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The Benefits of Spend Analysis in Procurement
Spend analytics refers to the practice of collecting and analysing the historical purchasing data of an organisation. The process is used to shed light on the business’ buying patterns and to review the relative value of spend across different suppliers or services. Spend analytics can help businesses with cost reductions, risk management and future planning.
Read on to find out what we think are the top 7 benefits of Spend Analytics.
Achieve full visibility of procurement spend
One clear benefit from effective spend analytics is obtaining full visibility of your business spend behaviour. Attaining full spend visibility may seem like a time-consuming process however the opportunities for cost savings alone make it worth the time investment. With the opportunity to categorise all payments, businesses can see which areas have the most spend activity along with a full expenditure breakdown. Businesses can get full insights into procurement costs and get to the core of all expenses and purchases. Once a business has this information it can use it for future planning and strategizing. For example, the true return on investment from supplier costs can be understood and taken into consideration in future contracting exercises.
Identify procurement savings opportunities and realise them
The overall process of spend analytics aims to improve efficiency and drive down costs so it makes sense that this is included as a key benefit. When the full analysis has been completed, the analytics will show spending patterns and potential cost reductions across the categories. This allows managers to cut costs by using different products, services or consolidating existing suppliers. This may also prove helpful in ongoing negations and overall business planning. Other savings may be found in categories such as office supplies, temporary staffing, and other external services. Once you know what you spend, you can investigate ways to do it cheaper or better.
Streamline procurement processes to be consistent across the business
A vital way to streamline your procurement process is by implementing a best practice methodology across the organisation. Leading by example and instilling the most effective process across your organisation will promote consistency amongst teams. Spend analysis has been proven to contribute to process efficiency across a lot of organisations. From reporting to financial forecasting, with more detailed analytics your procurement functions will be able to work faster and more efficiently. There is often a reduction in time taken for creating reports and ad-hoc analysis, resulting in a freeing up of time for more productive tasks or a reduction in labour costs.
Manage risk and minimise maverick spending
Maverick spend, or the purchasing of services out of contract or from non-preferred suppliers, presents several risks to an organisation. These include missing out on preferred supplier discounts and damaging vendor relationships. Good spend analytics data will allow you to track and identify all suppliers, including those with non-contracted spend. Having this data will allow organisations to view categories of spend with multiple non-contract suppliers and act to minimise the risk of having them. Likewise, the organisation will be able to view the full numbers of non-contracted vendors, potentially pushing out messaging as risk management to avoid maverick spending in the future and focus on contract compliance. Having contracts in place is fundamental to reducing risk, cost reductions and avoiding supply chain disruptions.
Evaluate supplier performance for better relationship management
The most important part of great supplier relationships is information and communication. Spend analysis provides insights into suppliers pend activity, giving organisations the data, they need to understand the true value of their suppliers. Once the suppliers that provide the best value have been identified, organisations are able to work with them to establish better relationships. Strong relationships are valuable when monitoring prices and contracts on a continuous basis. Having comprehensive spend analytics allows organisations to maximise the money spent on procurement and assist in contract negotiations. If used to their greatest potential, organisations can establish a procurement process that enables them to contract fewer suppliers whilst attaining greater value.
Benchmark performance with peers or internally
Spend analytics will enable you to have full visibility of trends and/or changes to procurement prices over a set period of time. This is helpful when setting benchmark performances, both internally and externally. Comparing costs and spend data for your procurement activity will enable you to set targets based on best practices across the industry or internal to your organisation. For example, understanding the average number of vendors used for a particular activity, the average cost rises or spend by category allows your organisation to set realistic targets. Understanding this is crucial to understanding any areas of improvement.
Allows for data-driven future sourcing
Data-driven future sourcing gives organisations the power to make the best procurement choices for the organisation. Having effective spend analytics gives organisations the information they need to conduct future business planning, purchasing and forecasting activities. It means that any future decision on procurement will be done so with the data taken into consideration. This reduces any potential risks that come from decisions made through assumptions or limited data sets.
Even companies who are exhibiting positive growth will often find significant room for improvement within some of its purchasing activities. In essence, spend analytics can be invaluable in driving profit margins simply by readdressing existing suppliers and improving internal processes.
How Can We Help?
Need help implementing spend analytics into your way of working ?Look no further.
At Athena Commercial, our Arrowhead software offers SMEs the ability to gain transparency over their entire company spend through a simple and user-friendly interface. Alongside our software, our experience procurement officers can guide your team through the entire spend analytics process.
Ready to get started? Get in touch with us today.
