At its core, spend analysis systems offer a fundamental series of benefits that can positively impact the procurement organizations that choose to leverage these solutions, including:
- Spend visibility – The baseline benefit of any spend analysis tool is the ability to provide visibility into total enterprise spending. By developing a clear understanding of how the enterprise spends its money, the procurement team is in the right and proper place to guide sourcing/buying decisions, aggregate spend, consolidate suppliers, and utilize historical spend information to engage new stakeholders and plan for the future. Comprehensive spend visibility is not simply a goal or a mindset; it is the foundation upon which Best-in-Class procurement performance is built today and it is the foundation of what will drive procurement to higher levels tomorrow.
- Identification of savings opportunities – Enterprises that utilize automated spend analysis solutions are almost twice as likely to have the ability to leverage spend data to identify sourcing opportunities than those that do not (87% vs. 47%). For nearly every user of spend analytics software, the ability to “dig deeper” into spend to unearth potential savings opportunities (be it through supplier consolidation, intelligence for future negotiations, etc.) remains a powerful benefit.
- Building a “smarter” procurement team – The more educated a procurement team is, the smarter/better decisions that it will make in the long-run. Spend analytics can provide the CPO and procurement team with better insights into business needs and help them identify opportunities to engage and support different internal constituencies in a proactive manner.
- The ability to improve supplier management – A common problem for even the most successful procurement teams is the glut of available suppliers providing materials and services. Spend analysis has long-proven an ability to help enterprises aggregate their suppliers by consolidating spending to the ones that deliver the highest value from a cost and quality perspective.
The Opportunity is Here and Now
Spend under management refers to the percentage of total enterprise spend (which is comprised of all direct, indirect, and services spend) that a procurement organization manages or influences. Ardent Partners is a strong proponent of the use of this metric as it provides great insight into a procurement department’s likely performance and maturity. It is also a powerful comparative metric that can be uniformly applied to procurement organizations no matter their size, vertical, or region. Spend under management represents the opportunity that procurement has to influence and impact the enterprise.
And, while there is no guarantee that managing more spend will result in superior performance, Ardent Partners research has consistently shown that the procurement groups that manage more spend report superior performance across most other key metrics. Ardent Partners research has shown that for every dollar that is placed under management of the procurement department, the average enterprise sees a benefit of between 6% and 12% during the first contract cycle.
The percentage of spend under management at the average enterprise sits at 63.3% in 2021, staying essentially flat over the past three years. This leaves a vast opportunity for those enterprises willing to embrace new strategies and solutions for attacking the other 36.7%. But this also confirms a theory presented in the 2017 edition of the CPO Rising research study: the average procurement organization is satisfied with merely managing less than two-thirds of the enterprise’s overall spend. A fading goal, this disheartening factor represents a sizable, lost opportunity for the typical enterprise.
The portion of unmanaged spend at the average enterprise represents an extraordinary opportunity for the procurement team to make an impact; spend analysis presents an ideal means for developing a proper plan-of-attack to begin to influence and control what is currently unmanaged. By utilizing spend analysis, enterprises can transform their understanding of unmanaged spend by drilling into the following areas:
- Spend by category – Category spend management is often an unheralded concept within the typical enterprise. Spend categories such as business travel, contingent labor, marketing materials/services, and events/meetings are common areas in which the average enterprise can uncover savings opportunities. Many of these “complex” spend categories (deemed so because the manner in which they are sourced, procured/ordered, and ultimately used are more nuanced than the more straightforward indirect and direct material) grow in size and strategic impact by the year. To remain relevant to enterprise executives, procurement departments must understand the areas of strategic focus and growth for the business.
- Spend by region – The CPO does not often “know all,” especially in global enterprises with multiple regional locations. Spend analysis presents a prime opportunity to engage local teams in discussions that may ultimately result in more centralized management of spend and suppliers and the elimination of redundant work and suppliers.
- Spend by business unit – For any number of reasons, procurement may have a more difficult time engaging certain business units than others. Some business units within the enterprise may simply not be aware of existing procurement policies or resources and supplier contracts and, thus, may source/procure their materials or services on an as-needed basis without regard for price, risk, or any other number of considerations.
RELATED RESEARCH
If you are interested in learning more about this topic, join us Tuesday, September 28th at 2 PM ET on a new webinar, Big Data, Bigger Value: How to Increase Procurement Intelligence with Smarter Analytics.
