Nail Your Procurement Budget With A 7-Step Spend Analysis: Part 3
April 14, 2017
Conducting a supplier spend analysis is the most comprehensive, organized approach to understanding weaknesses in your procurement plan. With your finalized data in hand, you’ll be able to develop a strategy for cutting back on metal manufacturing costs.
Parts one and two of this blog series explained the first four steps to conducting a spend analysis. You should identify sources of spend data, gather and consolidate data, cleanse data and group your suppliers. After that, you’re ready for the following steps:
5. Categorize Your Spending
You must determine where your money is being spent. In step four, you grouped suppliers together. Now you have to align suppliers and the business you give them.
It’s usually not a good idea to give all of your business to one supplier. After all, what would happen if it went bankrupt? But you do want to narrow your supplier base down.
A supplier that handles millions of dollars in business for you is going to pay attention when you have a request. You have more influence over this supplier versus one that handles a few thousand dollars of business.
This helps you negotiate better deals and improve your savings. You also give your metal manufacturers stability because they can count on your business. Of course, they have to work with the ebbs and flows of your business cycle, but they’re rewarded with earned business.
Suppliers and OEMs that work together in such a way have much better relationships. OEMs understand that they’re not just paying for a purchase order – they receive additional benefits.
For example, your OEM supplier may send experts to your facility to walk your production line and help you determine how to make your products more manufacturable. This service usually doesn’t cost anything; it’s an added benefit of a strong relationship.
6. Analyze Your Data
All throughout the spend analysis process, it’s important to look at the data. By this stage, you should already have a good idea of which suppliers are handling most of your business and where your spending is going.
You should also have considered how to consolidate suppliers. By step six, all you have to do is finalize your findings. You can use the data from your spend analysis to make strategic recommendations on vendor consolidation that will ultimately save your business money.
7. Repeat As Needed
After you’ve completed your first spend analysis, you should continually update your data. Make sure your contract terms are being honored, your procurement team is purchasing from the right suppliers and you’re pursuing all avenues of cost savings.
You don’t have to go through the entire exercise on a semi-annual or even annual basis, but you should keep a thumb on the data. The goal is to maintain a system that manages itself and to monitor the system so you can continuously analyze spending.
Not only does vendor consolidation allow you to leverage your spending to negotiate better deals, but you also reduce waste. For example, you can minimize the amount of scrap raw material when a single supplier manufactures multiple parts.
Your supplier uses algorithms to determine how to organize the parts in such a way that it uses the most raw material. Known as nesting, this process is more efficient when a supplier has multiple shapes to cut. If a supplier is manufacturing just one part and cutting just one shape, more material is wasted.
You’re also able to pool logistics when you give most of your business to fewer suppliers. Many OEMs are focused on improving logistics spending. Vendor consolidation enables you to package and ship your products more efficiently, cutting back on logistics costs.
A spend analysis is an effective tool to take back control of your procurement budget. With data to back up your decisions, your procurement team is empowered to make strategic change within your organization.
The insights you gain will drive your purchasing strategy and help you cut out unnecessary spending. In the right circumstances, the end result of your efforts will be greater cost savings, higher profitability and healthy business growth.
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