At Accelerate, we help companies develop procurement strategies for a sustainable future. Accelerate helps global enterprises operate more efficiently and effectively, to gain a competitive advantage, boost profitability, and maximise business and shareholder value.
Sometimes, it’s good to take things back to basics, and at the core of successful procurement is a procurement spend review. This blog acts as a guide on how to conduct a procurement spend review, and discusses the benefits of doing so. However, if you would like support in conducting a spend review, Accelerate’s procurement consultants can help. Sometimes, it helps to have an objective point of view – someone outside your company who can apply some external strategic thinking to procurement and help your business achieve more than you ever realised was possible.
So, why do you need a procurement spend review?
A procurement spend review is a critical process for any organisation aiming to optimise its procurement practices, reduce costs, and enhance overall efficiency. In procurement, where every penny saved can significantly impact the bottom line, a spend review provides a detailed analysis of how an organisation spends its money and identifies opportunities for savings and improvements.
A procurement spend review, also known as a spend analysis, involves a comprehensive evaluation of an organisation’s procurement activities. The primary objective is to gain a clear understanding of spending patterns, identify inefficiencies, and uncover opportunities for cost savings. This process typically encompasses analysing historical spending data, reviewing current procurement practices, and developing strategies to enhance procurement efficiency.
Key Components of a Procurement Spend Review
1. Data Collection
The first step in a procurement spend review is gathering all relevant data. This includes purchase orders, invoices, contracts, and any other documents that detail the organisation’s spending. Ensuring data accuracy and completeness is crucial, as any gaps or errors can skew the analysis and lead to misguided conclusions.
2. Data Categorisation
Once the data is collected, it needs to be categorised into meaningful segments. This often involves grouping expenditures by categories such as suppliers, products, services, and departments. Categorising data helps in identifying spending trends and pinpointing areas where costs can be reduced or processes can be streamlined.
3. Spend Analysis
In this phase, the categorised data is analysed to identify patterns, trends, and anomalies. Key metrics such as total spend, spend by category, and spend by supplier are calculated. This analysis helps in understanding the distribution of expenditures and identifying areas with potential for cost savings. For instance, it may reveal that a significant portion of the budget is spent on a particular supplier, indicating a potential area for negotiation or consolidation.
4. Supplier Analysis
A thorough review of suppliers is an integral part of a procurement spend review. This involves evaluating the performance and reliability of current suppliers, assessing the competitiveness of their pricing, and identifying opportunities for renegotiation or alternative sourcing. Supplier analysis helps in ensuring that the organisation is getting the best value for its money and can lead to the development of stronger supplier relationships.
5. Process Evaluation
Examining the existing procurement processes is essential to identify inefficiencies and areas for improvement. This involves reviewing the procurement cycle, from requisition to payment, and identifying bottlenecks or redundant steps. Streamlining these processes can lead to significant time and cost savings.
6. Opportunity Identification
Based on the data and analysis, opportunities for cost savings and process improvements are identified. This could involve consolidating suppliers, renegotiating contracts, standardising procurement practices, or implementing new technologies. The goal is to develop actionable strategies that can be implemented to enhance procurement efficiency and reduce costs.
Benefits of a Procurement Spend Review
Conducting a procurement spend review offers numerous benefits to an organisation:
- Cost Savings: Identifying inefficiencies and opportunities for negotiation can lead to substantial cost reductions.
- Improved Supplier Management: Enhanced understanding of supplier performance and relationships can result in better terms and more reliable supply chains.
- Enhanced Procurement Processes: Streamlining and standardising procurement processes can lead to greater efficiency and reduced cycle times.
- Informed Decision Making: Access to detailed spend data enables more strategic decision-making and better alignment with organisational goals.
How a procurement consultancy can help
A procurement spend review is an invaluable tool for organisations seeking to optimise their procurement practices. By thoroughly analysing spending data, evaluating suppliers, and identifying opportunities for improvement, organisations can achieve significant cost savings and enhance overall procurement efficiency. Engaging in regular spend reviews ensures that procurement strategies remain aligned with organisational objectives and market conditions, ultimately contributing to a healthier bottom line.
If you would like some assistance conducting a procurement spend review, Accelerate can help. We are a highly experienced team of procurement consultants, practitioners and creative problem solvers who can bring new insight to help solve business challenges. Get in touch today to see how we can work together.