A procurement organization’s spend data usually resides in various databases and spreadsheets, often making it difficult to collate them into one coherent form for reporting purposes. However, procurement organizations can reap enormous benefits by bringing in much needed visibility into spend patterns.
The importance of spend analytics has not gone unnoticed: 38% of procurement leaders had rated spend analysis as the most critical area to receive investment, according to Deloitte’s 2016 Global CPO Survey.
Procurement organizations focus on optimizing costs. As part of a regular ritual to weed out unnecessary costs, one should first know where the money is being spent. Not all procurement organizations have invested in a comprehensive spend analysis tool, which makes it tough to convincingly single out an underperforming category or categories.
We ran a poll among users of Beroe LiVE, a community of thousands of procurement decision makers, about how much cost savings they achieve through spend analysis exercise: A majority of them have said they achieve cost savings of anywhere between 3% and 5%. Interestingly, nearly 15% have said they have seen cost savings in excess of 10%.
This clearly shows that spend analysis can rein in the overuse of maverick buying while enabling procurement teams to employ demand management techniques through real-time tracking of inventory levels.
However, procurement teams need to be operationally ready to access the full potential of the process.
Invest in the Right Tools, Talent and Procurement Intelligence
Procurement leaders can enhance their organization’s spend analysis capabilities by focusing on the following three factors:
- Technology: There are several built-for-procurement spend analytics solutions that are available in the market. These offer intuitive user interfaces and graphical dashboards to help procurement teams get the right insights at the right time. While selecting an appropriate spend analysis solution, procurement leaders should evaluate the software’s ability to automate the consolidation, cleansing and categorization of data.
- Talent: Procurement leaders need to make a choice between recruiting new talent or retraining existing talent. Alarmingly, talent development has been de-prioritized over the years: 3.2% of CPOs spent less than 1% on training budgets versus 29.5% in 2015, according to Deloitte’s 2016 Global CPO Survey. However, effective spend analytics requires a combination of the right talent utilizing the right solution — the two are interdependent.
- Procurement intelligence: It is essential to link spend analysis with external market intelligence. Niche procurement intelligence companies can offer functional expertise to make more sense of an organization’s spend-related insights by contextualizing these findings with events and trends currently dominating the industry.
Overall, along with market intelligence, spend analysis can help procurement leaders to decisively chart future course of actions.