When it comes to fully utilizing the potential of spend analysis nearly 60 percent of companies admit to falling short. The problem does not lie in the level of commitment or a lack of expertise; instead, in most cases, it is caused by erroneous data. Understandably, if a company wants an accurate picture of their procurement processes, it needs accurate data.
Through the proper use of spend analytics, what companies can achieve is nothing less than magic – going all the way from increasing cost savings to enhancing productivity to streamlining processes. Throughout these activities and more, the core purpose remains to be able to successfully analyze spend analysis data and implement the changes indicated by it. In other words, the entire process of spend analysis squarely depends on the data; valid and reliable data will uncover opportunities for improvement, while unreliable data will do the exact opposite.
Vijay Kumar has been dabbling with spend analytics since 1999. He has over 40 years of global business experience with deep knowledge on Supply Chain Management and ERP implementations. Vijay recently sat down with GoSourcing’s Thomas Cheah for a far-ranging discussion on how spend analytics have evolved since the early days. They delved deeply into Vijay's experience on integrating spend analytics into spend management that often requires great commitment from procurement leaders in managing risks and control in order to deliver the desired bottom-line.
Spend analysis is fast becoming a popular tool for business both large and small worldwide. It helps identify areas for cost saving and opportunities for streamlining processes. Both of these aims in turn, drive to increase profitability and increase organizational efficiency. While spend analysis is fast becoming an essential in multiple industrial sectors, it does have its pitfalls that you need to be aware of. After all, there is nothing like conducting spend analysis and then receiving outdated or inaccurate solutions to your organizational woes.
Here are some classic pitfalls of data that negatively impact the spend analysis process:
Pitfall #1: Too Much Information
You may have heard TMI being thrown around social media and the like, but now it has come in to the world of business as well. Too much information about products, services, suppliers, and supply chain processes can complicate things instead of simplifying them. All spend data needs to be analyzed, so the more data you have, the more you will need to process. There is also an increased chance of identifying wrong trends through data that is overly descriptive – for example “red cotton towel with football print” instead of “item 201”.
Pitfall #2: Non Standardized Data
Here is another important item even large businesses forget easily. With the increasing use of computers and mobile devices by managers, customers, and sales personnel, it is only natural to deal with multiple languages, sources, and formats. Any products or services that are new, or discontinued may end up without material codes. Manual override systems built into most software allow selling or even ordering such items without the complete category or description. Furthermore, managers or employees are free to create their own product categories and classes stepping outside your company’s regular catalogue. This makes the sorting of data tedious and can even make you miss out on vital information.
Pitfall #3: Unable to Standardize Processes Efficiently
Research indicates that just over 20 percent of all enterprises using spend analysis utilize automated software. This means that despite the available technology, most organizations still rely on using antiquated single line entry spreadsheets to process massive amounts of data. This poses two problems; first it takes a lot longer to go through the relevant information. Second, any similar categories or products are spread around the sheet with no means of consolidating the data easily with a single click.
Pitfall #4: Other Cautions
It goes without saying that bad quality data or incomplete data will also negatively impact the spend analysis process. In fact, this could lead to overlooked opportunities and issues that crop up with too many suppliers. This process is not something that is to be taken lightly; 70 percent of all organizations that use spend analysis tools report improvements within the first quarter after implementation. But make sure the data is accurate, it doesn’t hurt to verify and validate as you go along.
Summing All Up
The reliability and validity of spend data must be assured from all angles before the data analysis process can begin. Any spend data that is not up to the mark, or not properly sorted or categorized may result in significant trouble down the road. I hope the pitfalls that I highlighted above make sense to you to avoid them in the first place.
In an increasingly cut throat environment where every single sale counts, businesses around the world are looking to transform their supply chain and procurement processes. Transforming these processes requires a systematic approach that addresses multiple operational aspects in order to achieve profitability and increased efficiency. Using a spend analytics tool is an extremely practical way to harness the power of data and come up with useful solutions. These solutions lead the way to implementation of practices and methods that are the secret to success in any industry.
The market, like everything else in the world is in a constant state of flux. Companies seek the most innovative strategy to diversify their portfolios and extend their reach, all in an effort to maximize profits and enhance efficiency. Using the most ideal form of spend analysis for your company can reveal upcoming trends and new opportunities. Let’s look at specialized divisions of spend analysis, where each comes with its own set of strengths and weaknesses, so insights on them can go a long way in making an informed decision.
With the global economy steadily continuing positive growth trends, the world of procurement is also expanding to keep up with increasing demands worldwide. At the same time, however, the cut throat nature of business competition is marking the beginning of a new era of cost cutting, lean management, and operational efficiency – the likes of which has never been seen before. More and more businesses are now gearing towards implementing new and improved sourcing practices in order to drive down the bottom line and improve profitability. At the same time, corporations and suppliers are also looking for ways to streamline operations on a global level, and implement practices that offer the highest return on investment.
The oil and gas industry has been dominated over the past year by the news of spending cuts, job losses, mergers and acquisitions, insolvencies, supply chain pressures, and falling share prices amid the slide in crude prices, which have more than halved.
Speaking to a number of procurement and supply chain professionals, all survivors of past downturns inevitably the conversation turned to companies aggressively slashing capital spend, jobs being axed and suppliers being asked for price reductions.
Cost cutting is effective at generating immediate cash, but not sustainable if unaccompanied by changes long term that affect the way your procurement function operates, but it’s important not to lose sight of your most important supplier relationships while you’re addressing other goals.
While action such as extended payment terms are on the rise, delaying payments beyond the agreed length of time specified in your contracts it is clearly not the way to win your suppliers’ favor.
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