The majority of CPOs works to reduce procurement costs as this is what the decision-makers demand.
However, before you start cutting costs across categories, it is imperative that you perform spend analysis to figure out where the organisation is spending money and which areas you should be cutting costs so that it does not affect productivity and customer service.
In case you are wondering why spend analysis should be the focal point of the procurement process, here are some compelling reasons.
Understand your suppliers
Spend analysis allows you to glean vital information related to your suppliers.
You can find out how much you are spending and how suppliers are able to help the organisation meet its goals.
You also understand the risks associated with each supplier.
This information allows you to manage supplier relationships and different categories efficiently.
Make the procurement process more efficient
Analysing how the organisation spends money on procurement and categories allows you to find the loopholes and close them.
As a result, you can improve the procurement process.
You can find the areas that require improvement and work on them to ensure that the organisation enjoys a better return on investment.
Mitigate risks in the supply chains
When procurement establishes a long working relationship with a supplier, it is easy to overlook supplier relationship management.
This can be risky for the organisation as both supplier and procurement can get complacent.
Spend analysis requires you to analyse suppliers and supply chain risks so that you can take remedial measures and ensure that you do not have to contend with the loss of productivity because of the risks.
Spend analysis can help you understand the different procurement activities and the expenses associated with them.
As a result, you will be able to reduce costs.
On the whole, spend analysis works to make procurement functions more cost-effective and leaner while also working to improve them.