The headlines each week communicate the degree of worry about inflationary pricing and economic uncertainty expected in 2023. On November 27, 2022, the Wall Street Journal published “The C-Suite Survival Guide to Inflation and Economic Turbulence,” and the Financial Times one day later reported that “UK Retailers Face Little Festive Cheer as Outlook Darkens” while Bloomberg said that “Silicon Valley is in a slump.” COVID lockdown protests in China are even showing impacts to global stock markets.
Finance and Procurement are no doubt making plans that aim to identify cost reduction opportunities, gain more control in supplier negotiations amidst inflationary pricing and supply chain constraints, and reduce overall risk to the business. An organization may traditionally have just mandated a 20% cost reduction across the board, but is that the best or only mindset to enact?
Instead, Finance and Procurement leaders are looking to be more precise and impactful in their targeting without introducing new unintended risks – to help them maintain a driving position that balances top line with bottom line targets. It’s the perfect use for Spend Intelligence.
A new guide just published for Procurement reviews five specific ways that Spend Intelligence can identify solutions. Although there are certainly more than five ways Spend Intelligence can help, these use cases are a great starting point for your planning:
#1: Quickly identify areas of non-compliant, maverick spend.
At SpendHQ, we find that less than half of a company’s spend is often considered compliant. This can lead to spend leakage and 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 put through a strategic sourcing process.
As a SpendHQ customer example we cite, our Spend Intelligence was able to help them identify more than 35% in savings leakage from non-compliant suppliers. The customer was able to isolate specific locations still buying from nonpreferred suppliers, show the cost of the non-compliance, and use this information to change behaviors.
#2: Use internal benchmarking to highlight areas of excessive costs or outliers.
When you can capture a multi-year view of your spending and supplier history in a category, you can benchmark yourself across time and even drill-down into the details. This helps you identify if you are overpaying in certain areas as you look at the data via different filters and comparisons. Such benchmarking can help you answer questions including:
- Are prices within a category higher in certain locations or from different suppliers? What is the driver?
- 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?
#3: Stay aware of new and evolving targets to consolidate spend and/or suppliers.
With the uncertainty of 2023 looming, a flexible Spend Intelligence solution should give you refreshed information at least quarterly on what’s been happening with spend and suppliers as the year unfolds and circumstances change. Those changes can drive less-than-ideal spending practices across stakeholders that need to be revisited. With better transparency, Procurement can be a better proactive partner across areas of the business to collaborate towards better outcomes.
#4: Identify areas where demand management can help.
It’s always considered a best practice to evaluate demand management options, particularly in more stressed economic times. There are many levers available that can help optimize costs, streamline sourcing projects, and negotiate more favorable contract terms. 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 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.
Specific insights that can be revealed here include:
- Where you might rationalize the number of SKUs (such as reducing the variety of corrugated box sizes)
- Target(s) to substitute a closely similar item at a reduced cost
- Non-essential spend where the need or frequency of purchase can be reduced temporarily
#5: Identify paths to ESG progress, even with macro-economic challenges.
It’s a fallacy that efforts to make progress towards environmental, social, and governance (ESG) goals must be set aside when economic conditions significantly tighten. Commitments to reducing the company’s carbon footprint, increasing supplier diversity, and building more sustainability into the supply chain are important strategic targets – and have the attention of consumers. This is an area where Procurement can use data to recommend the best course.
Procurement can benchmark status and then make sure more spend categories are embedding ESG goals into the sourcing process, even during contract re-negotiations or spot buys that occur in the presence of immediate market disruptions.
Prepare Your Team Now: Get the Helpful Guide
Now is the time to get your teams ready: Those who have the best Spend Intelligence so they can react smarter and faster are in a better position as economic conditions get more… stressful. 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 the best possible opportunities for your business.