Business intelligence can help companies to better control costs and align expenditures with revenue. A common area of focus is spend analysis and management because it provides many cost reduction opportunities including decreased material, services, and inventory costs, as well as decreased sourcing cycle times. BI can provide the visibility and insight needed to improve procurement performance. Some specific questions BI can help answer include;
- What materials has the procurement organization purchased this period? In what volumes and for what prices? How has that changed over time?
- How is the total landed cost of a material distributed across unit cost, and other carry costs? Has this changed?
- How many items do we carry on our material list? Has this increased over time? Can we consolidate or substitute items to maximize buying power?
- What types of requests (MRO, manufacturing job orders, MRP) by volume have been processed? Do patterns reveal opportunities for streamlining?
- Are different demand channels ordering similar commodities? Can we synchronize needs across channels or substitute materials for consolidated buying?
- How many vendors have we purchased from this year? On average how much is spent per vendor in a specific period?
- How do vendors rank by volume and revenue spent? How has that changed over time?
- How many vendors do we have for a specific material or material group? What percentage of the volume is sourced from a single supplier?
- How do prices compare across vendors for a specific material? Has this changed?
- How do vendors compare across payment and delivery terms, quality of materials received, on time delivery, order and invoice accuracy?
- How many transactions are performed for various stages in the procurement cycle?
- How long does it take to move from one stage to the next in the procurement cycle?
- How do processing times relate to specific materials, vendors and buyers?
- What percentages of requisitions are declined? What are the reasons for rejection?
- How does this compare across commodities, and demand channels?
- Where are there opportunities for reducing non value added activities?
- How many requisitions, contracts, and purchase orders are processed across the organization by buyer? What is the average value of each transaction?
- How is each buyer’s activity distributed across vendors, materials and demand channels? Should buyer responsibilities be redistributed?
- Is there an opportunity to consolidate transactions with a vendor through one buyer?
- Are there opportunities for consolidating the purchase of certain materials with certain buyers?
Data quality is critical for good data driven decisions. BI can help automate data collection from multiple systems, validation of data elements, de-duplication of records, enrichment with market data, and standardization of classification.
Ease of use is critical for increasing adoption, satisfaction and productivity. BI can provide role based dashboards that only show the information relevant to the user, and enable guided drill down from high level metrics through multiple hierarchical category structures.
And integration is critical to realization of savings opportunities. BI can provide integration with e-sourcing and contract lifecycle management systems helping companies track compliance to negotiated terms. After all the need for management does not end after a sourcing event has resulted in a finalized contract.
Spend analysis can deliver quick and measurable return on investment through rationalization of supply base; decreased part proliferation; reduction in maverick (off-contract) spending; and elimination of pricing variance between divisions and plants. The business value is primarily driven by;
- Increasing Spend Under Management – According to the Aberdeen Group companies report an average increase in total spend under management of 39.4% after a spend analysis program is initiated. And they achieve a 5% to 20% cost savings for each new dollar of spend brought under management. (Spend Analysis: Pulling Back the Cover on Savings, October 2008)
- Increasing Contract Compliance – According to the Aberdeen Group companies report an average increase in contract compliance of 30.6% after a spend analysis program is initiated. By monitoring contract compliance companies are able to get more control over maverick spending and reduce procurement costs by driving more spend through preferred suppliers.
About the Author
Dan Everett has more than 15 years of experience in business intelligence and analytic technologies. For more information, contact Dan at email@example.com or visit Spend Performance Management
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