Analysing spend for efficient procurement
Tuesday, 4 Aug, 2009Optimised procurement and supplier relationship management offers significant cost savings and increasingly, organisations are turning to automated processes to realise efficiencies.
But the current economic environment challenges even the most advanced procurement organisations.
By analysing clients’ operations Soltius has been able to pin-point areas of improvement in their supply chains and procurement processes and suggested approaches that realise efficiencies.
Purchasing executives need to develop a strategy for each category. This is essentially a plan developed after detailed analysis of the current and forecast vendors, spend, competencies, market trends and opportunities for leverage.
The strategies Soltius has assisted clients with in this area are based on robust research and detailed analysis. The key enabler for this is “spend analysis”. It is the starting point of strategic sourcing and creates the foundation for spend visibility, compliance and control. It organises purchase information via supplier hierarchies, commodity alignment and spend amount in order to identify strategic sourcing opportunities through:
- Demand aggregation – Consolidation across business units
- Supplier rationalisation – Visibility of vendor fragmentation per commodity
- Enable expense reduction through increased compliance – in the form of vendor discounts, reduction of maverick spend, contract compliance and budget variance.
As noted by leading spend analysis experts, Pandit K and Marmanis H (2008), spend analysis can result in a savings ranging from 2 to 25% of total spend. So where do these savings come from? Rudzki, Smock, Katzorke and Stewart in their book ‘Straight to the Bottom Line – An executive’s Roadmap to Word Class Supply Management’ say the main contribution to the savings come from the following:
- Strategic sourcing that includes identification of strategic vendors and moving towards consolidation to negotiate volume discounts and higher quality
- Reduction of maverick spend through preferred suppliers and improved processes
- Avoiding spend leakage by monitoring compliance to negotiated terms
A quick start to spend analysis can be achieved by putting the necessary reporting and compliance monitoring in place based on the purchasing process. As this develops maturity in your organisation, you can move towards SAP Spend Analytics – an application within the SAP Business Objects suite of products.
With SAP Spend Analytics, companies can analyse consolidated spending across multiple business dimensions and identify potential for strategic supplier relationships and improved performance.
