Being able to strategically manage spend helps organizations in several ways. Companies can become more efficient by improving their supply chain alignment and supplier relations, as well as boosting category management and lowering costs. However, many organizations face a myriad of challenges related to their spend analysis efforts. In this article, we will take a look at the most common ones we’ve seen in our projects at clients.
1. No visibility on spend due to bad data management
One of the biggest problems organizations currently face is that the data needed to conduct a proper spend analysis is often spread out across a multitude of internal and external systems, scattered around the business or even stored locally, such as Microsoft Excel files. If you want to have visibility on your spend, you have to collate the data and process it for deduplication, cleansing and classification to be able to provide the right insights.
2. No strategic managed spend
Strategic spend management involves the careful planning of your business expenses. Many businesses use a great variety of suppliers, often offering the same- and/or exchangeable products at different costs. But without a procurement strategy in place, not knowing which supplier is offering the best deal – and buying items when you run out of them as opposed to purchasing them in advance and in bulk at lower costs – can cause serious issues further down the line. Being strategic and applying the best spend practices will not only save you money but ensure that your company has a healthy cash inflow to support your outflow.
3. A great number of purchase orders
Each purchase order (PO) has its own overhead; it requires a level of care to ensure the PO is handled successfully, such as administration, tracking, and the handling of an order. If your business has a great number of them, you might benefit from having greater insight into how many you purchase monthly so that you can consolidate your purchases. Batch orders with your supplier to get discounts and eventually cut down your number of POs moving forward. By better managing your POs in this way, you’ll save your company time and resources, making your operations more efficient.
4. Too many suppliers
More suppliers and more frequent ordering can make it difficult for a business to keep on top of its PO’s. There is such a thing as having too many suppliers. While common across many industries, it’s not efficient for an organization to buy different products or services across a spread of different suppliers. Many suppliers offer the same materials, so it makes more business sense to buy from as few suppliers as possible and negotiate with those to get the same materials at a better cost price. This comes down to relationship management. Having better supplier relationship management will lead to better deals and reliable service.
5. A long tail of spend
In procurement, the ‘long tail’ is any spend not methodically managed. 80% of purchasing spend is covered by just 20% of suppliers, while the remaining 20% forms a long tail of suppliers with ever-smaller budgets and little control over pricing structure. The goal for many businesses is, therefore, to reduce the long tail of suppliers and move the spend to strategic suppliers.
6. No insight means no potential to optimize
If an organization’s spending decisions aren’t based on the company’s data, most of that decision-making is going to be expert judgement or even guesswork. The challenge here is if you don’t have the insight then there’s no possibility to optimize. Any business that is busy managing lots of PO’s and supplier relationships will mean they don’t have the time to properly strategize and will miss out on valuable insights. Take action to have insight and be able to optimize your spending, waste less time and free you up on your main business objectives.