Spend analysis software plays a key role in every e-Procurement solution. In the digital age, most procurement managers know that performing a thorough, automated spend analysis can lead to a fortune in cost savings. However, you can also use spend analysis solutions to achieve a lesser-known benefit: supplier compliance. Below we will explore this hidden benefit of spend analysis software, and how it can provide your enterprise with yet another round of savings.
What is Spend Analysis?
There are at least five key steps that make up a complete spend analysis:
- Collecting spend data
- Removing duplicates
- Normalizing supplier names
- Classifying and categorizing suppliers
- Analyzing the data
In order to perform each of these steps without a hitch, you may want to reach out to a team of experienced e-Procurement specialists. Reaping all the rewards of a complete spend analysis requires investing in a best-in-class spend management solution with all of the following features and benefits:
- Freshly updated, error-free spend data
- A cloud-based spend analysis platform
- Real-time analysis and reporting
- At-a-glance, custom views of spend data
- An intuitive, all-encompassing interface
Your spend analysis software should also have the capacity to perform an in-depth supplier marketplace survey. This survey should cover both your current suppliers and the greater supplier marketplace, which will help you achieve supplier compliance.
What is Supplier Compliance?
In short, suppliers are compliant when they are playing by the rules they agreed to. More specifically, if your suppliers are violating the conditions set out in your SLA, or are failing to meet the standards expected in your industry, then they are non-compliant. Yet some aspects of supplier non-compliance are easier to spot than others. For example, consistently delivering the wrong goods at the wrong time is a clear violation of your supplier’s SLA that is easy for you to spot. However, inaccurate or incomplete invoice data is an equally worrisome example of non-compliance that can slip through the cracks. This is where high-quality spend analysis software comes in.
How Spend Analysis Software Helps You Achieve Supplier Compliance
Getting all the data
There are a great number of violations of SLAs and industry standards that count toward supplier non-compliance. Such violations include mismatches between pricing on invoices, catalogs and purchase orders; delayed and duplicated invoices; and inaccurate tariffs and taxes, just to name a few. In most of these cases, the problem is in the data itself, not the delivery of goods. Therefore, the problem requires a data-driven solution. Spend management software bridges the gap.
Achieving a level playing field
Unless you regularly perform a thorough spend analysis that includes your supplier data, each of your suppliers will hold an advantage over you when it comes to negotiating contracts. Simply put: your suppliers will almost certainly have accurate information on the money flowing from you to them. However, after performing a complete spend analysis, you should have all of that data as well, if not more. This will help level the playing field going into further negotiations with your suppliers.
Forecasting supplier behavior
By using spend management software to monitor supplier compliance, you can begin to use past supplier behavior to forecast future supplier behavior. Patterns will begin to emerge that will help you make smart choices when it comes to canceling, renewing or renegotiating contracts. Suppliers whose compliance has been greatly improving over time will probably be worth keeping, while suppliers whose compliance has been taking a dive may be ripe for renegotiation or even replacement.
Monitoring Supplier Compliance: An Example
Suppose your company sells glass windows in large volumes for commercial buildings. After checking and re-checking the numbers generated from your company-wide ERP system, it’s clear that your company is consistently losing money somewhere in the procurement process. You suspect several of your glass suppliers are to blame. But you don’t have the data to identify which ones. Nor do you know exactly where the money is lost in the procurement process. Your ERP solution has a basic spend analysis feature, but it’s not gathering all the data. Worse, it’s not giving you the detailed, specific answers you need. After a colleague recommends that you invest in an advanced spend management solution that integrates with your ERP system, you decide to give it a try.
After purchasing state-of-the-art spend analysis software that fully integrates with your ERP suite, you perform a thorough spend analysis right away. The intuitive interface shows you exactly which suppliers are failing to comply with their SLAs and industry best practices, and exactly where the money is lost. As it turns out, the main issue is supplier invoices. Three of your glass suppliers are handling their invoices negligently. Your spend management software shows you hundreds of examples of missing, incomplete and duplicated invoices, and thousands of examples of pricing on invoices that contradicts your suppliers’ catalogs. Your spend management solution adds up the numbers, and it’s clear that supplier non-compliance is costing your company a fortune.
After presenting your data to the executive team, they give you the go-ahead to confront the three non-compliant glass suppliers with your data and rectify the situation. After presenting your suppliers with irrefutable evidence from your spend management solution, they have no choice but to compensate your company for overcharges, provide you with the missing invoice data, and fully comply with the conditions of their SLAs going forward.
Achieving Supplier Compliance Through Spend Analysis
Performing a thorough spend analysis with a best-in-class spend management solution can lead to remarkable cost savings. Every procurement manager knows this. Yet such spend analysis software can also help you in an equally important, yet lesser-known area: supplier compliance. A thorough, complete spend analysis can help you uncover supplier violations, such as incorrect and incomplete invoices, that could be impacting your profit margin. The added benefit of helping you achieve supplier compliance is yet another reason to invest in a state-of-the-art spend management solution that will watch your bottom line as carefully as you do.
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