include as many similarities as you can.
This will be important to reviewers or auditors who are trying to determine the validity of your work. Size, weight, technical specifications, production locations, among other issues are all important considerations. Next, click the Add Difference button and you’ll see that additional inputs are shown. You’re going to do this for each difference.
Choose the first one that you’d like to discuss and enter a short description. Indicate the dollar value of the difference indicated above, and then provide an explanation of where this dollar value comes from. Whether you rely on technical experts for this step or have data that enables you to estimate the dollar value yourself, it’s always a good idea to upload supporting documentation. This is an area of high risk in audits, so be as complete as possible.
At the bottom of the page, you see a box that shows Total Adjustments and Adjustments as a % of Basis. Total adjustments is a sum of all the values entered above. Adjustment as a percentage of basis divides the sum of the adjustments by the basis price per unit. This value is an indicator of the magnitude of the difference.
If this number is greater than 20% to 25%, this may face additional scrutiny in audit. So make sure the rationale entered on this page is strong. When you’ve worked through all the differences, click Next. This is our Risk Check screen. As with all methods, if you see a lot of red flags on this screen, it means your report is likely to be scrutinized.
Try to minimize the number of risk checks that you see. For those that can’t be removed, make sure your explanations are complete. Clicking Next takes us to the final summary. You can either finalize your report or download a copy. Remember, until your report is finalized, it’s subject to changes in the BLS. BLS indices are updated monthly, so your final report values may change. It’s a best practice to go ahead and finalize your report as soon as you can.
This concludes our video. Thanks for watching. If you have any questions on this or any other feature in SpendLogic, visit spendlogic.com/help or email us at [email protected].