Procurement spend analytics enables potential savings for companies through analyzing spending patterns. It involves studying procurement strategies, processes, and operations to understand cost dynamics and optimize the procurement process. It helps put in place a mechanism to:
- Identify problem areas and increase the visibility of spend
- Provide timely alerts on KPIs related to spend
- Implement cost control measures
Given the current highly competitive business scenario, companies are forced to evaluate their spend areas and processes constantly. Procurement is a key function that calls for regular reporting on supplier spend to make critical decisions regarding supplier selection and supplier performance. However, supplier data requires standardization and enrichment with various sources of information such as credit and risk.
Companies can incorporate technical solutions or partner with data providers to effectively manage their supply chain. They can adopt advanced analytical techniques to identify:
- Major spend categories
- Strategic sourcing opportunities
- Categories that fall under high risk area
- Product clusters with major quality issues
- Seasonal demand-specific orders
- Price variations
- Vendor evaluation
- Off-contract spend or maverick buying
Evaluation holds the key to identify areas for improvement. So procurement spend analytics service providers set up dashboards that help users to analyze their procurement spend based on various parameters. Similar to a balance scorecard, the dashboard captures data on suppliers, processes, and expenditure which helps to analyze spend at the category or product level. It also helps to identify non-compliant contracts and find recourse.
Users can set up alerts for procurement spend performance management which can also be useful in managing exceptions. Procurement professionals can base their alerts on their business parameters and use metric charts to understand the trends. They can also review key performance indicators (KPIs) for the initiatives that they undertake.
Key advantages of procurement spend analytics
Instant access to information enables procurement managers to make informed decisions across the board. They can leverage the allotted spend across business units, and achieve value-oriented savings in the sourcing process. This is one of the goals that procurement managers look to achieve from procurement spend analytics.
It is advisable to categorize transactions up front to ensure an easier flow into the downstream analytics system for the analytics process to be efficient and access the data instantly.
As the procurement data gets better, the procurement heads can reach a point where they can run reports using an application on an ad hoc basis with assured results. This facilitates better decision-making and nurtures good supplier relationship.