When To Use Spend Analysis?
When to Use
Spend Analysis?
What is Procurement Data?
Procurement data consists of purchase order, accounts payable, expense and credit card spend, which is then analysed, to provide data-driven insights and action orientated outcomes. Fact based decision support, that involves data capture, cleansing, aggregation and transformation, applied to leverage procurement value and gain competitive advantage.
Most procurement leaders need to increase Value, their initial thoughts are to achieve lower prices from the supply chain on goods or services bought. Price paid is a vital component required to unlock value, and comprehensive Spend Analysis is used to achieve this.
How to support your Strategic Goals with Spend Analysis?
A cost-based strategy is necessary to some degree if your business wishes to succeed. Well-established procurement teams have leveraged Spend Analysis for many years to scale output, drive down costs and thereby providing Value. Some businesses are not prepared to undercut all competition, which means lowering of prices should always be considered if a company wishes to remain competitive or increase the bottom line. To achieve this bespoke Spend Analytics Software is used.
Diagram.1, shows not only when to use spend analysis, but also align these with the strategic goals of the company.
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Figure 1. When to use Spend Analysis and how this supports Strategic Goals
What is Aim of Spend Analysis?
The aim of Spend Analysis is to focus on value-add areas that will optimize the supply chain, making it more efficient, to increase the overall procurement value. Spend Analysis Provides the structure for easily sharing information with others, including Executives, Management and suppliers .
Spend Analysis is normally aligned with the Strategic Goals of the Firm. In most cases these strategic goals cover four main areas and are also split into four Value Lever Groups 1 to 4.
The Four Strategic Goals of Spend Analysis?
1. Sourcing & Cost Savings
Group 1 : Tail Spend Reduction, Strategic Sourcing, Supplier Aggregation, Opportunity Analysis, Initiative Builder, Pricing Benchmarking, Last Price Paid
2.Improve working capital
Group 2 : Payment Terms, Aggregated Normalize, Reduce Spend & Inventory, Target Setting “What If”, Currency Risk
3.Governance & Compliance -
Group 3 : Spend under Contract, Maverick Purchases, Delegated Authority Levels, One Source of the Truth, Supplier Risk Audit, Supplier Performance
4.Efficiency & Productivity
Group 4 : Reduction in Reports, Aggregated Purchases, Reduced Transactional Fees, Eliminate Demand, Leadtime Improvements, Supplier Management,
Creating a validated spend analysis and a trusted data analytics process also serves to improve procurement value and reputation.
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