Making the Case for Contract Analytics: Spend Analytics Is Not Enough

Making the Case: Spend Analytics Is Not Enough

Procurement teams are constantly looking for ways to enhance their value to the enterprise in an effort to drive business transformation and growth. While procurement is undoubtedly seen as a core function needed to manage risk and compliance, the means in which they influence the line of business (LOB) must evolve. All too often, procurement and sourcing organizations use the same methods to unearth value and it is time to take a second look. Every day, suppliers are pressed for price cuts and spend data is analyzed to save money and identify opportunities for vendor consolidation. [1]  They are looking to the same methods to produce different answers to no avail. In this two-part blog series, we will take a look at why spend analytics is not enough and how procurement teams can enhance their value proposition through actionable insights. Let’s get started.

Spend analysis is defined as the process of identifying, gathering, grouping, categorizing and analyzing your organizations spend data as a means to decrease procurement costs and improving efficiencies. Procurement teams have looked to “spend visibility” time and again as a means to deliver more value and insight into the enterprise. There is a misconception that procurement has exhausted its opportunities to drive transformation and that is simply not the case. The problem is that they are looking in the wrong place. The truth is, transactional spend visibility has been tapped dry and procurement teams must look at other opportunities. POs, invoices and payment records only tell a fraction of the story and in order to continue to drive value, teams must look into other elements involved – mining the data within their contracts is a prime example.

Spend analytics (i.e., transaction data) presents a historical snapshot of how much procurement spent with whom over a defined time period. As an analytics strategy, transactional spend analytics fails to answer critical questions. Consider the following examples and how spend analysis alone would be inadequate to produce valuable answers:

  • What and how big are our working capital opportunities with suppliers based on current possible payment terms?
  • What kind of risks do our current suppliers present to our business (e.g., cybersecurity threats, data privacy compliance), and how well are we protected against these risks?
  • How many agreements are currently active with suppliers, and who owns and manages each agreement?
  • How much spend is not tied to a contract?

The transactional spend analytics do not provide the insight necessary to fuel the next phase of business transformation and influence with the LOBs. In order to be seen as a strategic partner and a breakout leader among their peers, procurement needs additional technology and capabilities. To close this gap, teams must embrace technology solutions that can answer new questions and power transformation. That solution is contract analytics. Used correctly, contract analytics allows organizations to find, extract, structure and analyze the content within their documents and turn the unstructured data into actionable insights for procurement decision-making. This solution empowers procurement teams to influence LOBs and provide the strategic intelligence needed to identify business risks and opportunities while enhancing outcomes.

As with implementing any new technology into your business, you must make the case for investing in a solution, and contract analytics is no different. Stay tuned for part two to learn how contract analytics is driving positive business outcomes for procurement teams.

[1]  Seal Software – Spend Matters Making the Case for Contract Analytics