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Why You Can't Be Strategic Without Spend Analysis

September 24, 2015 by Tulika Dayal

spend analysisSurprises are rarely good for procurement departments. Knowing where your risk lies, identifying your non-strategic suppliers, and eliminating them before they harm your business has become a necessity when trying to avoid supply chain breakdowns.

The major economic downturn of 2009 caused many companies to go bankrupt, and, in turn, the companies connected to and dependent on those companies suffered greatly. Therefore, CPOs should always focus on pinpointing the low-hanging fruits in their spend data in order to be able to find better alternatives for these risky commodities and establishing strategies for their sourcing.

Spend analysis and e-sourcing are still the pivotal areas of strategic sourcing for CPOs since they are a means to book savings while also improving category management.

Spend analysis helps companies cleanse their spend data, analyze it, and make educated sourcing decisions. Knowing exactly where you are spending your money and with which suppliers allows sourcing activities to be more carried out with according to a well-thought out game plan. Procurement teams can forecast savings and compliance for the year ahead. And wouldn’t you agree that every team leader wants to start out the fiscal year with a clear plan for the months ahead?

Even if you do agree, less than half of all procurement teams today have a standardized spend analysis procedure in place. This is strange since there is some kind of online tool or software program at almost every organization. Apparently, adoption seems to be an issue. If this is the case in your company, then perhaps you need to review your choice of e-sourcing solution. Usually tools that are overly complex for the task at hand risk lack of compliance.

Regardless of the tool you use, a proper spend analysis should place your data in a particular format, like UNSPSC or the company’s own hybrid taxonomy. The key idea here is that entire company’s data should be organized in a similar fashion. This consistency will enrich your historical data and all ongoing transactions. Clean, organized data gives sourcing professionals a lot of power, resulting in faster decision making. It’s like putting your data’s weak spots under a microscope. Sourcing managers can then prioritize which project needs to be pursued first based on the potential to drive value, like changing unfavorable contract terms, reacting to a shift in business requirements, or consolidating spend with a few worthy suppliers. The 80-20 rule rings a bell, doesn’t it?

Only a little over half of all procurement teams leverage spend data to identify sourcing opportunities. E-sourcing, in the form of RFQs and auctions events, still occupies the core of most strategic sourcing processes. So there’s huge potential here. If your company has yet not started to work on strategic sourcing in the procurement department, then e-sourcing is a good start. After all, e-sourcing is what makes sourcing strategic.

Investing time in transforming the way you look at transactional spend and e-sourcing activities is a MUST for organizations planning to get strategic in 2016!

Tulika Dayal

Written by Tulika Dayal

As Head of Sales and Client Interactions, Tia Dayal is responsible for the strategy and direction of DeltaBid's sales operations. She joins the team from Zycus, where she led sales and marketing for the Enterprise Procurement Suite. She has worked with Fortune 1000 companies on improving their procurement processes. Drawing on her background in engineering, Tia offers unique insights on technology trends and competition in the procurement IT space. Tia, in two words: curious and passionate.

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