One of the prime activities organizations employ to identify savings, managing risk, and enhancing buyer power is to spend visibility and management. One would think this is an issue for small and medium-sized businesses, but even large organizations lack an accurate and consolidated view of their spending profile.
Spend management is not just important for managing procurement function, but the overall organization as well. As organizations go through the digitalization and automation process more data is created. More get accumulated which holds a tremendous wealth of information, but for this information to be of any used proper consolidation process is required. Consolidated data not only identify savings, but it also highlights inefficient processes, identifies non-compliant spend and is an aid to better supplier management.
Spend analytics tools can provide answers to the following questions:
- Total expenditure by supplier
- Total spend by category/commodity
- Number of suppliers by commodity
- Number of transactions by commodity
- Spend value per business unit
- Average spend value per employee
- Average purchase order value
Managing a large volume of data: When data is abundant managing volume can be an extremely tedious and time-consuming process. Managing large data using manually such as using MS Excel is not efficient. Cloud-based analytics solution where information is presented in a user-friendly dashboard format that can be accessed from anywhere significantly reduces the decision making time.
Data standardization: After data consolidation into a database, the next challenge is data standardization. As data is sourced from all available sources including ERP and source-to-pay solutions, other accounts payable processes, and from data obtained from suppliers. At this point, the data is not reliable. Purchases may have been allocated to the incorrect general ledger codes or invoices may have been paid outside payment policy.
Vendor grouping: With several different business units in the organization comes to different vendors under different categories. For accurate analytics, vendors need to be tagged to specific categories and items. From here, the likes of prices and turnaround times can be assessed and the best vendor then tagged as ‘preferred’.
Cost categorization: With vendor grouping in place and categorized the same should be done with expenses for spend analysis. By breaking your expenses down into the likes of office supplies, marketing, travel, and legal spend, businesses will have a much better idea of where the money is going and be able to make informed decisions overspend. Predefined spend categories make the data navigation faster and easier to interpret and understand. Prioritizing main spending categories helps identify and forecast savings opportunities. It is also an opportunity to gain a deeper understanding of a category.
- Are we buying similar goods and services from too many different vendors?
- Are we buying high-value goods and services from suppliers with no contract?