Spend analytics is invaluable to organizations. Without detailed spend visibility, procurement teams are unable to deliver savings and mitigate business risks through the efficient and close management of suppliers.
Over the years, Rosslyn Analytics has worked with hundreds of procurement and finance leaders. This has given us a unique perspective about the value of spend data. For example, we have calculated that a company with an annual turnover of $1 billion can generate in excess of $32 million in savings by obtaining spend visibility at purchase order line item level. (Unfortunately, for many, this level of insight is difficult to obtain because they struggle with the cost of poor and incomplete data.)
Here are five additional ways companies can deliver million by taking a deeper dive into their data through an opportunity analysis:
- Assess payment terms compliance: You have your agreed payment terms per supplier or per invoice. How can you track if they are being adhered to? What is the percentage of payments made early, on time or late compared to the agreed payment term? What is the potential gain if I pay early, change or consolidate my payment term? What is the risk paying my suppliers late? UK and EU legislation now says that suppliers can charge at least 8% annually on late payments. If late payments amount to $10 million, that’s a potential risk of $800,000. An opportunity analysis will show you how to answer these questions.
- Investigate supplier tail end spend: You know who you tend to spend with most. Maverick spend can easily spiral out of control. For example, you spend $5 million per year in facilities management. There are 350 suppliers under this category. The top five suppliers you spend with only count for $1 million. This means that 345 supplier share 80% of the facilities management spend. An opportunity analysis will show you how to look at your tail end spend by category and help you identify where tail end spend targets are not being met.
- Identify low value invoices: Low value, high invoice volume is a global issue. The average cost of raising an invoice is estimated at $93. If you are raising 10,000 invoices that cost $93 or less, that is $930,000 in administration costs being unnecessarily incurred. An opportunity analysis will show you how to identify and investigate these low value invoices that may benefit from a spot purchase or purchase card program.
- Discover the value of categorization: Suppliers are generally multifaceted. For example, 85% of one supplier’s spend is categorized but 15% has not been allocated to a category. That is 15% supplier visibility lost. An opportunity analysis looks at some of your suppliers, identifies where they have not been categorized, and shows the effects of not having full visibility of what you are spending on as well as with whom. Furthermore, Rosslyn Analytics’ self-service cloud analytics platform allows you to immediately re-categorize data if something is wrong.
- Determine cost of poor data: Teams regularly create monthly and quarterly reports, but if payment dates or due dates are not correctly inserted then reports could be wrong. On average, per client, payment dates written as “01/01/1900” is approximately 2%. That is 2% of the spend that doesn’t have a true payment date and may not be included in reports. Invoice descriptions are used to categorize data. However, if the invoice description is just a series of numbers, what was the actual item bought?
The value of your data is great. It’s even greater when looked at from different views. Applied creatively, you and your colleagues can generate more commercial value than initially accepted.
Paul Cook, a former chief procurement officer, is head of global sales at Rosslyn Analytics, where helps organizations perform better and faster by advising procurement leaders on the adoption and use of cutting-edge data technologies.