ED Ainsworth once said: “Big data has been described as being like teenage sex, everyone talks about it, nobody really knows how to do it, and everyone thinks everyone else is doing it, so everyone claims that they are doing it too."
The above statement sums it all. Nobody really knows what big data is and can do. But others will often claim that big data “is the bedrock upon which the foundation of spend analysis is built”.
It is also often said that when “a man gets lost in the forest, he will need a map or compass to retrace his steps back to civilisation”. In procurement cycles, spend analysis could easily take the role of a compass or map in that it helps in assisting procurement professionals and user departments to have a clear picture of their spending patterns per day, per week or per month.
Spend analysis will assist them to make course correction measures in good time whenever they realise that they are now overspending.
Spend visibility through the use of big data therefore gives a new dimension to procurement by giving the analytical horsepower to enable business users to be in full control of their expenditures.
Spend analysis is a supply chain structured process that is designed to collect information on supply chain expenditures and subjecting that information to analytical tools with a view to identify cost reduction opportunities while increasing procurement efficiency levels which will ultimately drive value beyond savings.
This process will assist in gaining meaningful insights into where cash resources are being spent. Spend analysis will, therefore, identify trends, forecast future spending and uncover opportunities for cost savings.
Such processes will assist in enriching the data for fact-based decision-making, taking the organisation to the next level. By comparing spending metrics against industry benchmarks, procurement professionals’ focus of attention will be centred on areas where they will be able to significantly reduce costs and improve profitability.
- Enhancing visibility through spend analysis
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Spend analysis will assist the business in providing a window into the spend patterns and general buying trends in the organisation.
Procurement professionals regard spend analysis as critical for supply chains in that it provides the procurement personnel with a strategic framework, which enables them to have a real time “hell-copter” view of the metrics that drive cost and process efficiency in organisations.
Spend analysis could easily be touted as the solid foundation for all procurement value addition strategies in the sense that it creates an understanding of the organisation’s spend patterns and enables actions to be taken based on facts rather than intuition.
The current economic environment requires real-time fact-based information at frequent intervals due to the dynamism of the world markets. This will assist in the creation of a deep reservoir of strategic intelligence for the supply chain.
As is often said, data is knowledge, and knowledge is power. With a proper spend analysis framework, supply chain professionals will be in a position to identify and isolate inefficiencies and bottlenecks in the supply chain network.
The attendant benefits for such discoveries will result in process improvements, faster cycle times and reduced labour costs. Spend analysis will also give procurement professionals the opportunity to benchmark performance against best-in-class industry standards, targeting best practices, which drive continuous improvement.
Procurement professionals will acknowledge that spend analysis process flows will provide a magnifying glass for scrutinising and tracking organisational costs at a detailed level, revealing expenditure patterns and insights that will assist procurement to reduce waste and strengthen their purchasing power.
By pinpointing procurement categories where maverick spending occurs, organisations will be in a position to implement tighter controls by reinforcing the use of preferred compliant supply chain partners.
Spend analysis is, therefore, the hallmark for the creation of a clear and accurate picture of past, present and future spending patterns.
The past holds nuggets of wisdom for the future.
Spend analysis will assist the business in providing a window into the spend patterns and general buying trends in the organisation. It will avoid pitfalls that hold your supply chain back. Procurement practitioners will never leave money on the table.
Industry leaders are all in agreement that in the absence of spend analysis models, there are bound to be a lot of blind spots, information gaps and missed opportunities that will take a business a few steps backwards.
It has been proven beyond reasonable doubt that best-in-class organisations rely on procurement "dashboards" to create spending visibility, making real-time decisions on spending patterns. This is in full recognition that “untimely information can be worse than useless”.
Clear visibility and the timeous exchange of accurate information across a supply network presents the potential for strategic competitive advantages.
Industry sources acknowledge that the gathering of big data has become a strategic imperative, but it would appear the challenge facing many supply chain professionals is not so much the gathering of the data but asking the right questions of the data and making sure that the right decisions can be derived from the information at hand.
Technological advancements have recently breathed new life into the procurement function by enhancing the ability to gather huge amounts of big data.
Many organisations are sitting on a “gold mine of untapped savings opportunities” by not fully utilising big data that is resident in many different departments within the organisation. By leveraging on spend visibility, procurement departments will be dealing with the world as it is right now rather than how it was yesterday or last week.
Based on hard-to-ignore numbers, the use of the “control tower or procurement dashboard” approach will allow procurement practitioners to sense and respond to real time activities as opposed to guessing and fire-fighting when it’s already too late.
Though seemingly obvious, it is no longer acceptable for organisations to report on just the final total cost of doing business without giving full details of what constitutes the said cost structures.
Organisations should have real-time adequate spend information, which clearly spells out to its granular detail “what they are spending, who is doing the spending, and for what, and with which suppliers”.
It will assist in identifying which departments are using more fuel than others and why. It will assist in identifying which sales representative is using more airtime and why.
It will expose the production manager, who is wasteful through rework.
Without visibility, financial resources are often wasted on “nice to haves”. The evidence of maverick spending in supply chains is not always empirical, it is anecdotal.
But irrefutable!
Spend analysis has also proved to be a strategic exercise because it often reveals the complete spend volume and value, which will assist the business managers to leverage on the purchasing power of their purchases.
It will assist procurement practitioners to say, if we are giving this supplier so much money per week or per month, what quantity discounts are we getting in return.
The same information can also be utilised to track performance and supplier compliance while identifying spending irregularities on a real time basis.
Conducting regular spend analysis sessions in collaboration with requisitioning departments will assists organisations to have a full understanding of historical pricing patterns while at the same time serving as a useful tool to forecast future pricing patterns.
It is common knowledge that whenever certain costs go up, suppliers are very quick to adjust their prices upwards but whenever costs go down the same suppliers will choose to remain silent.
Use of real time spend monitoring data will, therefore, enable the procurement personnel to easily pick the fluctuation in prices of any commodity whether positively or negatively.
Although by their nature, forecasts will always remain forecasts, procurement specialists recognise the importance of spend visibility in forecasting. It is not in doubt that “forecasts will always be wrong at times, but it is better to be less wrong”.
Independent observers in the supply chain have often said that free exchange of information and forecasting data between supply chain managers and suppliers can take significant amounts of inventory out of the system which will improve your working capital requirements.
Where supply and demand are in perfect sync as a result of spend visibility, there is a minimal requirement for an inventory buffer.
Procurement can, therefore, exploit the gold vein running through its procurement big data to provide a detailed real-time picture of the supply chain which will help in inventory control.
By way of concluding remarks, spend analysis is a strategic imperative that provides organisations with invaluable business intelligence and continuous business insights which can be used to push the needle forward.
Spend visibility can, therefore, be used as a basis of developing and institutionalising organisational cultures, which rely more on fact and evidenced-based information and knowledge and less on habit.
In today’s fast-paced society where complexity often holds sway, spend visibility will assist procurement professionals to know what is happening around them especially when the volatile competitive markets throw curveballs at your supply chain.
It will assist your supply chain to stand tall in a highly competitive space. A spend analysis ritual is a silent engine, which propels procurement professionals to unlock doors to endless opportunities and possibilities.
Nyika is a supply chain practitioner based in Harare. — [email protected].
