5 Ways Spend Intelligence Helps You Fortify Against Economic Uncertainty
TABLE OF CONTENTS Introduction
Why turn to spend intelligence?
5 applications for spend intelligence during economic uncertainty and disruptions
#1: Identify areas of maverick, non-compliant spend
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#2: Conduct internal benchmarking using spend category history
#3: Determine areas for supplier spend consolidation
#4: Identify areas where demand management may help
#5: Make progress towards ESG goals despite challenges
The right spend intelligence solution delivers quickly – and other key solution criteria
Conclusion - why SpendHQ?
Contact information
INTRODUCTION
As in life, Procurement knows that the best-laid plans are subject to unexpected disruptions and you need to be ready to adjust. Those who gain the advantage are those who can put to use competitively superior insights with speed and ease to optimize their decision making.
In just the past few years, macro and global conditions outside of anyone’s direct control or influence have created significant challenges for Procurement and supply chains: The global COVID-19 pandemic’s effect on supply lines and workforce availability; geopolitical upheavals including the Russian war in Ukraine; the blocked Suez Canal shipping lane in early 2021; major weather and climate events; and the economic stresses of inflationary pricing in many global regions paired with recession fears.
In all of these and other times of supply chain and economic uncertainty, organizations often shift into protective mode – looking inward and reworking priorities as top-line revenue forecasts are downgraded. It’s common that the business will turn to Finance and Procurement for solutions to reduce bottom-line costs and supplier risk.
But here’s the conundrum: It’s hard to meet those urgent goals using the same approaches and without having the right, new insights to point you towards previously untapped value. It can also be hard to innovate and transform your approaches when the pressure is on. Time is of the essence, yet results are required. How does your team deliver under these stressful circumstances?
A big opportunity exists to put to work the data you already have to reveal and take action on highvalue opportunities, and this can be done with surprising speed and ease. This paper illustrates specific real-world case examples of how other companies leverage their own existing spend and supplier history data as Spend Intelligence – to ensure resiliency and deliver strong performance amidst an acute crisis or unforeseeable trend. The paper will also recommend criteria for the optimal Spend Intelligence solution foundation needed to enable such outcomes.
WHY TURN TO SPEND INTELLIGENCE?
Procurement is constantly being challenged to find ways to cut costs, that’s just par for the course. Plus there are new measures of non-financial performance, such as corporate commitments in the areas of ESG (environmental, social, and governance) and supplier diversity. But in the circumstances described previously, the procurement rules usually get stricter, goals more aggressive, oversight more intense, and “purse strings” tighten, all with a north star to keep costs down.
The traditional mindset has been that the best path to survival is to focus much time and energy on enacting new temporary purchasing rules or constraints at a transactional, operational level. For example, an organization may mandate a 20% cost reduction across the board. But is that indeed the best – or only mindset to enact?
Instead, many Procurement and Finance leaders are looking for collaborative, agile solutions that help them maintain a driving position that balances top line with bottom line targets – both short-term and long-term. The decision support needed to accomplish this comes from having comprehensive, accurate Spend Intelligence and a way to quickly take action on what’s best for the business.
It’s crucial to get transparency and alignment on a complete, accurate, undisputed understanding of your own spend history. Once you have that in place, and refreshed with regularity, it opens up a wealth of possibilities:
It’s faster and easier to identify opportunities you may not have seen before, such aggregation of maverick spend for consolidation or region-specific outliers
You can use this knowledge to empower your supplier negotiations
You are better positioned to conduct internal and market-based benchmarking
These detailed insights help guide realistic goal-setting and priorities with Finance and spend stakeholders, including in the areas of ESG
You can more readily identify trends, anomalies, risks, and more across many dimensions
We’ll cover five specific examples (in no particular order) of how Spend Intelligence has been strategically leveraged to help businesses find resiliency and advantage amidst disruptive or unstable conditions. These use cases are all areas where SpendHQ’s SaaS Spend Intelligence solution has helped our customers over the past 15 years weather a variety of market conditions, and they are offered here as ideas for you to explore in your organization as you seek to proactively drive effective procurement performance.
At SpendHQ, we find that less than half of a company’s spend is often considered compliant. This can lead to spend leakage and overlapping, redundant contracts. The right Spend Intelligence solution can be used to quickly surface and understand the best rogue spend targets to aggregate and move under Procurement’s management, move to preferred supplier(s), and perhaps even through a strategic sourcing process.
Yet, compliance isn’t just about governance oversight and forcing supplier decisions on the business that don’t make sense just to save some money. It helps to create standardization so that strategic sourcing, volume-leveraged negotiations, and adequate spend forecasting can take place. With improved compliance, you get clearly defined roles, clear responsibilities between procurement and organizational stakeholders, enhanced transparency, and better accountability around cost-to-value expectations.
Using SpendHQ’s Spend Intelligence solution (or a comparable offering)...
You get data from all your suppliers across the organization pulled into one normalized and classified view by each spend category. It’s important that this is presented in the context of how Procurement needs to see the data, which makes it easier to identify rogue spend and find opportunities to drive savings or greater value.
Having such a lens to this information makes it easier to have conversations with all the stakeholders making these decentralized purchases. You can clearly show the redundancy and better estimate the business benefits of consolidating much of it.
Situation:
A company recently invested in comprehensive sourcing programs to rationalize its supply base and drive EBITDA improvements.
Problem: The expected savings were not materializing to the bottom line.
Solution: Spend intelligence was able to identify more than 35% in savings leakage from non-compliant suppliers. Using SpendHQ’s compliance module, the Company was able to isolate specific locations still buying from nonpreferred suppliers, show the cost of that non-compliance, and use this information to change behaviors.
CUSTOMER EXAMPLE: SUPPLYING GOOD SPEND GOVERNANCE 35% IN SAVINGS LEAKAGE “ ”
#1: IDENTIFY AREAS OF NON-COMPLIANT, MAVERICK SPEND
By taking a multi-year view of your spending and supplier history in a given category, you are able to benchmark yourself across time and drill-down into the details behind the aggregate-level report. This can help you identify if you are overpaying in certain areas as you look at the data via different filters and comparisons.
Specific strategic questions you can more easily answer include:
Are prices within a category higher in certain locations or from different suppliers? If so, what is the driver?
What is the detail behind variability in similar categories, if any?
What was our pricing and/or service level prior to the current economic or supply chain disruption? Were costs already trending higher for other reasons?
What would be a realistic target based on past outcomes?
With those Spend Intelligence insights quickly generated from such comparative internal benchmarking, you and the team are in a better position to set priorities and reasonable goals, given the new constraints being applied during this time of heightened pressure.
Situation: A large enterprise was seeking ways to understand and better manage facilities maintenance spend. Problem: They did not have good insight into
and how that compared to external industry benchmarks
for similar facilities. Solution: Using
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their facilities maintenance costs
foot varied
$2.50
used that benchmark
CUSTOMER EXAMPLE: BENCHMARKING WITH GRANULARITY THEY USED THAT BENCHMARK TO HELP RENEGOTIATE MORE FAVORABLE CONTRACTS. “ ” #2: CONDUCT INTERNAL BENCHMARKING USING SPEND CATEGORY HISTORY
their own benchmarking
of $2.00 per square foot
SpendHQ,
found
per square
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to $3.50 per square foot across locations. They
to help renegotiate more favorable contracts.
A long-known benefit of spend analysis is to use the data to clearly present to stakeholders areas of the business that may benefit from leveraged, consolidated purchasing for same or similar goods or services. However, doing this only annually (or even less frequently) isn’t the same as having a responsive, agile solution and process to activate when changes in market or economic conditions occur. The idea is to become more nimble and adaptable, but with the right information at hand. Because spend decisions and purchases are made year-round in organizations, and certainly not all of that is under Procurement’s management and oversight, there is always the likelihood for new redundancy or inefficiencies to be created at any time – even shortly after you’ve conducted a broad spend analysis effort to help consolidate overlap.
With a solution for ongoing, refreshed Spend Intelligence, your spend and supplier data gets routinely aggregated, normalized, and classified. You can turn to it whenever needed to discover and evaluate the potential value of those opportunities as new needs arise.
Common areas of low-hanging fruit are categories where Procurement has historically had the least amount of oversight:
Facilities management and real estate expenditures Marketing and professional services
Human resources IT services and products
With a comprehensive, accurate view of that disparate spend, these under-tapped areas can more easily come under the purview of Procurement with stakeholder needs assessment and alignment, to help drive additional cost optimizations and/or favorable value-generating outcomes.
Situation:
Solution: SpendHQ provided the needed visibility into the costs for the different tech tools. In the short-term, the customer was able to renegotiate costs down with key providers based on total spending across all of their departments. In the longer-term, the Company was able to identify multiple different technology solutions that were solving the same business problems and rationalize their spending down to a single solution
A company long allowed various departments to source their own technology tools. Problem: Procurement had no transparency to most technology purchasing, and total costs were unknown.
CUSTOMER EXAMPLE: CONNECTING DECENTRALIZED IT SPEND
THE CUSTOMER WAS ABLE TO RENEGOTIATE COSTS DOWN “ ” #3: DETERMINE AREAS FOR SUPPLIER AND SPEND CONSOLIDATION
#4: IDENTIFY AREAS WHERE DEMAND MANAGEMENT MAY HELP
Demand management is another cost-saving method to consider when dealing with supply interruptions, uncertain economic conditions, or even downturns. There are many levers available with demand management that can help optimize costs, streamline sourcing projects, and negotiate more favorable contract terms:
Consolidate or rationalize the number of SKUs – such as reducing the variety of corrugated box sizes
Substitute a closely similar item at a reduced cost
Temporarily reduce the need or frequency for certain goods and services, especially those that are non-essential for product or service delivery and support
Postpone certain purchases until conditions are more favorable
It’s always considered a best practice to evaluate demand management options, particularly in more stressed economic times. Spend Intelligence is significantly helpful to you with this discovery mission to find these opportunities. Further, it gives you the data support you need as you bring recommendations to the organization to make it easier for you to provide transparency and illustrate the expected gains of applying demand management to those identified spend areas. This all helps bring the teams together for buy-in and a shared mission.
CUSTOMER EXAMPLE: GOOD INSIGHTS DON’T GO TO WASTE
Situation: A company has a preferred waste management supplier that provides its sites with either an opentop or front-loading dumpster. Across all of its locations, site managers were free to select the type of dumpster, as long as they used this preferred supplier.
Problem: Cost overruns across the entire business forced the CFO to ask Procurement to find additional ways to save costs in facilities spend.
Solution: SpendHQ was able to drill into this category and reveal that on a per-ton basis, open-top dumpsters cost 4X more than a front-loading dumpster. The company evaluated the type and size of the waste being disposed of at each site and was able to convert 85% of their open-top locations to frontloading dumpsters.
NEGOTIATE TO REMOVE INCENTIVIZED CONTINGENCIES
Suppliers often try to anticipate demand, so they incentivize larger-volume purchases or other terms to keep their demand high. During a downtown, volume incentives and other terms based on purchasing estimates may not be achievable. Teams should try to negotiate for the removal of these contingencies during these conditions, to help reduce the risk of unnecessary costs as the forecast changes.
ADDED SUPPLIER ALTERNATIVES FOR DIVERSITY
CUSTOMER EXAMPLE: THE ROAD TO DIVERSIFICATION
Situation: A multinational company experienced shipment delivery delays in a key region
Problem:
Rising fuel prices and workforce issues were causing increased rates and delays in delivery commitments. Certain shippers were not able to meet service agreements.
Solution: The company identified which specific locations were experiencing the most impacts to logistics costs and service levels, and then used SpendHQ to verify how well those locations benchmarked in logistics provider diversity. This helped them see where they needed to add in more supplier alternatives to enhance coverage with alternatives and introduce more competition to the contracting process.
THE RIGHT SPEND INTELLIGENCE SOLUTION DELIVERS QUICKLY
Of course, successful Spend Intelligence is 100% reliant on quality, comprehensive data and application of the right analytics. The two biggest obstacles to this are:
1.
2.
Getting your decentralized and “dirty” data in order and regularly refreshed specifically for Procurement’s needs
Making that data easily actionable whenever that’s needed, so that insights turn into actual initiatives that are tracked and measured as market conditions change
Internal resourcing constraints can be a hindrance to overcoming those obstacles, which is why turning to a market-proven Spend Intelligence solution like SpendHQ may make the most sense. Such solutions can get up and running and deliver value significantly faster – and more economically in the long run – than relying on internal efforts or trying to make “lesser” tools work. Evaluating available solutions should include a review of the data intake and readiness process, and how quickly the team can expect to put their information to use.
Internal alignment also is key to success during disrupted times. Decisions can be higher-stakes, so having the right level of transparency and trust are necessary to have the most productive
conversations so that proposals can advance to results. Your Spend Intelligence should make it convenient and easy for anyone to find trust in the supporting data.
And finally, all new projects and actions should be proactively managed and correctly measured. Connecting your Spend Intelligence to Procurement’s performance, especially during periods of shifted focus and priorities, is just simply a best practice and one that Finance will rely upon to be accurate and auditable.
CONCLUSION
As recent experiences have shown us, Procurement and Finance can be confronted with unexpected circumstances or trends that shift farther than expected. Those who react smarter and faster are in a better position. Having the optimal insights to support decisions and revised goals requires an always-on Spend Intelligence platform that provides a comprehensive, accurate picture and the ability to act on what you see.
The clock is ticking, and you have all the data – you just need a better way to make it work for you to tap into new opportunities that yield more impact. The good news? It doesn’t need to involve some lengthy, resource-draining “transformation initiative.”
SpendHQ is the leading best-in-breed Spend Intelligence solution that embeds an AI-driven, best practices data optimization process combined with our industry-leading SaaS application that helps you easily access and act on insights. Our capabilities are built on decades of sourcing practitioner expertise, more than $6 trillion in spend classified across 350+ customers, and a deep understanding of spend categorization.
With SpendHQ, you gain:
“Procurement-ready” unified hub for spend insights and reporting
Rapid benchmarking and opportunity identification
Increased contracted spend compliance by an average of 3X
Improved spend under management to typically 87% versus average of 58%
Higher team productivity and heightened level of preparedness
Integration with procurement performance management
Contact us to get a demo of some of the use case examples highlighted here and how we can help you deliver on your financial and performance measurement goals. Request a Demo
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