How to analyze your supplier purchasing cycle

How much your company spends on doing business, and how often, plays an important role in its overall success. With the transformation of cash into goods and services, the purchasing cycle is at the heart of procurement, and can have a major impact on its productivity, competitiveness and profitability.Understanding your company’s supplier purchasing cycle is the first step to optimizing it. Through technology and process improvement, you can ensure that your purchasing department creates value for your company, and reduces costs due to wasted time, energy and resources. The aim is to facilitate purchasing from suppliers. It also contributes to a better supplier management.

What is the supplier purchasing cycle?

The supplier purchasing cycle – also known as the procurement or supply-to-pay (P2P) cycle – is the process by which you order, procure and pay for the goods and services your company needs.For companies of all sizes, the supplier purchasing cycle begins with the review of requirements and ends with payment and record-keeping. During this time, they can generate a purchase order and pay directly for the goods. They can also issue a call for tenders to encourage more effective competition between suppliers wishing to meet a specific need set out in the specifications.

What is supplier purchasing cycle analysis?

Supplier purchasing cycle analysis refers to the process of collecting and analyzing purchasing statistics to aid decision-making. This includes, for example, analysis reports on historical purchasing expenditure and advanced audits of the budgeting plan. Purchasing analytics involves collecting data from many different sources, such as ERP systems. Statistics are classified according to standard and use-case-specific taxonomies. The necessary information is displayed in a visualization dashboard or in business intelligence tools.Many organizations wanted a single view of their procurement spend. This led to the need for an analysis of the supplier purchasing cycle.

Purchasing review was first offered as a one-off program such as spend cubes. It has since expanded to include specialized solutions, dashboards and other types of automation programs. For many organizations, the study goes beyond the visualization of statistics .Purchasing cycle analysis can be compared to oil refining. It involves collecting, cleansing and enriching large quantities of information from disparate systems in order to derive commercial advantage and to obtain an optimal supplier database. This analysis results in more timely, accurate and useful information. It also enables you to measure the impact of procurement on the bottom line.

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Types of purchasing cycle analysis

The field of purchasing analysis grew out of the need to understand past purchasing performance and guide future decision-making. Common types of analysis include :

  • Descriptive analysis: procurement data is analyzed to describe what happened in the past.
  • Diagnostic analysis: supply data is interpreted to understand why some event occurred in the past.
  • Predictive analysis: trends and patterns in the data are used to forecast future purchasing performance.
  • Prescriptive analysis: predictive models based on procurement data support decision-making.

How to analyze the supplier purchasing cycle in three stages?

Purchasing review provides visibility on supplier spending and performance. It can identify potential savings and opportunities. But even if spend data already exists in systems, it is often difficult to exploit. Analyzing the supplier cycle also helps to improve supplier monitoring. There are three steps involved in processing data before you can extract information from it.

Step 1 – Data extraction

It all starts with extracting data from all possible sources and consolidating it in a central database. Once extracted, the data is ready to be enriched and cleansed. Data extraction is the process that transforms obsolete and disordered information sources into a clean, consolidated format that is easy to understand and ready for analysis.

Step 2 – Data cleansing, categorization and enrichment

Data must be classified into clear, well-defined categories. Accurate data classification is essential for effective spend analysis. This process harmonizes all purchasing transactions with suppliers according to a single taxonomy, so that customers have a clear view of their overall spend and a complete understanding of the situation. During this stage, data can also be enriched by automatic translations or supplier consolidation.

Stage 3 – Reporting and analysis

Having been classified, the data is now ready for analysis. Spend analysis through simplified data processing gives you the visibility you need to provide an insightful review. It enables you to identify opportunities more quickly, make smarter sourcing decisions and take full control of your spend. Access to accurate spend analysis is the key to massive savings and the realization of potential opportunities.

Why is analysis so important for purchasing?

A common misconception is that purchasing analytics is all about spend analysis. Analytics touches on everything from strategic sourcing to category management and the purchasing process. Here are just a few of the reasons why analytics is important for the various supplier purchasing functions.

Analytics in category management

When used effectively, analytics bring considerable benefits to category managers. Purchasing analysis enables them to identify savings opportunities. It also enables them to segment and prioritize suppliers, deal with procurement risks and facilitate innovation.

Analysis in strategic sourcing

The best business strategies are based on data processing. In strategic sourcing, analytics can identify the best times and areas to organize sourcing events and competitive tenders, and can identify and influence the choice of suppliers to include in sourcing projects. It is also able to provide rich information on supplier quality and risk positions for all types of purchasing, whether recurrent or atypical.

Analysis in contract management

Analysis adds value to contract cycle management. It can alert you when contracts need to be renegotiated. Analysis of the supplier purchasing cycle can identify irregular spending. This strengthens compliance and improves contract coverage.

Analysis in procurement and payment

Purchasing analysis can also bring a great deal of value to the transactional aspect of purchasing. With the right analysis, you can measure order cycles and improve payment terms. You can assess payment accuracy, uncover discount opportunities, identify payment errors and reduce the risk of fraud.

Analysis in sustainable development and CSR

Companies are increasingly realizing the value of analytics inassessing sustainability and corporate social responsibility. They are also becoming more aware of supply chain and purchasing risks. Purchasing cycle analysis can reveal the environmental or societal impact of purchasing decisions on companies, and identify opportunities for more sustainable alternatives.This purchasing cycle analysis can be facilitated by the use of a supplier management software. These tools enable data to be centralized and visualized in real time. This gives you greater control over spending, and enables you to make effective decisions for better returns.

 

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