Understanding and Utilising Procurement Spend Data
One of the richest sources of information for improving procurement outcomes is spend data. Analysing it can tell you a lot about which suppliers and categories of purchase are most vital to your business, which is necessary because there's a chance they're not what you think they are.
What is procurement spend and why is analysing it necessary?
Procurement spend is all expenditure on the goods and services to help deliver business operations, but not including those costs which cannot be influenced by the procurement team such as: employee costs, company taxes, levies, etc.
Without a thorough understanding of the procurement spend of an organisation, it's difficult to know the most important suppliers and categories. It's about discovering where your money is actually spent rather than assuming this based on historic spend. For example, a company could think its most important service is engineering, but when it looks at the spend profile it discovers most of the expenditure is related to drilling campaigns. From there they can put more of a focus on its drilling strategies and contracts, to ensure they're getting the right companies on board. So to understand what resources are most vital, what's needed to get a project over the line, or whether it's even feasible, the spend profile has to be analysed.
What are the benefits of analysing procurement spend data?
There are many benefits to looking into your spend data.
1. Spending money where it's best spent
Once you understand how you're spending your money, you can work out how to spend it more effectively. For example, say you have a contract in place with a supplier for a certain good, which was subject to a competitive tender process and price negotiations. However, after analysing the spend data, you discover only 60 per cent of the spend is actually going to that supplier, with the rest going to others who you haven't negotiated contracts and pricing. From there, you can work out a process to get all uncontracted spend or leakage either with the contracted supplier as originally intended, or run a new procurement process to formalise agreements with those other suppliers being utilised.
2. Better market research
When you understand your historical spend, you can better plan for future tenders and understand the leverage you have in the market. If you know you spend $10 million a year on a certain good, and you're doing your market research for a new strategy, you can better understand what type of suppliers are able to deliver that level of service and the importance of your contract (or lack thereof) to the industry. As an example, if you're only spending $50,000 a year on a particular service, it would be foolish going out thinking tier one suppliers are going to be fighting over that work.
3. Minimising uncontracted spend
Spending on credit cards or one-off purchase orders as opposed to a contract can present risk, because uncontracted spend doesn't have the same sort of terms and conditions associated with a contract developed for the specific goods or service in mind. As a consequence, if something were to go wrong, it lowers the possibility of achieving a favourable commercial resolution. Analysing the spend data can tell you what proportion of your spend is uncontracted and the value of these goods and services. This analysis can lead to reduction in rogue spend and or identify the need to develop contracts for these goods or services.
If you're ready to get the benefits of understanding your spend data, we are the people to speak to. Procurement Co can conduct spend analysis for you, or even set up a structure so you have better visibility of your expenditure as it occurs. To learn more about what we can do for your business, get in touch with us today.