Procurement Analytics

What are procurement analytics?

By definition, procurement analytics refers to the process of measuring and evaluating data to improve an organization’s procurement processes.

For many, this involves ensuring the procurement function is running efficiently, cost-effectively, and strategically.

To achieve this, however, companies need to be tracking and analyzing various data points, including procurement spend, supplier performance, contract compliance, software utilization, and even procurement cycle times.

Only once an organization has access to this data can they identify opportunities to improve procurement’s performance, for instance by optimizing purchasing strategies, driving down spend, and improving supplier relationships.

‍Get a full list of the procurement metrics that the leading procurement teams are tracking.

Why you should be analyzing your procurement efforts

For many organizations, indirect procurement represents a significant amount of overall expenditure – SaaS and cloud alone account for an average of 25% of total spending.

The problem is, the way in which goods and services are procured can quickly become fragmented and inefficient, especially as organizations grow. This can subsequently lead to missed opportunities for cost savings, wasted time, and even compliance risks such as data breaches.

With this in mind, here are some of the specific reasons you should be tracking and analyzing procurement performance.

Cost savings

• Identifying areas of overspending – Not only do 90% of companies spend an average of 26% more than necessary on software, but _% of licenses also go unused or underutilized, contributing to a substantial amount of wasted spend. Procurement analysis can help to prevent this wastage, by utilizing benchmarking data to understand what other companies are paying for the same subscriptions, as well as usage metrics to help rightsize contracts during renegotiations.  
• Pinpoint cost-saving opportunities – Procurement data can also help to identify additional cost-saving opportunities, for example instances of duplicate or redundant tools. In other words, the same or similar applications being used across different areas of the business – project management software being a common example. With this data, companies can consolidate or terminate contracts, while achieving better volume discounts.
• Avoid missing renewal discounts – By keeping on top of procurement analytics, companies can also ensure they are leaving enough time to gain the leverage needed to secure better deals. With the right procurement software solution, teams can specifically monitor contract renewal dates and termination windows, ensuring that engaging in negotiation discussions early enough.

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Data indicates that companies starting negotiations 90+ days before renewal dates achieve average discounts of 49%, compared to just 19% when started between 30 and 90 days. For more procurement intel, take a look at our spend insights hub.

Supplier performance

• Better strategic decision-making – By accessing data-driven procurement insights, teams can ensure that any purchasing decisions are based on accurate, real-time data. As an example, if a company is on the fence about renewing a particular contract, procurement data can inform whether the tool is being used to its full potential across the organization, and whether it could be negotiated at a lower price.
• Supplier compliance rates – Procurement analytics can help track and monitor supplier compliance rates, ensuring that suppliers are adhering to contract terms, delivery schedules, and regulatory requirements.

Process efficiencies

• Eliminating procurement bottlenecks – With procurement processes often consisting of multiple stages, any bottlenecks in the process can quickly lead to delays, additional costs, and missed opportunities. By keeping track of performance and monitoring procurement KPIs such as procurement cycle time or approval workflow compliance, companies can pinpoint and rectify these inefficiencies. As an example, there may be regular delays due to manual approvals, and the decision may be taken to automate approval routing.
• Streamlining contract renewals – Failing to keep on top of contract renewals not only has financial consequences, but it can also impact operational efficiency. Without an efficient renewal process, there may be a risk of service interruptions due to delayed agreements, or unnecessary administrative work caused by last-minute renewals.

Reduced risks

• Shadow IT – With procurement analytics software tracking the purchasing and usage of all software applications across an organization, companies can easily identify unauthorized tools or subscriptions that employees may have acquired outside of the formal requisition process. This knowledge can help mitigate the occurrence and impact of shadow IT.
• Compliance – Companies should also be monitoring each vendor’s compliance with contract terms, industry regulations, and internal policies. Procurement analytics can specifically help to flag missing or incomplete clauses related to data security, allowing procurement teams to address these compliance issues before they become legal or regulatory risks.

Benchmark your own procurement processes against your peers by taking this procurement impact self-assessment.

Use cases: How procurement analytics can be used to drive strategic value

‍Spend analysis

Spend analysis is one of the most impactful use cases when it comes to procurement analytics, for the simple reason that it links procurement initiatives with strategic business objectives.

With 33% of software spend going entirely to waste, spend analytics help businesses identify these areas of overspending, for example, the SaaS applications that aren’t being fully utilized, or the tools that are costing more than they should be based on benchmarking data.

Spend analytics can specifically be used to:

• Improve negotiations – By knowing exactly what similar companies are paying for the same subscription, procurement teams can gain much-needed buying power, enabling them to negotiate more favorable prices.
• Identify duplicate or redundant tools – By analyzing procurement data, companies can also identify instances of duplicate or redundant software – in other words, multiple tools that serve the same purpose – using this intel to inform which contracts should be consolidated, rightsized, or terminated.
• Improve budget management – With spend analytics, companies can gain greater visibility into their procurement expenditure, enabling them to create more accurate budgets and improve resource allocation.  

By identifying these areas of cost inefficiencies, procurement can make tangible cost savings and subsequently support improvements in the organization’s profitability.

Identifying bottlenecks in the procurement cycle

Bottlenecks in the procurement process can cause approval delays, increase costs, and reduce overall efficiency, all of which can substantially impact a company’s bottom line.

By leveraging procurement data and analytics, these inefficiencies can be more easily identified, allowing teams to take corrective action. Examples of procurement bottlenecks can include:

• Purchase requisition issues – Procurement data can help to track incomplete purchase requisitions, identify common issues, and even identify the departments or individuals making frequent errors. This insight can then be used to refine the requisition process and intake form.
• Delays in the approval process – Data can help to highlight which departments or individuals are causing delays in the approval process and why. From here, a decision can be made on whether to automate the process and introduce notifications and alerts, or whether to adjust workflows so that approvals are escalated after a set amount of time.

See how one company accelerated its procurement cycle by 55% with Vertice.

Eliminating maverick spending

When organizations not only have full visibility of their software, but a centralized process for procuring these tools, companies stand to eliminate maverick spending.

Procurement analytics specifically helps achieve this by providing teams with detailed insights and control over their procurement processes. For instance by:

• Highlighting the departments responsible for maverick spend – With procurement analytics software, procurement teams can track the amount of spend that goes outside of formal procurement workflows, and the departments responsible for this spend.
• Identifying unauthorized vendors – By analyzing purchasing patterns, procurement teams can more easily identify unapproved suppliers or vendors.
• Improving the requisition and approval processes – By using data to improve the overall purchase requisition and approval processes, employees will be less inclined to bypass protocols when it comes to purchasing SaaS.

Take a look at our recommendations for enforcing a more formal purchase requisition process across your organization.

The procurement metrics you should be tracking

To fully demonstrate the value procurement can deliver within an organization, teams need to be effectively monitoring and tracking the metrics that will help them make far more strategic decisions.

This means looking beyond the obvious procurement metrics such as spend by category and supplier payment compliance, and also tracking data such as:

Approval times per function

‍The length of time it takes departments or individuals to approve a contract. With this information, procurement leaders can identify the stakeholders most responsible for delaying purchases and understand the reasons why. As an example, approvers may be being asked for their sign-off too late, too early, or without the right information.

Majority spend suppliers

‍Procurement teams aren’t always aware of the suppliers that are responsible for the largest proportion of spend, so by drilling down into this procurement metric, they can ensure that their costs, performance, and contract terms are being effectively scrutinized ahead of renewals. Procurement leaders can also deliver maximum strategic benefit by creating a closer, more productive, and cost-efficient vendor relationship.

Procurement ROI

‍The value of any procurement function is more than just the cost-savings it delivers, however when it comes to demonstrating value, procurement spend vs procurement ROI can be an effective metric. The highest performers will typically track this over time, not only to prove strategic value, but also to justify investments in the department.

Evaluating procurement analytics software

Accessing and presenting procurement data is notoriously difficult, which is why it’s important to invest in a platform that not only centralizes and organizes the data, but that also provides both advanced and actionable analytics.

This ultimately relies on the use of a procurement orchestration platform that is:

• Well-integrated with your business’ wider tech stack and data.
• Capable of showing data and intelligence within the workflow itself to help make faster and smarter procurement decisions.
• Equipped with an analytics dashboard focused on the procurement metrics that truly matter.

With this in mind, when it comes to evaluating and choosing the right platform for your business, you should be factoring in the following considerations.

‍In-workflow insights

The best procurement analytics software platforms will provide actionable insights directly within the procurement workflows to help counter inefficiencies. As an example, this might include recommendations on how to optimize certain stages within the procurement cycle to eliminate bottlenecks.

Data quality and breadth

The quality of both the procurement data and vendor benchmarking data is crucial for not only making informed decisions, but for securing the very best deals in negotiations. We would therefore recommend that you work with a procurement partner that not only has extensive vendor coverage, but also operates globally as this can otherwise limit their pricing intel and impact the outcomes they’re able to deliver.

‍Ability to handle negotiations

Providing quality vendor benchmarking data isn’t enough, you also need to be looking at the procurement providers that can handle negotiations on your behalf. Better still, consider those that offer this service as part of their core offering as not only does this often drive better results, but the negotiators will typically have a far greater understanding of each vendor, and know which levers to pull and when to secure you the best possible deal on any contract.

Integrations

Opt for a platform that can easily integrate with your existing systems and vendors, or at the very least has the capabilities to rapidly action requests for new integrations.

Savings guarantee

Almost every procurement platform on the market provides spend management functionality, yet very few solutions actually guarantee these cost savings. By doing your research and choosing one that does, you can ensure maximum ROI on your investment.

Get a detailed analysis of the SaaS Procurement and Management Platforms sector in the Lionfish Tech Advisors Report

Demonstrate procurement’s value with Vertice

As a procurement orchestration platform, Vertice not only has the capabilities to streamline your processes and optimize your spend, but we also utilize advanced analytics to provide actionable insights into the effectiveness of your procurement efforts.

With access to a database of more than 16,000 global software vendors, we can also leverage accurate pricing benchmarks to secure you the best possible price and terms on any contract. In fact, we can handle negotiations and the management of these contracts on your behalf, giving you the hours back in your day to focus on more strategic initiatives.

See for yourself how we helped one company save 115 hours on contract negotiations in the space of a few months, or how we saved another $155,000 on a single contract through our white glove service.

Alternatively, take a self-guided tour of our platform to get a better idea of how we can help you simplify your procurement efforts.