Recent studies show that the ability to produce hard cost savings that impact the bottom line is now the primary focus of many procurement departments. Unfortunately, most manufacturers don’t know how much they spend, on which products, and with which suppliers. The lack of good data makes true strategic sourcing a statistical impossibility and the identification of hidden cost opportunities is virtually out of the question. Inadequate spend analysis costs companies $260 billion in missed savings overall.
Measuring and assessing supplier performance trends with business analytics, then composing a true image of supplier relationships, is crucial to the success of any spend management strategy. The vendors and suppliers you work with can make or break your spending strategy and procurement officers can create significant savings by using the suppliers that serve them best and eliminating those that hurt their bottom line. For instance, it may actually be more cost effective to consolidate multiple orders under one vendor to receive a bulk discount, than use 3-4 vendors to manage smaller orders. Yet keeping score on suppliers by analyzing and managing their performance, so you can uncover those insights, is elusive unless those who use the business analytics software look past simple cost cutting metrics and focus on mastery of overall supplier performance analysis.
Who in purchasing has not felt the pain of trying to weigh tradeoffs between product price and other critical supplier performance factors such as delivery or quality? Very often the purchasing pro’s job is to obtain the lowest possible prices for materials and parts at all costs; it’s how their performance (and job necessity) is typically measured. But there’s a lot of grief to pay when a production line goes down because a supplier’s parts are either late or don’t make the quality cut, all in the name of saving a dollar here and there. While cutting costs is important, manufacturers and suppliers have to also look at the end game and figure out how much cutting a corner here will cost them down the road.
To help determine which suppliers are strategic AND cost-effective, purchasing professionals need the right business analytics tools so they can focus more of their time on strategic, value-added planning activities. They need to be able to answer key questions related to both direct and “hidden” supplier performance measurements:
- Which vendors have the highest / lowest returns and fill rates?
- Which suppliers deliver early / late / on time?
- Which suppliers have contributed to unneeded stock outs / inventory increases?
- Who is our top supplier in terms of contract value?
- What is our top category of spending? Is this category trending up or down?
- How often do our suppliers deliver goods at pre-negotiated rates?
- Which areas of supply base spending can be consolidated / reduced?
With insight from analytics, purchasing professionals can develop stronger relationships with both internal business units and external suppliers, making the most of each relationship.
Categorized in: Intelligent Analytics
This post was written by Pat Hennel