It's not necessarily a simple calculation. In the above scenario, I'd need to know the amount bought off contracts in question and recent trending (adjusting for seasonality or one-time buys). And in the case of broader direct materials agreements, it would be useful to model the impact of underlying commodity price volatility on existing contracts and actual pricing paid relative to future pricing ranges based on current and implied volatility and different ranges. It might also be helpful to understand the types of agreements that are expiring based on the type of paper they're on and the clauses/clause levels contained (i.e., those with more favorable terms to suppliers vs. our organizations when it comes to payment terms, indemnification, non-solicits, etc.) Incidentally, there's software in the market today from providers like Seal Software whose contract extraction tools can gather and present such information on distributed contracts (i.e., on-servers, desktops) in an automated manner.
Taken together, this type of intelligence would help companies not just know that "100 contracts are expiring next month" but rather the 10-12 that they should really focus on to get the biggest bang for their spend buck based on their own specific objectives -- locking in cost savings, reducing commodity price volatility, increasing diversity spend, reducing risk, etc. With this type of information, spend analysis could truly become intelligent versus a static, periodically refreshed snapshot of our performance and trending to date. Yet I don't really see many vendors leaning in this direction over the short-term, let alone baking such concepts into a longer-term vision.
This disconnect between what we observe as a need for procurement and finance to better plan and forecast collaboratively in all areas of spend, category and commodity management and the current and emerging capabilities of spend analysis is suggestive of a market that is waiting for some breakthrough approaches. If you're a vendor and you have one, don't hesitate to let us know about it. Because based on the forecasting ability we know that leaders in the sector are looking for and that is wanting inside the available tools, we can largely describe spend analysis capabilities as broken. Or at the least built for a market of yesteryear -- and last month's snapshot of spending activity.
Jason Busch
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