How spend analytics can improve your procurement
Most companies know how much they make each year, but how many know what they’re spending? It’s a pretty big question, but it’s one relatively few can answer. It’s a big question, because close to 20% of what a company spends annually goes on indirect goods – the things that keep the company running – and it all adds up.
The average company spends £900 to £1200 a year per employee on office supplies, which in a company of 30 adds up to a yearly salary – and that’s just one spend category. When you factor in things like computers, software licenses, printing and cleaning products, it’s not hard to see how spending gets out of control – and what a huge opportunity there is to make savings.
Fortunately, those opportunities are made far easier to spot by spend analytics platforms. While they’re not particularly new in a technological sense, they are increasingly sophisticated – and more to the point they’re saving companies a small fortune. I-Tel, for example, typically saves clients 15% in the first month and a further 10% in the following months. Sound too good to be true? Well, it’s not – and it’s all made possible by some pretty smart tech. So how does it work?
Spend analytics software is a little like YouTube in a certain sense. When you watch videos or listen to music on YouTube, it will analyse what you’ve watched, gather the information, correlate it with other user data and make recommendations for similar videos that you might like.
In the same way, spend analytics software gathers information about what you’re buying, what others are buying, how the market is behaving and what other suppliers there are. It then shows you that information in a way that you can easily understand, and it gives you recommendations about how you could make smarter buying decisions – and you don’t have to do any of the legwork.
Why old software won’t cut it
The excel spreadsheet has a special place in procurement folklore. It’s ubiquitous with line items, rulers and hours spent poring over manually inserted data. They, along with other programmes and software, were game changers but now are very limited in their scope. They were made for a time when what companies bought and how companies bought was not a strategic decision.
Of course, these days data is being used in very different ways by organisations, which has made life even harder for the humble spreadsheet to remain an integral part of the operation. While it’s a whizz at storing, arranging and organising information, it’s limited in its ability to analyse, correlate and make sense of it. It’s like a librarian that arranges books neatly but can’t help you find the right the bookshelf for the information you need.
To extend the analogy, spend analytics make users the librarian. It makes finding the correct information simple and it makes analysing it straightforward. From that point you are able to make a host of better decisions around how and what you buy – decisions that ultimately benefit the organisation. It also makes peoples lives easier.
What can spend analytics do for me?
In procurement organisations, or in companies that employ procurement departments, the use of spend analytics is common and widespread. It’s been incumbent in those types of environments for around a decade and to that end is pretty well road tested. What that means for companies that don’t employ procurement teams, is that spend analytics are a very safe bet; they’ve also come on enough to be pretty user friendly.
All that is worth pointing out because what they do behind the scenes is fairly technical. It’ll take the data from all your databases, organise it, clean and present it in a way that is easy to digest. You get a comprehensive view of the company and you get to see where you’re spending money and where there’s potential to make savings. But that’s not all.
Comparing your data to that of the market gives you a 360 view of the context you’re operating in. It gives you leverage to negotiate with suppliers who are giving a competitor a better price; it helps you to mitigate risk if notice bottlenecks in supply from key vendors – it can also help you to predict future price with relative accuracy and to plan your budget accordingly.
In short, spend analytics will help your company to perform better. You’ll make better decisions, you’ll save money and you’ll stay competitive – and you’ll do so with relative simplicity. As such, these aren’t a nice to have anymore – they’re essential.