In order to launch successful procurement initiatives, stabilize cash flow, and create savings, procurement organizations need to understand every facet of the P2P cycle from sourcing to settlement. Top procurement leaders use procurement analysis as part of a comprehensive strategy. It helps answer questions in a streamlined and automated way, which leads to better management of projects and an ample amount of cost savings.
In this article, we’ll offer a comprehensive look at procurement analytics: What it is and how it can improve your cost savings and time efficiency. We’ll also cover best practices you can incorporate into your procurement practice to see positive impacts right away.
What is procurement analysis?
Procurement analysis enables you to see what you’re spending and where throughout your procurement department or business. It enables you to better control your costs and predict what to expect in the near future. It examines the data created in your procure-to-pay process and helps you extract and refine it to understand your spending.
Well-visualized procurement data can show you:
- What the company is spending for goods
- How those compare to market benchmark numbers
- Where to get the best deal on future purchases
- How to manage cash flow and improve your numbers over time
Procurement analysis brings a quantitative approach to procurement that draws on past performance and data analysis and integrates current market data to inform your future decision-making. The analysis is a bit more technical than a crystal ball, but when done correctly, it works like magic.
How spend analytics improves business outcomes
Procurement analysis isn’t just nice-to-have or a practice reserved for large corporations, because spending on outside vendors often accounts for 40-80% of a company’s total cost. That’s a significant expense, and one that must be closely monitored to avoid waste spending.
Building a robust procurement analytics process can significantly reduce waste and improve your near-term and long-term business decisions, no matter your size or stage.
- Improve your spend management
- Increase profitability
- Establish performance metrics
- Evaluate supplier performance
- Identify cash leaks and savings opportunities in real-time
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7 best practices for saving on purchasing costs
If your company is experiencing the frustration of budget overruns and untrackable purchasing practices, it’s possible to increase your spend optimization and improve your bottom line quickly.
The 7 best practices used by procurement teams regardless of size and stage are:
1. Formalize your procurement spend process
The first step to saving money is to establish a standard P2P workflow. Formalizing the procurement function helps your stakeholders understand precisely how to get from requisition to payment. This also helps you set spending rules, create accountability in every step of the process, and forms the foundation of effective contract management.
For example, establishing a process was one of the first steps to savings for NY Kids Club. Using Order, they moved away from a cumbersome, email-based purchase order process and got a handle on spending across the company’s 19 locations. Automating the process helped them eliminate wasteful spending that sapped their cash flow.
2. Increase your procurement data visibility
To realize savings in your procurement spend, you need a granular understanding of where your money is going. Using a modernized, automated procurement analytics platform gives you complete visibility into your spending beyond simple “revenue minus expenses” accounting when you close the books. Complete data transparency allows you to analyze various data sets in every meaningful way: category, department, product type, supply base, tax nexus, geography, and more.
Once your spend data is extracted and refined, a P2P platform can gather it into helpful dashboards to better help you visualize how the data is working This allows you to surface actionable insights and improve your procurement strategy more easily.
3. Build strategic supplier relationships for sourcing goods
Vendor partnerships are beneficial for everyone, and they can help you realize significant cost reductions. By establishing relationships with preferred suppliers for high-volume and recurring purchases, you open the door to volume discounts and more flexibility in your purchasing.
Relying on strategic vendor partnerships also saves time by eliminating redundant work, reducing due diligence, and eliminating much of the negotiation and onboarding associated with bringing on a new vendor. When you have a solid supplier management process paired with a well-curated list of preferred vendors, you can take advantage of the best deals and do so with considerably less friction.
4. Stabilize your inventory and sourcing practices
Inefficient sourcing and inventory management can cost you money in various ways. For example, delivery delays and inventory shortfalls can stretch out production timelines. Rush orders can invite expediting fees, quality issues, and invoicing mistakes.
By reducing these friction points, you can save many hours previously spent putting out fires, all while stabilizing your cash flow. Using a centralized P2P system like Order, you gain visibility into inventory levels, expected consumption, average shipping timelines, and project management estimates so you can have what you need on hand and deliver on schedule.
5. Identify cash leaks with spend analysis
Once you have a formal process in place, it becomes easier to identify spending leaks in the workflow. Using a documented, repeatable process, you can begin to eliminate some of the most common money-wasting culprits, such as:
Non-preferred vendor use – When spending happens, it often occurs using whatever supplier the purchaser believes will work best or give them the best price. The problem with this is stakeholders have no visibility into negotiated partnerships that can save the company money.
Maverick spending – Even if you establish a preferred list of vendors and budget parameters, it’s useless unless your stakeholders can access them. Without information, they will typically “buy” first and ask questions later. By centralizing your procurement process, you eliminate the occurrence of one-off purchases, corporate card-based purchasing, and unplanned spending by giving everyone access to the game plan and guardrails for their purchases.
Over-ordering or duplication – If multiple locations or departments are ordering goods in a decentralized way, chances are you’re losing leverage on negotiating volume pricing. By centralizing the order and payment process, you can use advanced analytics to better understand the total cost of ordering across locations, improve your category management, and use strategic sourcing to save money.
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6. Use AP automation to eliminate mistakes and busywork
Manual administration of your Purchase to Pay (P2P) process creates room for errors such as missed/late payments, over/underpayments, information mismatching, and erroneous data entry. These types of issues can generate late fees, stop orders, slow down closing activities, or create other costly outcomes.
By integrating supplier invoicing, reconciliation, and payment into an automated system, you remove this potential and create a process that is easier to use and track. It also dramatically reduces the Finance team’s time investment in repetitive processes and frees up your AP staff to take on more meaningful projects.
7. Get Order: Streamline your sourcing and payment process
To implement all these money-saving practices, you need a robust platform that brings your process, payments, and data under one roof. Using Order for as your P2P system, you can create a purchasing workflow that eliminates cash leaks and rogue spending, connects you with the best suppliers and pricing, allows speedy approvals, and simplifies your payment process with automated reconciliation and invoice batching.
If you’re ready to realize cost savings and boost revenue with powerful workflows and advanced analytics, schedule a demo to see the Order P2P platform in action.