How to Identify Savings Opportunities: Bundling
Last updated Dec 5, 2022 - 3 min read
- Table of Content
There are several procurement levers you can utilize to drive cost reductions. Bundling, or consolidating spend, is one of them. But how do you use procurement analytics to identify bundling opportunities?
If you are unsure what spend and procurement analytics mean, please check out this article.
Driving Cost Reductions Through Bundling
Bundling involves securing standardized supplier contract terms across the business or consolidating purchasing volumes with fewer suppliers than the status quo.
Although COVID-19 has put pressure on expanding the overall supply base, at least from a risk perspective, consolidating spend is still a key component in category and procurement strategies.
Let's take a look at some analyzes that you can use for identifying bundling opportunities.
Spend by Suppliers and Business Units (or Similar)
This example shows you spend distribution by suppliers across the business. Although we have used business units as the applicable data parameter in this example, you should tailor the analysis to reflect your organization.
The purpose of the analysis is to identify suppliers that deliver to multiple "parts" of your business. Surprisingly, many companies don't have standardized terms with their suppliers. If this is the case for your business, standardizing the contract terms will most likely reduce the overall costs.
Spend and Number of Suppliers by Category
To identify bundling opportunities, you should also look at the number of active suppliers across spend categories.
It may be appropriate to use multiple suppliers within different categories, even though the products or services are relatively standardized across the supplier market. For example, it might be relevant to mitigate risks. However, if you are buying products or services from multiple suppliers in a category, without any apparent reason, consolidating volumes will drive your bargaining power and savings.
Tips. If you have more granular spend data available, you could easily substitute categories with item-level data in the analysis above.
Spend by Category With Supplier Density
In continuation of the example above, it may also be relevant to look more closely at the supplier density within the spend categories.
This analysis gives you a more granular picture of your bundling opportunities and helps you prioritize. In categories with more evenly distributed supplier spend, the bundling potential will probably be higher, provided that the suppliers can meet your needs. If, for example, one supplier accounts for the majority of spend, the relative potential for consolidating volumes will be lower.
Maverick Spending Across Categories and Business Units
Linking your spend with contracts is vital for taking control of maverick spending. The examples below showcases spend through and outside contracts by categories (left-hand side) and business units (right-hand side).
Although you may have the necessary agreements in place, covering all your different needs, maverick spending is probably a well-known challenge. To address this problem, you need to consolidate spend with your prioritized suppliers (and agreements).
Please note that this type of analysis can also help you identify categories where you don't have sufficient contract coverage today.
Disclaimer. The insights provided above are merely indications and don't always give you the full picture. For example, you might want to validate the analyzes with qualitative and other relevant insights.