The Future of Spend Analytics
The evolving nature of data and its management presents new challenges and opportunities for businesses worldwide. This blog focuses on the future advancements of spend analytics, key trends shaping its landscape, and the advantages of effective spend management. Let’s dive in.
Current Approaches in Spend Analytics
Spend analytics refers to the processes and tools used to collect, clean, enrich, analyze, and report on procurement spend data. Current approaches typically involve gathering transactional data from enterprise resource planning (ERP) systems, supplier databases, and other sources. This data is consolidated into a single repository to provide visibility into spend across the organization.
Once the data is integrated, descriptive analytics provide insights through spend classification, mapping spend to categories, and identifying top suppliers and high-spend areas. Spend cube analysis looks at spend by multiple dimensions like category, business unit, geography, and supplier to identify trends and outliers.
Data visualizations like bar charts, pie charts, and heat maps enable intuitive analysis of spend patterns. Dashboards allow procurement teams to monitor KPIs like maverick spend, savings delivered, and contract compliance. This enables them to track performance versus goals.
While current approaches focus heavily on retrospective analysis of historical spend, leading organizations are supplementing this with predictive analytics to model future spending and prescriptive analytics to recommend optimized actions.
Key Trends Shaping the Future of Spend Analytics
Several key trends are impacting the evolution of spend analytics capabilities:
Advanced Machine Learning and Artificial Intelligence Techniques
Applying machine learning to enrich spend data and uncover patterns is becoming more mainstream. Neural networks can classify complex spend data while natural language processing extracts insights from unstructured data like contracts and communications.
AI techniques like intelligent process automation can automate repetitive tasks like invoice processing and supplier master data management to improve efficiency.
Predictive and Prescriptive Analytics
Predictive analytics will forecast expected spend based on historical patterns, projected business needs, and external signals. This enables more proactive planning and decision-making.
Prescriptive analytics goes a step further by recommending optimal procurement strategies based on financial impact, risks, and constraints. This shifts spend analytics from hindsight to foresight.
The Rise of Real-Time Spend Analytics
Traditionally, insights were obtained from periodic analysis of historical spend data. Real-time analytics will enable continuous monitoring as new data is generated, supporting rapid decision-making.
Technologies like embedded analytics, streaming analytics, and automation will facilitate this shift from periodic to perpetual insights.
Consolidation of Data Sources
Rather than relying solely on ERP data, leading organizations are aggregating and reconciling external data from suppliers, customers, contracts, market indexes, and other sources. This provides a more complete view of internal and external factors impacting spend.
Strategic partnerships with suppliers will also facilitate the sharing of planning and operational data via supplier portals and networks.
Managing Tail Spend
While most spend analytics focuses on tier-1 suppliers, the long tail of low-spend suppliers often represents significant savings potential. New tail spend analytics approaches help optimize this area.
Automating purchase order approval, implementing purchasing cards, and consolidating suppliers help streamline tail spend management.
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The Advantages of Effective Spend Management
Effective spend management gives organizations greater visibility and control over their procurement spending. By consolidating and analyzing spend data, companies can identify opportunities for significant cost savings and process improvements. There are several key advantages to implementing an effective spend management program:
Cost Savings and Optimization
One of the biggest benefits of spend management is identifying opportunities to reduce costs. With detailed spend analytics, companies can pinpoint areas of overspending, negotiate better contracts with suppliers, eliminate maverick spending, and consolidate their supplier base. By optimizing procurement processes, strengthening supplier relationships, and leveraging economies of scale, organizations can achieve substantial hard dollar savings across all spending categories.
Improved Supplier Relationships
Spend analytics provides the insights needed to assess supplier performance, identify best-in-class partners, and develop strategic relationships. By gaining visibility into factors like pricing trends, service levels, and total cost of ownership, procurement teams can determine which suppliers deliver the most value. They can then consolidate spending with preferred suppliers to maximize leverage, negotiate improved terms, and work collaboratively on process improvements. Strong supplier relationships contribute to a high-performing supply chain.
Spend management strengthens supply chain resilience by identifying vulnerabilities and dependencies. Analytics can detect high-risk suppliers, categories prone to volatility, and potential continuity issues. Procurement organizations can then develop robust mitigation strategies such as expanding the supplier base, increasing stock levels of critical materials, and implementing dual sourcing. By proactively managing risks, companies avoid supply disruptions that lead to lost revenue and production downtime.
Data-Driven Decision Making
With comprehensive data-driven insights, procurement teams can shift from gut feel decision-making to an evidence-based approach. Spend analytics provides the metrics needed to inform strategic choices on make vs. buy decisions, regional vs. global sourcing models, insourcing vs. outsourcing, and supplier selection. Fact-based decisions lead to better procurement outcomes and alignment with overall corporate strategy.
Improved Strategic Sourcing
Detailed visibility into spend enables organizations to develop sourcing strategies that align with organizational goals, category requirements, and market dynamics. Analytics uncovers trends, opportunities, and risks to inform approaches for cost reduction, supply assurance, innovation, sustainability, and more. With data-driven sourcing, procurement can transition from tactical purchasing to strategic value creation.
Why You Need a Spend Analytics Expert: Choose Velocity Procurement for Your Spend Management Needs
With years of experience across billions in procurement spend, the analysts at Velocity Procurement have unmatched expertise across all categories and geographies. Our cloud-based analytics platform and suite of advisory services provide complete visibility into your data, powerful insights, and strategic roadmaps that transform your procurement functions. We tailor our approach to your unique needs and goals, equipping your procurement team with the tools and knowledge for success and enabling you to fully leverage spend data.
To learn more about Velocity Procurement’s analytics and advisory services, contact our experts today. Better spend management starts here.