Spend analysis: the 4 indicators to NOT overlook

Spend Analysis: The 4 Indicators to NOT Overlook

11/29/2016 Sébastien Dumas - Head of Pre-sales at SynerTrade
Our tribunes have shown that the procurement department has become strategic for businesses. Its contribution to overall business performance cannot be denied. For informed decision-making, the procurement department needs to introduce cautious management that involves establishing key performance indicators and careful observation of spend analysis. It is not just a matter of buying cheaper, but also buying better. Sébastien Dumas will explain in this expert insight the four indicators to take into account to better analyze your dashboards.

1. ‘Tail Spend’: focus on procurement and win on volumes

It has been noted that 80% of suppliers usually represent 20% of orders. Due to time shortages and poor data, procurement departments have tended to overlook this ratio and focus on their biggest suppliers, seeing ‘Tail Spend’ as non-strategic. Yet in the current climate every performance point counts, which means this share of expenditure deserves our attention. By pooling procurement, buying the same volumes from fewer suppliers, the procurement department can negotiate the lowest price. This is the direct effect. But this reduction also has an indirect impact when it comes to the cost of managing suppliers because there are less of them, and also on the level of administrative processes and logistics. These are all reasons to pay attention to the ‘Tail Spend’ when analyzing expenditure.

2. Reconciling invoices and contracts to pay the right price

Most eProcurement solutions make it possible to cross and reconcile procurement data. This is the case for contracts and invoices. Not respecting contracts weighs heavily on financial performance, but digitalization and the relevance of today’s tools make it easier to ensure the compliance of supplier conditions. Collaborative solutions make it possible to share contractual data and ensure contracts are respected all along the purchasing process. It is a matter of reducing non-contractual procurement from unidentified suppliers that have not been approved by the purchasing department, getting contractual conditions to be correctly applied, and making sure that the procurement-invoicing processes are respected. Here once again, the direct impact is located on the level of managing company budget limitations and conducting spend analysis, but there is also an impact on the level of respecting financial forecasts and payment deadlines.

3. Tracking end-of-year rebates to anticipate gains

Managing supplier data makes it possible to track order volumes with precision and negotiate End-of-Year Rebates on a reliable basis. These rebates are stipulated in contracts and materialize in the form of a credit note issued by the supplier. Their value is estimated using known historical data or significant facts about the current fiscal year. The rebate conditions will ideally be injected into the SRM, which means the procurement department can assess their value and progression. The buyers can then feed the data to the finance department, making it easier to set up or track budget forecasts.

4. Driving cost reductions by tracking payment deadlines

Tracking payment deadlines makes it possible to identify advance payments and show them to the supplier with whom the conditions were negotiated. The data can be injected into the SRM, to be managed according to the evolution of payments to the same supplier. A buyer seeing advance payments can also react and initiate a discussion with the corresponding supplier.
Reading all these strategic indicators shows how precious managing and assessing supplier data is for businesses. Beyond simple spend analysis control, it is a matter of setting up a dashboard that makes it possible to track expenditure very closely and generate savings all along the procurement process. Gathering and managing procurement data makes it possible to reduce costs at multiple levels, benefitting the whole company.
Sébastien Dumas, Head of Pre-sales at SynerTrade
Sébastien Dumas -  Head of Pre-sales at SynerTrade

Sébastien Dumas - Head of Pre-sales at SynerTrade

Sébastien Dumas - Head of Pre-sales at SynerTrade