Here are the core questions of "spend analysis": How much are we spending? Who are we spending it with? Which components are the most expensive? And, most importantly, how can we save even more money?
For most companies, especially those in the electronics industry, spend analysis provides the answers. But too often, the process stops here. It's always amazed me how many companies only touch the surface for spend visibility. They run basic spend analysis technology, find a few areas to cut the "low-hanging fruit," and save some cash, and it's considered a job well done.
Cost cutting will always be a critical deliverable for supply chain and procurement professionals, regardless of the industry. But most companies are missing a major opportunity to really influence the strategic direction and valuation of their organizations. Why? Their visibility, data, and analytics are limiting.
There are many challenges that deter procurement teams from taking a broader approach to spend analysis. The most pressing: Companies are limited in the data they can analyze and only have access to items like accounts payable, invoicing and purchase order details. It's also about the process. Some teams lack the resources to make spend analysis a continual and frequent process. Regardless of the reason, this limited approach fails to paint a complete picture of an organization's spending, thus limiting procurement's impact.
I'm a strong advocate for taking a more holistic approach. Going beyond the basics (like accounts payable/general ledger, data, purchase order data, P-Card data, contract information, expense and travel data, supplier content, etc.) and analyzing more data (like goods receipt data, supplier performance data, procurement plans and forecasts, commodity tracking details, etc.) is not easy. It's tough to aggregate and even harder to segment. But the better the data, the more practicable insight procurement can leverage to drive lasting change throughout the entire organization.
The process might be challenging initially, but I see plenty of benefits over and over again, including the following...
- The analysis benefits the entire organization: The results go beyond procurement and are leveraged by finance, management, engineering, logistics, and even marketing and IT departments.
- More savings can be realized: As opposed to the one-off, low-hanging fruit strategy, the more data that's analyzed, the more lasting savings opportunities can be discovered.
- The value goes beyond core purchasing: It benefits supplier performance management, supply chain risk mitigation, and strategic planning.
And, of course, closed-loop spend analysis takes the benefits of traditional spend analysis one step further. It cements compliance by detailing and monitoring contract performance, ensures that savings targets are more accurate (raising the red flag when corrective action needs to be taken), and measures supplier performance -- and how they're helping (or hurting) your savings initiatives.
So why are you still waiting?