Invoice Analysis and the Numbers — Going After Demand (Part 1)

I recently caught up with BIQ's Eric Strovink on a topic unrelated to invoice analysis and spend visibility, yet somehow our attention turned in that direction. The discussion, which I was not planning on writing about, ended up sticking in my mind almost immediately as a topic that I don't cover enough, and that you probably won't read much about elsewhere: the value of using spend analysis capabilities to explore demand management cost reduction opportunities, which might come, ironically, thanks to good sourcing and contracting -- not to mention eProcurement tools -- in the first place, which can lead to increased demand. Eric suggested that one thing that organizations (even the ones with more sophisticated sourcing groups and excellent rate cards) encounter is the opportunity to play "demand whack a mole" if they have access to the right data.

Consider the following situation: imagine you've got a vendor whose PO or non-PO orders/invoices keep increasing throughout a company (e.g., catering, MRO, etc.) even if the contracted price is well negotiated, potentially even dropping with additional volume. Yet, the bottom line, despite the well-negotiated rate card, is that you're spending more with a supplier in an area of overhead that is not necessarily contributing to the business in a material way. With access to this information, it's possible to do a number of things, including going to the supplier and letting them know that no invoices will be authorized or paid unless approved by a manager overseeing the vendor relationship. That way, your supplier becomes the party tasked with reducing demand on your behalf by telling the requisitioner of the added step in the process (which is likely to eliminate a material percentage of orders).

Increased demand thanks to easy access to suppliers, contracts, procurement tools can happen across a range of categories. It can happen in warehouse temporary labor, for example. Again, in this situation, you might have a new rate card -- even a well-benchmarked rate card that offers among the most attractive rates in the market -- but if it's easier for folks in the organization to place orders and there are not proper controls in place, you can actually see spending increase. The same is true of industrial MRO as well, especially if an eProcurment system is in place that is not backed up by the right workflows and controls (e.g., if someone knows that purchases < $100 or below another threshold are not scrutinized, then watch out. In certain cases, Eric suggested that people sometimes think they're doing the right things in ordering a larger quantity of an item (e.g. industrial solvent) to save money. But often times, they might not have the knowledge -- or have checked to see if the information was available to them -- that the price of a 3-pack or 5-pack was identical on a unit cost basis.

What are other ways you can use invoicing data to help reduce demand (or re-assign demand in certain cases)? Stay tuned for Part 2 of this post to find out.

- Jason Busch

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