During these challenging times, your business – like many others — is likely looking for areas where you can trim spending. You’re likely looking at every line item, finding places where you can make cuts, and making hard decisions.
Although spending analysis is the first place to start when it comes to setting budget priorities and finding areas where you can spend more efficiently, being proactive about spending can reduce the need to make those painful cuts. Ongoing spending analytics is a more streamlined approach to this analysis, allowing you to keep costs under control from the start and maintain a leaner, more efficient organization.
In fact, committing to a program on ongoing spending analytics provides a number of benefits to your company beyond making it easier to manage crisis situations.
Why You Should Invest in Spend Analysis Tools
Transitioning to a program of ongoing analysis does require an investment of time and resources, but the benefits can far outweigh the costs.
More Efficient Orders
In general, businesses that conduct regular spend analysis have stronger relationships with vendors. Looking closely at spend patterns allows a business to focus on those vendors that consistently perform to expectations. With fewer suppliers on the books, it’s easier to develop efficient procurement processes, and as a result, receive orders more quickly. In fact, one study found that those companies that conduct spend analysis have supplier lead times that are about a third of those that don’t.
Weed Out Underperforming Vendors
One way that spend analysis allows you to improve the ordering process is by wedding out underperforming vendors. Closely evaluating your spending will clearly identify vendors that do not meet expectations in terms of price, delivery times, or other metrics, so you can cancel or renegotiate contracts. For example, incorporating delivery performance data into your analysis allows you to share that information with vendors, clearing showing where they are not meeting their obligations. You can also more easily identify the vendors who are charging more for the same products and services, or where you’re spending more on logistics. Armed with this information, you can strategize procurement to focus on the most cost-effective and efficient deals across the board.
Weeding out underperformers is one way to cut costs, but the simple act of analyzing your spending can help support cost reduction efforts. Almost every organization can identify areas of overspend or waste, but they may not be immediately apparent without a comprehensive, detailed spend analysis. Spending analytics also helps identify spending patterns that increase costs. For example, late payments can result in extra interest and fees, and cause you to lose preferred status with vendors. When this happens, you may pay higher prices, lose shipping discounts, or have less favorable payment terms.
If your business is in an industry governed by certain regulations, you may be subject to occasional audits and investigations into your business practices. These audits can be tedious and time-consuming, and particularly stressful if you need to research information to meet auditor requests. Ongoing spending analysis provides straightforward reports, though, with all of the relevant and important data about your vendors, contracts, spending, and cost containment measures within easy reach. In fact, with the right controls in place, you may be able to identify potential compliance issues before they affect your company, protecting your business from unnecessary sanction or legal issues.
Improved Resource Deployment
One of the foundations of spend analysis is determining where money is being spent. You might be surprised by how much you spend in specific categories — and how much of that is unnecessary or excess expenditures. Ongoing analysis allows you to spot excess resource allocation in real time, and investigate what is happening and why. Your findings can support better, more strategic decision-making about where resources should be deployed, so you can make the most of them.
Reduced Maverick Spending
Your regular supplier of a key component has a disruption, so your procurement team uses an alternative supplier — and spends twice as much as usual. Or a team manager is unaware of an existing contract with a vendor, and makes a purchase from a different source. There are many reasons for maverick, off-contract spending, and they can be costly. Spending analysis provides insight into the areas where maverick spend is occurring regularly, so you can make changes and more strategic purchasing decisions.
Ongoing spend analysis is a big job, but one that can make a significant difference in your company’s overall financial health and management. It’s worth the resource investment.