Spend analysis is often the first step in aligning a company's sourcing strategy with its competitive strategy. And towards this end, aggregating total purchases across all organizational divisions is essential to analyse all goods and services purchased and to forecast purchases for the future.
A successful spend analysis report will bring together the Accounts Payable, Purchase Order data etc., but its' real usefulness comes to the fore only when all the collected information is put to good use.
Deliver savings and improve processes
While 'Do more with less' is the new mantra for profit, this is not always feasible in procurement, as there is only so much negotiation you can do with your vendors for the best possible deal. Spend Analysis gives you great insight over your spend data and can help you identify opportunities you didn't know existed. It also helps you to make an informed decision on improving processes within the organization - like the implementation of an eProcurement System or consolidating invoices with individual suppliers etc.
The results of a spend analysis process will also provide much-needed direction while implementing a new system – both in terms of configuring it and as well as identifying the departments and people who will help generate an ROI on the project as quickly as possible.
Managing Maverick Spend
Spend analysis data will help manage maverick spend by tracking and identifying
- Suppliers – when non-contracted spend is non-compliant either by legal or internal procurement standards
- Categories of spend where there are too many suppliers and no contract in place
- Other forms of maverick spend within the organization.
Managing Supplier Relationship
A comprehensive spend analysis gives you the edge in negotiations, as you get to know the cost difference between vendors and this can tip the balance in your favour. In case of multiple vendors, it helps you manage your spend judiciously.
It is natural for a company's spend to increase above and beyond what was originally contracted or intended, while working with a particular supplier over a number of years. But too much spend with one vendor can be risky for two reasons:
- The vendor could become too dependent on the company's spend and can go out of business if the company decides to move away – resulting in a public relations issue.
- If the company is too dependent on one particular vendor, and that vendor goes out of business, the company could be left high and dry.
Thus, enriching the company's spend data with information on the vendor's annual revenue and credit scores will allow corporates to better assess the overall supply chain failure risk.
Robust spend analysis data can help prevent erroneous transactions that could happen inadvertently and also help recover over-payments.
Having all your spend data in one place, and making it accessible to other organizations can make it much easier to consolidate and use the data constructively. It can make collaborative efforts more strategic, rather than reactive and ad-hoc. It's surprising how being able to quickly identify common suppliers, categories and opportunities to collaborate can lead to dramatic savings opportunities.
Reduce disparity and source locally
Spend diversity is as important as saving money and becoming more efficient. Keeping a flag on the spend data can help achieve this goal and measure progress. With movements like 'Fairtrade' and 'Shop locally' gaining precedence, procurement teams can now rise to the challenge by enriching their spend data with geographical information. And irrespective of your corporate culture, staying up to date with accurate information on procurement can only increase your credibility in other areas too.