For the vast majority of companies, both private and public ones, external spend is a significant part of total costs. Nevertheless, most companies do not have sufficient overview or control of their spend. One reason for this may be that businesses lack digital tools to easily harmonize, structure and visualize spend data.
Procurement and spend analysis is, or at least should be, the basis for the work in all procurement functions. Ultimately, it is about having the necessary insight to be able to make smarter procurement decisions. This may include, for example, analyzes such as;
How much do we buy for and what are the trends?
What do we buy and from which suppliers?
How is spend distributed across the business?
What are the trends in contract coverage, contract loyalty and maverick spend?
Having the proper tools in place for procurement and spend analytics has become a prerequisite for anyone who wants to work professionally with procurement. At Ignite Procurement, we work with several leading companies across many different industries, where our solution today manages over NOK 300 billion in spend!
Here are eight key benefits that procurement and spend analytics can provide for your business. Are you taking advantage of all these opportunities today?
1. Provides full transparency
Continuously updated facts ensures a complete spend overview throughout your entire organization. This insight is absolutely crucial for your procurement work, but will also be important for other parts of the business. The procurement function often works with, and across, various business functions, such as finance, manufacturing and IT. Sharing and communicating insights is critical for procurement to be a well-functioning strategic partner internally.
2. Increases efficiency
Research shows that people often spend only 20 percent of their time on strategic activities - leaving 80 percent devoted to low-value tasks such as collecting, filtering and formatting data into reports. Automated and insightful analysis helps increase the efficiency of the procurement function, giving you more time to focus on value adding activities, i.e. strategic activities.
3. Supports category management
A spend category contains similar types of purchased products or services. Spend analytics provides the basis for creating a category structure, where you classify and categorize your spend based on the data.
Categorizing your spend is the starting point for category management. Category management is a strategic approach which organises procurement resources to focus on specific areas of spend, i.e. spend categories, by using a structured methodology.
4. Prioritization of resources
Procurement analytics provides you insight into how to allocate and prioritize your resources. One example might be to take the necessary actions if the spend development is not in line with expectations, or that unauthorized suppliers are used by the users (maverick spend).
Critical categories for your business need to be prioritized, typically the largest categories. At the same time, you should not neglect smaller categories as there may be large opportunities for savings - precisely due to the fact that they are often overlooked. Furthermore, the number of suppliers and spend complexity are vital factors when allocating resources.
5. Internal benchmarking
Being able to analyze spend across companies, business units, functions and projects, for example, gives you action-based insight. You can use this information, among other things, to do internal benchmarking across the entire organization.
For example, why is the contract loyalty in Department X much higher than in Department Y, and what should the procurement function do to reduce maverick spend?
6. Identifies savings opportunities
Procurement and spend analytics is critical to identifying opportunities for tangible savings. There are several relevant analyzes that you can use to highlight savings opportunities, for example;
Number of suppliers per category
The supplier's profitability and your importance as a customer
Price of goods and services across the business (price arbitrage)
Low contract loyalty - or high maverick spend
Price increase for goods or services with high volumes
Transaction costs such as the number of electronic invoices and e-commerce loyalty
One of the most common objections we encounter when discussing the importance of spend analytics is "the lack of adequate data quality". Although the data quality may vary slightly, you can only improve the data quality by using the data you have.
Unused data will always be bad data.
Procurement and spend analytics will highlight any data deficiencies for you, which in turn can initiate systematic actions to improve the data quality of your business.
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