Finance professionals are increasingly under pressure to control and manage third party related costs, while also identifying opportunities for business development and managing risk. Brian Alster explores how companies and finance professionals can tackle the issue.
Managing procurement costs has become a trickier task as businesses look to navigate Brexit-related pressures, political shifts, and unpredictable market fluctuations. For many global enterprises, driving growth and managing costs during this period of change can feel like an impossible task.
Enter spend analytics. Spend analytics enables visibility into corporate spending and provides actionable data. Finance professionals are increasingly under pressure to control and manage third party related costs, while also identifying opportunities for business development and managing risk.
Having clear and full oversight of who you are buying from, what you are buying and how much you are spending is critical to accurate financial planning. Supplier rationalization is equally important in discovering external parties with which you should build relationships, as well as analyzing existing vendors you can either renegotiate contracts with or shed. But how can procurement professionals tackle this issue?
Invest in accurate data with full visibility
Optimization of the supply chain requires full insight. A lack of visibility and data on areas such as third-party contracts and pricing could result in both lost revenue and savings opportunities for the business. Limited or out-of-date information can increase exposure to risk and unnecessary expense. Utilizing accurate data is vital for both procurement and finance professionals.
Organizations that invest in data and analytics, and data management, are likely to have a complete view of their business operations and the ability to make decisions based on value and up-to-date insight.
For example, if a business has to pay a third party every 90 days, but are paying every 30 days, they are not maximizing their working capital. Analyzing contract data can identify these type of opportunities to increase working capital, which is such a crucial source of funding for many businesses.
Manage costs with a detailed, comprehensive view
Undertaking intelligent decision-making spend intelligence can help businesses capitalize on savings opportunities. Spend analytics can support cost reduction initiatives, by using accurate and actionable data, to help companies increase their bottom line and improve the efficiency of spend management.
We have already identified how evaluating contracts can uncover internal cost-saving opportunities, but what about externally? Businesses can also determine whether the organization they are buying from is offering the best price by having a transparent and detailed view of the market. Reviewing which goods or services are being purchased — and at what price — may seem obvious, but often businesses do not have a complete view of supplier-related spend. Pulling this information together in one place is a simple, but a cost-effective way of identifying cost efficiencies. Equally, it can also help a business find the most competitive price and discover hidden opportunities for growth.
Analyze indirect and tail spend
Indirect and tail-spend analysis can further uncover opportunity. Analyzing data on indirect spending can help businesses identify savings of up to 14%. For instance, using duplicate suppliers for the same goods across the business means that money is spent on multiple onboardings and contract management. By analyzing spend at an aggregate level, firms can quickly re-evaluate strategies and identify where they could benefit from consolidation. Removing identical parties can uncover bulk purchasing opportunities and cost savings across the enterprise.
Investigating tail-related spend can also help to further rationalize areas of spending, particularly around ad-hoc purchasing and special projects. Analysis of this type can lead to savings of up to 15% across larger organizations, a significant amount.
Identify the optimal pricing terms to drive additional benefits
By digging into spend data, finance and procurement teams may find that pricing discounts are not being consistently applied across the organization in line with contract terms. If spend management processes are not implemented effectively, this can compromise price compliance. Tracking regular spend and analyzing recurring purchases is essential. Differences can also be identified between forecast savings and actual savings in the contract lifecycle to enable parameters from negotiated price to price paid to be adjusted.
Leveraging this information to renegotiate better terms and achieve cost reduction based on suppliers’ performance or non- compliance offers another opportunity for business growth. It can be vital information for those responsible for setting future budgets or cost reduction initiatives.
An accurate view of an organization’s full spend is imperative in a fast-paced, global world. Being data-led and implementing intelligent spend analysis can be key to identifying and realizing significant cost savings opportunities.