Conducting Effective Procurement Spend Analysis in the Current Environment
With the current global economic circumstances, it should come as no surprise that businesses across all industries are looking for real time solutions to aid their procurement process by identifying cost reduction and spend management opportunities as a priority.
The pandemic has not only created a need for a shift in business process, but it has caused budgetary constraints in many segments of the economy as many countries see themselves in lockdown. This coupled with disruption of the global supply chain is reinforcing the need to review all facets of spend in their business units and establish ways to scale down.
Before decisions are made, it is imperative that a thorough procurement spend analysis is conducted in order to identify exactly how money is being spent, what non-essential and maverick spending is taking place and where savings opportunities exist that do not impact operational performance.
To get all the details on running a spend analysis, download our checklist, How to Conduct a Spend Analysis in 7 Steps.
While this need does have a certain urgency in the current circumstance, undertaking this process now will also facilitate informed decisions that will result in improved supplier and contract management in the long term.
Spend analysis is a piece of the much larger field of spend management. It is used to visualize your spend data in order to make better decisions, save costs, improve compliance with preferred suppliers and reduce cycle times.
The Fundamentals of the Process
There are three core areas of spend analysis that businesses need to turn back to – visibility, analysis and process. We have discussed this before but to recap the key points:
- Spend visibility: Obtain complete visibility on spend by conducting a seven step spend analysis and establishing the effectiveness by utilizing KPIs.
- Spend analysis: Analyze the cleansed and organized data to identify trends and establish where your spend is going. This data can be used to leverage competitive pricing and set sourcing strategies.
- Procurement process improvements: This is fundamentally either developing a roadmap or a course correction based on the output from the previous two points. It’s about using fact-based data to drive strategy, change behaviors and improve decision-making.
- Monitoring: This is not part of the fundamentals outlined initially, and often forms part of procurement process improvements. However, with the current state of play, the importance of monitoring change to ensure maximum results cannot be underestimated.
Getting Into the How
The success of this approach hinges on the process of identifying, gathering, cleansing, grouping, categorizing and analyzing your organization’s spend data. Navigating this when time is of the essence can be daunting for businesses.
Here is an overview of the steps for effective procurement spend analysis:
- Identify all sources for spend data, from all departments and business units
- Gather and consolidate all data into a central database
- Cleanse the data, including finding and correcting errors and standardizing it for easy viewing
- Group, or link, suppliers for better supplier management
- Categorize your spend into specific categories to determine how money is being spent
- Analyze the spend data and ensure that the best contract deals have been negotiated with preferred suppliers, the number of suppliers are reduced and buying practices are communicated to all buyers
- Repeat the process regularly to update data, ensure compliance and savings opportunities are identified on an ongoing basis
Importance of Fact-Based Data
If your goal is to bring more spend under management, conducting a spend analysis will help you get there. When you have fact-based data, it is easier to ensure compliance, improve decision making and expose areas of your business that may not have been targeted before for reducing spend.
Using real-time data and analytics will give you the insight you need you to save money and gain efficiency. This can be challenging if your data is in different formats, however the use of spend analysis software or programs can accomplish this. Spend Analysis, our spend analysis solution, will not only give you full visibility into your organizational spend, it will deliver savings and increase efficiency. Generate an unmatched spend analysis by entering your data in any format from any source. Spend Analysis helps you get the fact-based data you need to improve processes and deliver results.