Procurement is much more than just a purchase function. Procurement is a process of finding, negotiating prices and terms, and acquiring goods and services from an external party i.e. a supplier. Procurement analysis entails identifying cost saving opportunities, driving profitability, ensuring the purchase strategies are in sync with the business objectives and maintaining optimum inventory levels in the organization. It analysis the suppliers pricing strategy, delivery times, maverick spending and drives an effective supplier relationship management.
Procurement analysis is essential for any organization irrespective of its size or the revenue it generates. With the expansion of business, the organizational complexity also increases, this demands for an effective procurement analysis in place to offer actionable insights and facilitate well informed decision making. Let us have a look at the
Procurement Analysis – Why Does Your Organization Need it?
Procurement professionals believe that procurement analysis is essential for every organization regardless of its size, structure and complexity. It is also essential to conduct it on regular intervals so as to make sure that the organization is investing its money in the right place. Often organizations hold excess inventory resulting in working capital being held captive. They also pay a higher price in order to procure good and services. If only the procurement function analyses its cost components and cost drives, it can drive cost savings in the organization. Performing a procurement analysis helps the organization in identifying costs, determining optimum inventory levels, managing supplier relations and understanding their pricing strategies, establishing acceptable delivery time and eliminating maverick spending.
- It helps in determining the total costs of acquiring goods and services from an external supplier which includes delivery charges, handling and warehouse costs.
- It helps the procurement professionals in defining optimum inventory levels, analyzing the costs of handling and storing the goods and evaluating their opportunity costs.
- This also enables effective supplier relationship management, understanding the supplier activities and pricing strategy, identifying the suppliers that add value to the organization and facilitates the procurement professionals in negotiating terms and conditions with the suppliers.
- Maverick spending is not good for the organizations health and profitability. Procurement analysis identifies and analyses purchase requests and invoices so as to identify the maverick spending that could have been avoided.
Benefits of an Effective Procurement Analysis
A procurement analysis provides detailed insights to the management who can further formulate strategies to drive organizational growth. Three benefits of a procurement analysis are as follows: first, it drives profitability by identifying cost saving opportunities. Secondly, continuous improvement and value addition takes place since the organization is aware of the latest developments and trends in the industry. This helps the procurement function to measure the actual performance with the standard performance and take corrective actions. Lastly, it improves the credibility of the procurement function and motivates it to identify the KPIs that drive cost savings opportunities. An effective procurement analysis guarantees the involvement of the procurement function while developing a new product strategy thereby working in tandem with the other departments in the organization.
At SpendEdge, we offer granular insights that help the organizations to identify cost saving opportunities, determine the factors that drive profitability and make well informed strategic decisions. Our wide range of supply market intelligence services and supply chain risk assessment solutions assist our clients to identify potential procurement pain points and solutions to mitigate potential risks.