In order to efficiently manage your procurement, the first step is to understand your purchase spend, which is much easier said than done, especially without a dedicated procurement team. Below are tips to get you started with your procurement spend analysis.
Before you can begin to collect data to analyze your procurement spend, you must first identify all of the sources that may affect your spend data, which includes sources from all departments across all company locations. Data sources may include accounts payable, general ledger, pCard, and eProcurement systems.
Analyzing your company’s spendings will be much simpler if you collect data on an ongoing basis. If you have an eProcurement system (like ours, Prendio), this data will be captured automatically and should be easy to report. We recommend obtaining, at a minimum, the following data:
- What was purchased?
- When was it purchased?
- From whom was it purchased?
- How many potential suppliers provided proposals?
- Was an auction process used?
- Have you purchased this before?
- What are your criteria for selecting suppliers or vendors?
- Why was it purchased?
- How long did the purchase cycle take?
- Did procurement have visibility of the purchase?
Once you have collected data from all sources, you will want to categorize your procurement spend. This will give you a stronger understanding of the purpose of most of your spending, and if you are overspending in a specific area.
You can take advantage of the categorized data by comparing it to what you have historically spent in each category and what other companies in your industry are spending in those categories. We recommend categorizing by:
- Product type
- Purchase size
- Direct/indirect purchase
Now that you had collected data correctly and categorized it, you are empowered to identify and present crucial business decisions that your company should take and how procurement can support those decisions.
Once you have analyzed your company’s procurement spend, you can take actions such as evaluating your supplier base and improve negotiating leverage. You can compare the data to the cycle times for procurement. This will allow you streamline processes and make educated decisions such as whether or not you should consolidate your suppliers, or increase your order volume with suppliers to lower unit costs.
Properly understanding your procurement spend allows you to reduce spend, waste and deliver direct savings to your bottom line.