Following the pandemic and economic volatility, businesses are focusing on spend management, extreme risk mitigation strategies, and supply chain management more than ever. In fact, Deloitte’s 2020 Chief Procurement Officer (CPO) Flash Survey has reported that two-thirds of the companies are interested in implementing cost reduction strategies after COVID-19 compared to just one-third before COVID-19. When it comes to high-performing procurement teams, over 91% are evaluated based on their ability to save costs, indicating the increasing importance of managing cash while limiting supply chain disruptions.
This is where spend analysis and actionable procurement reporting can make a difference!
Spend Analysis: Beyond Traditional Procurement Activities
As a rule of thumb, before any organization dives into reducing or cutting down unnecessary costs, it needs to understand how and where the money is being spent. A comprehensive spend analysis report can help answer crucial questions including but not limited to the following:
- What is the requirement?
- Which department or who is purchasing?
- What is being purchased and how it is being utilised?
- How much is it costing?
- Who are the vendors and are they delivering as per the purchase order?
This information can help your organization make better decisions and also allow the identification of opportunities and risks to reduce costs.
But there is a catch! Traditionally, procurement teams have been dealing with multiple databases that consist of both structured and unstructured data. Thus, teams may lack access to quality data and additionally spend valuable time crunching numbers.
This is where technology or more precisely procurement management solutions can make life easier. According to the 2020 CPO Flashy Survey, around 75% of respondents agreed that in terms of analytics, spend analysis is the most valuable analytics.
How Can You Do Spend Analysis in Procurement
#1 Consolidate Spend Data
In bigger organizations, each department may have specific purchase requirements, different budgets, internal processes, and even an accounting system. In such a case, to perform spend analysis, your team will need to consolidate data in one place without errors.
#2 Clean and Standardize Data
Collecting data in one place is not enough. Since the data will be from different departments and sources, it will need cleaning and standardization. Such data can have different formats, units of measurement, language, etc. This will require coordination with departments to make sure data is easily understandable.
#3 Categorize Suppliers
There will be a number of suppliers for various requirements. Ensure all your suppliers are tagged and categorized based on the type of purchase, price, turnaround time, etc. to make selection easier.
#4 Categorize Spend
For spend analysis, this is a critical step. Categorize your spend based on purchases and other segments such as office supplies, travel, legal, marketing, etc. This will give you an idea of how much money is being spent on each activity/process.
Once these steps are done, you can undertake a spend analysis to forecast and strategise!
Reporting Is Crucial in Procurement Processes
Now, many believe that reporting in a procurement process will further make things complex. Others feel that it may be difficult to consolidate and conclude purchase order reports. However, this is not precisely the case.
In fact, procurement analytics empowers your decision-making with increased visibility and transparency. Let us discuss how.
Transformation of spend analysis: You gain complete visibility on both total and category spend. You can also track your purchases which ensures transparency and control over spend knowledge and processes. Plus, your team will be able to pull together varied data on invoices, price variance, order fulfillment, taxation, supplier information, benchmark prices, etc. This information can be analyzed to uncover opportunities to reduce costs and improve the bottom line.
Improved trend forecast accuracy: The procurement department when unprepared about demand trends may face challenges. Firstly, they may not be able to take advantage of the best price and it may also put a strain on supplier relationships when they will face issues meeting short-term requirements. That is why procurement teams not only need trend forecasts but also real-time insights to manage inventory and deliveries. Data analytics and reporting can thus help make forecasts based on unexpected and recurring factors.
Better supplier relationship management: Reporting can help evaluate your vendor performance based on various aspects such as cost, quality, on-time delivery, etc. You can grade the vendors for specific requirements/categories. This means you will also have the information on which suppliers to drop for better prices, faster deliveries, etc.
Why Use a Procurement Management Solution for Analytics and Reporting
A procurement management solution not only automates order management, contract management, and vendor management but also streamlines requisition approval workflows with the added benefit of procurement analytics. When organisations adopt a procurement platform, cost savings is the primary objective. However, it does more than that including reporting, budgeting, detailed analysis, etc. This means you will have complete visibility and control over your procurement process as well as access to spend data for analysis, all in one place!
Spend management and procurement analytics are becoming an essential part of procurement management. With the right data, you can make decisions that support your cost reduction goals. A procurement management solution that supports analytics and reporting can make it easier for procurement teams to identify opportunities that can help mitigate risks and reduce costs. Not only that, but reporting also helps increase visibility and transparency, improve trend forecasting, strengthen supplier relationship management, and much more.
Induzbuy, a global provider of smart procurement management solutions can simplify your workflows, automate processes including vendor management, contract management, order management, and reconciliation, and also enhance reporting capabilities for data-driven decision making. To know more about how our solution can support your business, get in touch with us today!