Using Current State Spend Data Analysis to Forecast Year-End Results
For most procurement organizations, it’s time for CPOs and category managers to report and finalize their strategic plans for the year. Part of that process is forecasting results, which can single-handedly make this one of the most stressful times of the year.
But there’s no need to worry this time, because SpendHQ has your back. In this guide, you’ll learn to use a spend data analysis to forecast ambitious results you’ll feel confident about.
Step 1: Break up with spend invisibility
Let’s face it, your company spends a lot of money. But spend data is so fragmented in most organizations that Procurement usually has visibility into a maximum of 40-60% of it! That leaves large swaths of purchasing difficult to identify, negotiate, and help bring under management.
So the first step to planning and forecasting a successful year is breaking up with spend invisibility. Move to a solution that lets you see your entire spend profile with the following critical factors:
- Accurate categorization organizing approximately 97% or more of your spend
- Ready-made intel into the most important aspects of your data
- A spend taxonomy designed for a sourcing and procurement perspective
To achieve all three, SpendHQ has honed a best practices approach rooted in a 20-year history in categorizing and consolidating spend. During this time, we have served 500+ global customers across $1 trillion in spend annually, providing Procurement with the easiest access to strategic spend insights. With it, teams finally have the oversight they need to take the next step: finding opportunities for action.
Step 2: Conduct a spend analysis to evaluate your data
The first step in strategy creation is always to survey the current state of affairs. Much like a SWOT analysis, the spend analysis process involves looking for:
- Strengths – What’s going well from an organizational standpoint?
- Weaknesses – What isn’t going well?
- Opportunities – What areas of your spend cube can you affect?
- Threats – Are there any glaring issues that could become serious problems for the business?
- Supply chain risks
- Severe savings leakages
- Individual supplier risks
Once you’ve taken inventory of these factors, you’ll have a strong sense of where the business stands and what you can do to drive improvements. Of course, not every weakness or opportunity you see is something Procurement can impact, but in general, you’ll find opportunities in three categories.
SpendHQ has helped identify more opportunities for us. In 2022, we completed 110 projects, and in 2023, we were on track to complete 144 and anticipate continued growth year over year.
Cost savings and cost avoidances
Finding cost savings opportunities is one of the primary benefits of a spend data analysis. With a top-down view of spend, pre-made procurement dashboards, and drill-down capabilities you’ll come face to face with countless issues that you can fix, including:
- Supplier and contract redundancies
- Inflated or inconsistent pricing
- Non-compliance (also known as maverick spend)
Another strategy you can use, though somewhat less predictable, is looking for cost avoidances. A cost avoidance is an expense Procurement keeps from occurring. They’re not always easy to predict, but they can have a significant positive impact on the business.
If you can use your spend analytics tool to find these opportunities and then a procurement performance management solution to track their impact, you’ll have some nice bonuses to brag to Finance about at the end of the year.
Contracts are one of your most powerful tools for managing procurement spend and securing cost savings. A spend data analysis reveals these opportunities in three ways:
Identifying surging supplier spend: Spend Intelligence has ready-made dashboards that spotlight supplier spend increases at the organization, category, subcategory, and custom tier levels. With this data, you can easily identify suppliers that are growing more important to your business, a common sign of a beneficial contract opportunity.
Locating spend categories where you have no contracts or preferred supplier(s): Categories and subcategories without preferred or contracted suppliers are the ones most likely to have inflated spending. Drilling down into categories and subcategories in Spend Intelligence allows you to make a list of these areas in a matter of minutes, quickly giving you a set of deliverables with impacts that are easy to forecast.
Rooting our maverick spend: Non-compliance undermines contracts, hurts your organization’s supplier relationships, and creates savings leakages. Spend Intelligence highlights rogue spend across multiple dimensions so you can search for it by spend category and even identify the business units and purchasing managers responsible.
The three main issues you can run into with suppliers—supplier fragmentation, gaps, and single-sourced spend—can be major roadblocks to procurement performance. But they’re also major improvement opportunities, and not just in the realm of financial performance.
Supplier fragmentation increases costs by having too many vendors with their own pricing structures in a subcategory. It can also hurt supplier relationships and create general inefficiencies that work against the business.
Supply chain gaps and single-sourced spend are areas where there aren’t enough vendors in a category. While this isn’t usually a savings issue, it’s a catastrophe waiting to happen. Supply shortages can bring a business to a halt in a matter of hours. If you find these instances when you conduct a spend data analysis, fixing them should be priority number one.
There’s no reliable way to find supplier issues without conducting a spend data analysis. But when you have a tool like Spend Intelligence that highlights them for you, you can easily locate risk mitigation opportunities you can undertake this year.
Step 3: Use your new-found opportunities to make a plan
Now it’s time to use your inventory of opportunities to set your strategic plan for the year. You’ve probably seen a lot that needs work, but keep the following realities in mind:
- Your procurement maturity will determine what’s possible:
- There’s a limit to what you can achieve in a year or less
- Some projects are more pressing than others
- Good procurement projects rely on stakeholders
With these facts in mind, commit to a selection of projects you know you can push across the finish line. Then forecast their impact by taking the financial impact of each project and adding them all together. You can proactively manage those projects and goal forecasts in a Procurement Performance Management solution, where you can track project progress, identify those at risk of achieving goals, and to clearly document the final results (savings, ESG progress, etc.).
Step 4: Stay agile
Your spend cube evolves so quickly that quarterly refreshes will leave you with stale data. In today’s procurement landscape, you need nearly real time visibility to stay effective. That means you need to refresh your data at least monthly, if not more often.
However, fresh data lets you monitor trends as they develop. No more finding out after something bad has happened.
Secondly, monthly refreshes maintain the value of your spend analytics software. There will rarely be a situation where you can’t analyze spend data because you’re waiting for your provider to update it.
Finally, monthly refreshes allow you to pivot as developments emerge. Because your spend data is constantly evolving, you don’t want to wait three or more months for each update on emerging situations. That would be like tracking the weather every few months and expecting to bring an umbrella on the right days. If you can’t monitor situations as they develop, you’re practically guaranteed to miss your targets.
Forecasting what you’ll contribute by the end of the year will always be a daunting task. But with the right tools and a systematic approach, you can easily compile a list of opportunities and their impact on the business.
If you’re ready to see how easily you can acquire the visibility and intel needed to follow the steps we laid out here, click the button below to schedule a demo with us today. We’ll show you what a strong data foundation looks like and everything you can do with it in the palm of your hand.