To know how to save money, you need to know where it is spent. The reality for most vendor management teams is that spend analytics and contract information is often incomplete. Managing critical documents and vendor relationships is complex, with information distributed across multiple systems, making it difficult to access it easily. The information that does exist may not be classified or tagged appropriately for search purposes, and end-users may not always adhere to your organization’s purchasing policies.
Gaining visibility to the right information, in the right format, is the first step in the spend analysis process. Using that information in a comparative method, using industry and market knowledge, is referred to as Benchmark Analytics. This is the precursor to identifying procurement savings, contract optimization, and vendor management process improvement for your organization.
Spend with contracted vendors
Spend with contracted vendors is a key statistic, as every dollar spent is important, and savings opportunities can be missed through off-contract purchases. Developing contractual relationships with suppliers can result in more competitive prices and improved payment terms. Bringing spend under contract reduces the number of suppliers, cutting administration overhead and concentrating purchases with contracted vendors. This, in turn, increases buying power and helps to create a culture of compliant purchasing within the organization. Tracking this percentage over time enables you to see if spend under contract is improving profitability.
Organizing your expenses by industry category
Categorization by industry is an important part of the spend analysis process. Internal account codes can
be used for analysis, but this is dependent on the quality and completeness of coding within the document management system. Often, purchases can be categorized incorrectly, inconsistently, or be missing entirely. If you consistently allocate vendors to meaningful categories, an overview of spend, suppliers and transactions makes it possible to identify outliers. This provides the basis for further investigation.
Classify spend by business type and location
Another key piece of data to understand is what type of suppliers your organization works with, and where they are located. Again, this is data that can be hard to collate. Creating a vocabulary of terms which are commonly used among your vendor management team, and are similar to what others in your industry use can be challenging. For example, if you have a requirement to have a certain percent of your business from “green” sources, how do you determine what “green”? How close to your business does a vendor need to be, in order to be considered “local”?
Accurate, up-to-date, consistently defined data can help in dealing with calls to increase spend with these businesses. Having this data aids in demonstrating compliance with statutory or institutional policy, and policy making decisions such as implementing preferential spend initiatives. For example, you can start a debate about what is the right level of local vendors are right for your organization. There are both costs and benefits in supporting these businesses as they may not be as competitive on price as larger national suppliers, however they may offer better terms, local support, faster delivery and intangible benefits, such as contributing to the overall ethical position of your business.
Realize that your company data is probably not the same as the next guy
It is important to understand that accessing your business information is only step 1 in the process. Your vendors, and their competitors, are serving many companies just like yours, and more importantly different than yours. Believe it or not rates, terms and conditions can vary greatly from industry to industry and of course by size of business. How do you know your rates, terms, and conditions are the best they can be? Unless you have an expert on your team that is familiar with every category, every industry and every potential vendor, you won’t. This the final piece to the benchmark analytics puzzle…having the system, and the knowledge to compare those criticalities, and make sure your company is positioned to profit from gaps that are identified.
Data is a requirement for any business to survive, but the ability to analyze data and take action is critical if it is going to thrive. Using the right benchmark analytics, you can build a vendor management process, and systematically improve the overall profitability of your organization for the longer term.
About Limitless Technology
Limitless Technology, LLC has been managing complex indirect spend and vendor documentation since 2006 for some of the largest companies in the USA saving them millions in costs.
Through our Billing Optimization and Vendor Management Solutions proprietary platforms we utilize technology, processes, expertise, time, and resources to improve our client’s bottom-line.
Limitless Technology manages your vendors, so you can manage and grow your business.
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