Nail Your Procurement Budget With A 7-Step Spend Analysis: Part 1
March 17, 2017
Practicing strategic procurement is essential to control costs. The right plan gives you direction on procurement goals as well as company-wide objectives, helping you reach them in a targeted way.
You may not have a solid basis for your procurement budget unless you understand your spending. Chances are, you’re missing opportunities for supplier consolidation that would significantly drive down your metal manufacturing costs.
Conducting a supplier spend analysis is sometimes tedious, but the payoff is potentially big. You gain insights that aren’t apparent until you see all of your spend data organized in an easy-to-follow document.
For most OEMs, the cost of a machine drives your procurement budget. The market tells you how much you’ll be able to spend on a machine while ensuring profitability. Analyzing data from your design software, you can calculate how much money you have in your machine’s budget for sheet metal, fabrication, weldments, hydraulics, electrical, etc.
After gaining a firmer grasp of your spend data, you may decide to group certain parts or material thicknesses with the best-in-class suppliers.
Vendor consolidation tends to bring down costs, and that’s where your supplier spend analysis comes in. Going through the exercise allows you to see exactly how much you’re spending and with which suppliers.
It’s time to take back control of your procurement budget. Here are the seven essential steps to conducting a supplier spend analysis.
1. Identify Your Sources Of Spend Data
An article by SciQuest lists the seven steps of a spend analysis concisely, starting with step one: identifying your spend data from all departments, facilities and business units.
You most likely have two types of machine spending. First are catalogue-type items. For example, you may need to buy a tail light from a company that specializes in tail lights. You don’t design the light itself, but you look in a catalogue and select the one you need.
Engines are often catalogue items. You may need an engine at a certain size and horsepower, and your vendor helps you select the right one.
On the other hand, you’re also spending money on non-catalogue parts you design and have manufactured. More about that is included in step two. For now, just make sure you know where you’ll be looking for all sources of spend data, including catalogue and non-catalogue spending.
Once you get started on a spend analysis, you’ll build the momentum to follow through with the next six steps. The completed project will enable you to analyze your spend data and develop informed strategies that reduce your costs.
Check back in with the Miller Fabrication Solutions blog for parts two and three of this series, where you’ll learn how to complete your spend analysis.