Businesses, a decade ago were usually plagued with high procurement costs and overall inefficiency which added to their operational costs. Analysis wasn’t a concept that had gathered the kind of traction it has today and companies have realized that analyzing their spending predominantly on procurement has far-reaching benefits and provides insights on suppliers about their reliability which is a great asset to the company.
Reasons Why Spend Analysis Is Important
Analysis of spending gives a clear understanding to companies about each rupee spent and helps them spot savings opportunities. Cost optimization can only be done once spending patterns are recognized and analyzed. Below are a few reasons why analytics is important in analytics.
- Improved awareness of spending and vendors – By analyzing spending, Procurement managers can get invaluable insights into the kind of raw material or input material, and inventory levels that are required to run the business and also provide greater visibility of its biggest suppliers and their trends
- Increasing transparency – Relevant data and analytics regarding spending from the e-procurement software help improve overall business processes. By gaining a clear understanding of the procurement process, better procurement practices can be implemented which have a direct bearing on profitability.
- Risk Mitigation – Analysis of spending and procurement helps mitigate procurement and supplier risks. Having sound procurement policies helps companies in case they want to switch suppliers or vendors without affecting the overall production process. It eliminates supplier dependency and improves overall vendor efficiency.
- Category level Analysis and monitoring– Categorizing procurement into high-value purchases and low-value purchases is extremely important for the smooth operation of a company which otherwise ignored can result in leakages. Analyzing spending by focusing on individual categories will help keep overall procurement costs low.
- Improved Vendor Relationship – Identifying your company’s biggest vendors will help you establish and foster better relationships which will be beneficial for all the stakeholders in long run. Analyzing procurement spending throws up immense value each vendor provides thereby enabling companies to strengthen relationships with them.
- Improved Vendor Relationship – Understanding your organization’s biggest suppliers will help you establish better relationships beneficial for all the stakeholders. Spend analysis on the supply chain sheds light on the value of each supplier so that organizations can strengthen supplier relationships. Suppliers will be happy if their invoices are paid on time, and organizations can find cost-saving opportunities by consolidating suppliers.
- Improved Awareness of Smaller Spends– Low ticket purchases and transactions often go unnoticed by procurement managers, as they usually focus on high-value procurement. The e-procurement platform you use should give detailed information on all types of purchases so that smaller spending can be controlled
Organizational Benefits With Spend Analysis
Procurement in organizations can be highly competitive as there is immense competition among the suppliers. This can be used by companies to their advantage by discovering high-quality national or global suppliers who can supply at a reasonable price.
Below are a few mentioned benefits that can arise from careful analysis of spending
- Reduction in overall cost
- Quicker Response From Suppliers – By analyzing spending; companies can weed out underperforming vendors by strengthening vendor relationships. Fewer suppliers can result in reduced procurement time.
- Streamlined Procurement Process– Streamlined procurement results in fewer employees required to carry out the essential activities.
Analyzing spending can help in improving various procurement metrics such as cost per purchase order. With sound procurement policies, vendor-managed inventory solutions can be implemented.
The three questions that every organization should ask about its supply chain function are:
- How much money is spent on procurement on the whole
- Who are our suppliers
- Is the value being delivered as promised by vendors
To answer these questions, a company needs to analyze spending.
Analysis of procurement is not a one-time process and needs constant optimization and needs to be implemented consistently for collecting valuable spend analytics. This will help organizations make important data-driven business decisions.