Nail Your Procurement Budget With A 7-Step Spend Analysis: Part 2
March 31, 2017
Conducting a supplier spend analysis provides valuable insight into your procurement budget. With your spend data right in front of you, you’re able to consolidate suppliers and cut back on metal manufacturing costs.
In this installment of our three-part blog series, learn the steps you should take after you identify your sources of spend data.
2. Gather And Consolidate Data
You need to have detailed information in your ERP system for components you design and outsource. You should record sizes, thicknesses, materials and weights.
It’s important to include all the data related to each part in a form you can analyze. Later on in the spend analysis process, you’ll need engineering data to form your vendor consolidation strategy.
If your spend data is all in a central database, such as an ERP system, you’ll be able to run your analysis. Larger OEMs often have ERP systems that are big and cumbersome, which discourages your team from putting data in properly.
Although the process may not be straightforward, you must ensure your procurement team enters data in faithfully. That way, your data is gathered and consolidated, and you can move on to step three.
3. Cleanse Data
To make sure your data is accurate, you should find and correct errors in descriptions and transactions. You should also standardize the data, so it’s all in the same format.
Cleansing is probably the most time-consuming step. Some OEMs have up to 15,000 parts with associated data. Plus, the data changes every day. Your team is likely to make revisions or add new machines and designs to the ERP system.
Strategic procurement requires a constant upkeep of data. You really need to have your whole team on board. Your procurement team should help cleanse data for a spend analysis, and you can also work with other departments, such as IT.
Your ERP system is efficient at storing data and acting upon it, but it won’t help you cleanse data. Programs like Microsoft Excel help you take an organized approach.
4. Group Your Suppliers
Now, you’re ready to group similar OEM suppliers. You may have two or more suppliers making the same part, as well as similar suppliers making similar parts.
Put all your metal manufacturers in a market basket based on the type of manufacturing they do for you. Fabricators go with fabricators, welders go with welders and so on.
When you organize your suppliers in groups, you may discover that you’re doing too much business with one, or that your business is spread too thinly among a large number of suppliers.
You may also notice a supplier that’s in financial trouble has a large portion of your business. In this way, a spend analysis helps you mitigate risk, as you can look to give some of that business to more financially stable OEM suppliers.
Finally, you should see where you can consolidate suppliers. When you manage fewer suppliers, you have tighter supplier relationships. You’ll understand their businesses better and can manage risk armed with insight about the strengths and weaknesses of each supplier.
After you complete step four and start noticing opportunities for vendor consolidation, you may feel you have all the information necessary. However, it’s important to carry your spend analysis through to completion so you have a full picture of your budget.
Check back in with the Miller Fabrication Solutions blog for the final installment of this blog series. You’ll learn how to categorize your spending, analyze your data and finish your spend analysis.
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