Gaps in Procurement Strategy Start With Spend Analysis
As organizations build and refine their procurement strategy, data collected in spend analysis is the fuel that drives cost optimization, streamlined operations, and enhanced efficiency. However, beneath the surface of seemingly straightforward spend analysis lies a myriad of unexpected gaps and blind spots that could potentially hinder a company’s efforts to achieve strategic procurement goals. In this article, I’ll share some insights from my prior experience as a Head of Procurement around the complexities of spend analysis, exploring the challenges teams could encounter.
Gaps in Data Collection and Cleansing
One of the initial challenges in spend analysis arises during the data collection and cleansing phase. Companies may discover unexpected gaps in their data, ranging from inconsistent naming conventions to incomplete records. These gaps have the potential to compromise the accuracy and reliability of the analysis, leading to flawed insights and strategic decisions. For example, duplicative, truncated, or missing data can exist in reports from internal systems.
Classification and Categorization Challenges
The classification and categorization of expenditures often reveal unforeseen complexities. Procurement and finance teams may encounter challenges in distinguishing between direct and indirect costs or in aligning expenditures with relevant categories. Additionally, spending may be spread between expenses and purchase order systems or be misclassified by automation. Such challenges can obscure the true nature of spending patterns and can lead to incorrect assumptions being used in the formulation of the procurement strategy.
Incomplete Supplier Performance Evaluation
Supplier performance evaluation is a critical aspect of spend analysis, but unexpected gaps may emerge when assessing factors such as delivery reliability, quality, and overall value. Inaccurate information in supplier evaluations can lead to suboptimal decisions and missed opportunities for collaboration. Examples include issues with supplier achievement of contractual SLAs/KPIs, license utilization vs costs, or unresolved escalations that could impact invoice actuals.
Unforeseen Risks in the Supply Chain Affect Procurement Strategy
Risks associated with the supply chain (such as geopolitical factors, regulatory compliance, mergers and acquisitions, market fluctuations, and unexpected disruptions) can be challenging to predict. Companies may encounter blind spots when it comes to assessing and mitigating these risks. Effective risk management may require leveraging external insights to uncover hidden threats and develop robust strategies.
Strategic Decision-Making Complexity
While the goal of spend analysis is to inform decision-making based on the procurement strategy, companies may find unexpected complexities in translating insights into actionable strategies. Errors in decision-making can arise from a lack of clarity on how to implement changes effectively. Translating analysis results into practical and impactful decisions.
Gaining Executive Support for Your Procurement Strategy
For CPOs and executive leadership teams, gaining support for spend management initiatives is crucial. Lack of accurate, current, and well managed spend data may hinder the communication of the value of spend analysis to key stakeholders. Demonstrating the tangible benefits of effective spend analysis and management requires insights to craft a compelling narrative.
The journey of spend analysis is riddled with unexpected challenges, gaps and blind spots that can hinder an organization’s ability to optimize procurement processes fully. Exploring various avenues for addressing these complexities, including internal and external perspectives, can unlock the full potential of spend analysis for sustainable business success. At Velocity Procurement, our Spend Management practice works with our clients to identify and resolve gaps in procurement strategy, making direct impacts on the year-end results. Contact us today to learn more!
Rachel Henney has over 20 years of experience in business, technology, and procurement transformation. She has led and managed multiple procurement divisions, with a passion for finding opportunities to streamline processes and tools that make procurement easy for end users and fun for the procurement organization. Rachel’s belief is that focusing on business and stakeholder value realization is critical to an optimized procurement delivery model.