September 25, 2019 | 4 min read
The right spend analysis software can free up your procurement team’s schedule.
The Hackett Group reported that procurement leaders experience yearly savings of 68% when using spend analysis software.
Getting more bang for your buck is one of the biggest priorities in procurement. However, gaining maximum benefit out of current spend has become a growing challenge for companies. According to The Hackett Group, procurement departments had a 2.7% spend budget in 2018 versus a 1.3% spend budget in 2019. Despite the disparage in procurement’s budget to company needs, only one-third of procurement departments take advantage of predictive analytics software. Whereas out of procurement leaders, 61% report great gains in yearly savings due to the utilization of the information from their automatic spend data. Companies that employ spend analysis services not experience yearly savings but also see improvements in their cost-effectiveness, supplier performance, and staff performance.
The American Productivity and Quality Center (APQC) reports that mid-sized companies using spend analysis software reduce their overall procurement costs by approximately $11 million more than companies not using software.
The most obvious benefit to spend analysis software is the improved insight and transparency into your company’s spend data. Once you can more easily track your budget you’ll have better management of your procurement department’s spending and its “maverick purchases”. According to research done by The Hackett Group in 2016, maverick purchases can be as much as 29% to an appalling 80% of a company’s total spend. Automated spend data will help you recognize where procurement is spending too much and analyze your company’s spend patterns. Through spend pattern evaluation you can pinpoint the right time to place orders and lock in lower prices during times of little to no demand. Further, your company can forecast future spending for the next few months - up to a couple of years, based on recurring supplier purchases and purchasing categories. As a result, the adjustments you make towards more strategic spending proactively corrects rogue spending and increases your return on investments.
According to APQC, mid-sized companies that use spend analysis software have supplier lead time of six hours, whereas companies without software have supplier lead time of 20 hours.
In addition to cost-effectiveness, spend analysis software aides your company and your suppliers in more efficient order processing. A nearly two business day difference can be seen in receiving products after an order is submitted from companies using software. This difference in lead time can be attributed to an automated, streamlined procurement process and to the ability to ensure that contract terms are followed at all times - not just when specific issues arise or when a contract is ready for renewal. Spend Analysis software automates the contract process and walks you through every step of a contract, including consistent reviews when receiving products/services. From the monitoring of contract fulfillment, you can then generate a list of ill-performing suppliers. Based on aggregated data from generated reports and continuous automatic reviews of contracts you can easily weed out the extraneous or underperforming businesses. Decreasing to fewer, but more reputable, suppliers allows you to establish leaner, more competent procurement processes and helps maximize your procurement budget when going into contract negotiations. With more succinct spend data information you are able to easily collaborate, negotiate, and search out better deals with higher quality products.
In a study done by AQPC, it was reported that mid-sized companies taking advantage of spend analysis software need approximately 121% fewer full-time employees (FTE) to fulfill procurement activities in comparison to companies not using software.
As stated previously spend analysis software helps streamline your procurement process. One of the ways you achieve more proficiency within your process is through a more efficient procurement department. APQC found that mid-sized companies using spend analysis software produced a staggering 1,705 purchase orders annually with only 72 FTEs. Companies of a similar size, not using software, employed 159 FTEs but only produced a sad amount of 914 purchase orders. This is a difference of 87 staff members and 1,559 purchase orders. The gross difference in efficiency between organizations further highlights the benefits of utilizing spend analysis software. You will add to your cost savings by employing less procurement staff but gain the ability to conduct purchasing at a faster pace.
In the end, the key contribution that spend analysis software provides is automatic and summarized information. Utilizing automated spend data gives your company greater visibility into the amount of money you are spending, comparison in the amounts suppliers are charging, and whether suppliers are meeting expectations. Using this information to enhance your procurement processes and supplier list enables you to make informed decisions and see cost reduction opportunities.
To take action towards saving your company money by adopting mature procurement practices schedule a 30-minute demo of ProcurePort’s cloud-hosted e-procurement solution today.