Procurement functions in any organization across the globe is identified by its ability to conserve costs and maximize savings to purchase or procure goods and services that add or drive value for the business.
The primary and, most important, goal for any business is to maximize costs and increase bottom-line revenues to maximize profits.
While business employ various means and methods to achieve this objective, procurement functions can, and do, play a vital role in contributing to the organizational financial health.
By procuring goods a7 services that are needed, essential and vital to business and organizational growth, procurement functions are key to ensure success for any business.
Buying goods & services at lower or competitive prices, maximizing discounts with better negotiations, increasing value and assured long-term benefits from the purchases made and by ensuring stability in capping costs, procurement departments can add multiple-channel benefits via saving costs and maximizing savings and directly contributing to organizational health.
But, how would procurement function be able to contribute for effective success?
The key lies in effective spend analysis. Its simple really, the better their understanding is on business expenditures and budgets or costs to procure goods and services, the easier it is to determine and identify areas to save costs, increase savings and add value. Spend analysis is the practice of collecting, examining, and visualizing spend data. It includes several steps from identifying business goals to finding ways to cut off extra expenses and improve forecasting.
Effective spend analysis, however, varies based on organizational scale, business and complexities. Therefore, a robust, mature and scalable technologically-advanced system is not only important but becomes a basic necessity to ensure effective spend analysis and management. Spend analysis, therefore, depends on effective spend analytics.
Spend analytics is the term used to describe the first steps of spend analysis. It involves data extraction, consolidation, cleansing, and classifying according to predefined categories and taxonomies.
Benefits of effective spend analytics include Enabling Spend Visibility, Revealing Opportunities to Save Money, Simplified Forecasting and Building Budgets, Identifying Underperforming Suppliers, Streamlining Internal Procedures and Supported Benchmarking. Many factors may be used for conducting comparisons.
However, care must be taken to ensure spend analytics is utilized in right manner and at the right times for the expected and desired outcomes. While building a strong spend analysis strategy and implementing a robust spend analytics system, it is very important to build KPIs (key performance indicators) for spend analysis. Spend Analysis KPIs include Savings, Cost Reduction, Cost Avoidance, Maverick Spending, Contract Compliance, Process Efficiency and Contribution to Total Spend.
Once we have identified the various strategies, systems, processes and performance indicators for effective spend analysis, we would need to plan and identify the type of spend analytics to be implemented. There are various types of spend analytics, vis-à-vis; indirect & direct spend, tail spend, category, item, supplier, contract, and payment spend analysis. A company can focus on one type or conduct several at the same time, depending on its goals.
All said and done, the major challenge would be in conducting spend analysis. It usually involved a set of inter-dependent processes which must be standardized across entire procurement function for an effective spend analysis. Spend analysis has many steps and aspects, so start small and focus on one main goal.
Step 1. Define Goals and Objectives
Step 2. Identify Relevant Spend Data Sources
Step 3. Extract and Consolidate Spend Data
Step 4. Cleanse and Enrich Spend Data
Step 5. Classify Spend Data
Step 6. Analyse Spend Data
Step 7. Visualize the Results of the Analysis
Few guidelines to ensure optimal effectiveness would be to use best practices. Use these best practices to refine further your procurement spend analysis program:
1. Start with a strong process
2. Enlist a champion
3. Use data to strategize solutions
One of the persistent concerns business face and frequently question is how realistically effective are spend analysis programs? Yes, spend analysis programs to face setbacks and rarely fail too, leading to more complications than businesses started with at the beginning.
It would help tp identify the common reasons why spend analysis programs fail and common setbacks they face to ensure an effective program is well-designed and executed to maximize success rate and desired outcomes. Spend analysis is a complicated process that requires the utmost attention and dedication of the parties carrying it out. Some common pitfalls of spend analysis. The Massive Amount of Spend Data, Decentralized Data Storage, Low-Quality Data, Shortage of Skills.
Further, Spend analysis relies on consistency and accuracy across organization. Many ineffective spend management practices falter due to these common issues:
1.Lack of process
2.Inconsistent data collection
ELIT P2P provides built-in spend analytics with a robust and flexible framework that can help implement and execute even complex spend analysis programs and achieve desired outcomes. With ELIT, you can keep track of indirect spend to eliminate the issues most likely to derail your spend analysis efforts. Using ELIT , your organization can automate many manual processes and create effective guardrails for purchasing.
You can also download ELIT brochure here