Data is the cornerstone of modern procurement. Clear information informs wider strategy and drives business performance through informed decision-making.
Specifically, it is the data organised by spend analytics tools that are a catalyst for elite performance. Those using such platforms report savings of between 5% and 20% a year after engaging the software, gaining competitive advantage from improved process, enhanced supplier performance and consolidating spend.
So how can you drive competitive advantage from data?
Improved visibility from spend analysis shows where savings can be made and where money is being leaked. It can also help you to optimise supply chain performance via supplier analysis, and show price variability in the market and find overlaps in spend between categories – all of which result in significant savings and efficiencies.
Supplier insight and performance
Spend data can tell you a lot about your suppliers’ performance too. Benchmarking their prices, delivery times and operational capacity against the industry can help you to determine if they are adding value. It will also show you if there’s an opportunity to negotiate price, volume, or for future collaboration – or if there are better suppliers available.
Data helps to identify inefficiencies, roadblocks and cash leaks. It also provides clarity over past decisions and helps you to inform future strategy. In practise, you might do this by forecasting the amount of office supplies you’ll need for the year, based on data from previous years. This in turn means you can leverage economies of scale by ordering in advance. This helps suppliers to optimise their sourcing and in-turn decreases the risk of costly delays.
Increase spend under contract
Rogue spend accounts for roughly 10% of an organisation’s tail spend – spend that is not actively managed – which is problematic because it’s hard to identify and therefore stop. Transactional spend, while unavoidable, is also an issue because it tends to take place ad hoc and often outside of contracts. Both types of spend are a problem because they undermine the integrity and value gained from spending with a contracted supplier – and flout price and service agreements.
Data, and specifically spend analytics, can identify where this is happening and can also show where there’s high spend in a category where no contract is in place.
Having an understanding of how your suppliers are performing reduces the risk for both parties. Assessing their financial situation and their reliance on your or another organisation is necessary to mitigating risk. You also need to identify if one party is too dependent on another and whether loss of one would significantly harm the other. Including data on your supplier’s revenue, along with performance benchmarks can help to flag potential hazards and disruptions in your supply chain, and help to avoid the loss of critical goods or services.
Metrics: a roadmap to better performance
Data gives you a clear view of business performance and presents you with facts and truths to work with. The range of tools and metrics you can use are designed to unlock value from the data you have. It’s one of the clearest ways to gain insight into how well your strategy is working, how well your department is performing and the steps you need to take to reach your objectives.
Benchmarking removes most of the guesswork from buying by helping to track industry trends, monitor supplier performance and mitigate risk in the supply chain.
Monitoring industry trends is a powerful and effective way to optimise spends. Take the office supplies you buy, for example. How do you know if the spend in this category is high, low or average? Are the supplies good quality? Are you getting value for money?
Benchmarking demonstrates how much it is costing you to buy goods and shows you, based on the whole market, where other companies are operating – and that takes into consideration market factors such as company size, quality of products, region and spend. That in turn shows you what, where and when is best to buy – and most importantly from whom.
It is essential for procurement to reliably track spend. The improved visibility of spends on goods and services shows where savings can be made and where money is being leaked. It helps to optimise supply chain performance via supplier analysis and shows price variability in the market too. Better market intelligence leads to a less transactional spend, consolidation of suppliers and an increase in spend under contract.