Tracking your own data will supply the information to buy what your business actually needs, when it needs it, and at the right terms.
As I’ve discussed in the past, when it comes to capital equipment and direct spend purchases, companies, by and large, maintain significant control, keeping a close watch on inventory, pricing, and contract terms. The suppliers often have relationships with procurement managers at the corporate levels and purchasing is centralized. But when it comes to indirect spend (purchases of items that companies need for day-to-day operations but are not central to its core products and services); such control tends to diminish significantly.
What is the lack of data regarding your indirect spend costing you?
Companies with multiple locations and facilities often regard basic purchases like office supplies as simply a cost of doing business, not realizing that these indirect purchases can add up to 20 percent of a company’s annual spend. That can mean hundreds of thousands, if not millions, of dollars being spent with little to no oversight. A 2015 Accenture report noted that a company valued at one billion dollars could waste $15 million annually due to a lack of control over its indirect spend. And CSCMP’s 2016 Supply Chain Quarterly estimated that gaining that control could enable companies to realize 25 percent in annual savings.
In a business environment where every penny needs to be justified and accounted for, this situation should be unacceptable; yet companies continue to ignore the fact that the solution to this problem lies in their data. This actions necessitates digitizing the procurement process; utilizing a solution that offers transparency and full visibility into all current and historical transactions as well as supplier behavior and compliance. This type of transparency is essential since indirect spend follows the 80/20 rule, where 80 percent of your suppliers are used for that 20 percent of annual spend that is indirect. That’s a lot of suppliers and a vast amount of transactions to keep track of…and it’s extremely difficult, if not impossible, to do so in a system that is still dependent on paper and manual processes.
Collect data holistically
Digitizing the procurement process means you have the control over what data is contained in your reports. Some companies may rely on their suppliers to provide all of the details; however, suppliers, even those who are the most trusted, still have their own agenda and their own sales goals. You need to be able to independently ensure that you’re not taking on extra inventory or underestimating your needs per location. When you collect data holistically, you have a view to the data and its details, including line item, “ship to” location, dates of purchase, freight charges, and average pricing, among others.
This holistic view can help you buy smarter in a number of ways. Tracking average pricing may allow you to consolidate purchases of a specific product or category of products from one supplier rather than another. Knowing which “ship-to” location needs the most inventories will enable you to identify a supplier closer to that location for lower freight charges (this is assuming that all other variables, like pricing and terms, are consistent with competitors). Having visibility to all the data you need puts you in a much stronger negotiating position than if you were essentially “flying blind,” relying on generic purchasing amounts and prices with little to no detail.
Learn how to buy smarter by downloading our white paper, “Defeating Dark Purchasing,” and gain control over your company’s indirect spend.