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Long-term ROI from Spend Analytics: 3 Places to Think Outside the Box

Spend analytics solutions often get passed over when it comes to claims of ROI. But spend analysis can provide just as much value as better-explored options like e-procurement or sourcing systems, sometimes providing ROI immediately after being turned on. Yet quick wins and short-term value are only the starting point.

Beyond areas like error identification, improving leverage with existing vendors and contributing to CSR risk management, spend analytics can be a foot in the door for procurement to deliver long-term, sustainable value to the business. In fact, many of these areas can include contributions procurement hadn’t even imagined before, helping push the function from simple analysis of what has been spent to true strategic supply and business planning.

To help procurement pull its head out of the past and begin to see (and plan for) the future, here are three outside-the-box areas where spend analysis can unlock new sources of long-term value.

Demand Management and Business Planning

When applied in intelligent ways, analytics can be used to peg spending back to specific demand that you can project forward. A good example of this is a recurring event related to seasonality, such as the requirement for rock salt for de-icing. These purchases are dependent on both the time of year but also the weather forecast, and planning for these costs by the factors can allow procurement to more accurately project how budgets may need to shift to accommodate high seasonal demand.

Yet some of the greatest opportunities lie not in understanding past patterns but in getting ahead on new requirements, often related to new customer business or changes driven by technology, legislation or other regulatory influences.

For example, a new customer win for a high-profile waste management company could involve a commitment to purchase waste bins with solar-powered compactors. Analytics can help to forecast the potential expansion of this new type of purchase within the spend category, as well as the decline of the product it displaces. Enabling a more proactive approach to demand management can enable procurement to play a greater role in specification development, as well as help it get ahead on sourcing leverage.

Sales Performance Improvement

These days, business is won and lost on very small differences in price — low single-digit percentages, if not fractions of a percentage point. Yet businesses rarely stop and ask: How accurate is the input data that sales teams are using to prepare the bids, tenders or proposals?

While procurement chips away at the key cost drivers in the business, little is known by the sales team about the future price optionality of products. Real-time (or near-time) spend visibility can be a game-changer in this regard.

If a business has a well-structured spend taxonomy or classification hierarchy, then the cost estimators can easily pull out key pricing information that looks forward to future-state pricing rather than historical pricing. And that could make the difference between those small basis point differences that result in sales wins rather than losses.

Supply Chain Optimization

So you’ve revisited the margin discussion with your key vendors three times over the last years. They’ve gone open book, and there’s really no more margin improvement to be had without endangering your supply. What can you do next?

The answer is category analytics dashboards. As the name suggests, these dashboards are purpose-built to tease out the specific cost drivers of a category and help with driving greater efficiency. The focus is not unit price margins but on the supply chain effectiveness and how it can be optimized.

But the devil is in the details here. The challenges are vastly different on category-by-category basis.

For example, with something like transportation, the category dashboard needs to display routing information that can easily be compared and potentially consolidated. Or load capacity, offering further potential in consolidating shipments. This is quite a different approach from, say, medical insurance, where claims information needs to be drilled into to see how the total cost of insurance can be impacted by switching hospitals, or even addressing the source of claims through improved working conditions or preventative techniques.

Optimization examples are plentiful. Everything from warehousing capacity to travel management, rent-versus-buy for vehicles and equipment, total cost of ownership models for lubricants (more expensive oil but fewer service intervals), and even should-cost menu pricing for airplane food can benefit from this approach — all while expanding procurement’s influence into unmanaged spend.

Conclusion

From the scenarios outlined above, it is clear that the case for advanced procurement analytics goes beyond just simple ROI calculations. While there are certainly opportunities to mine for financial and performance benefits, investing in advance procurement analytics is ultimately about heightening the role that procurement can play across the business, and in turn augmenting the level of business impact that a sophisticated CPO can have.

This article was written for Simfoni by the Spend Matters Brand Studio team, not as Spend Matters editorial or analyst content.

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