We were discussing a situation in the last post http://faoblog.com/processes-ap-spend-analytics2/, where in, in an emergency, the material came at a high price.

Spend Analytics comes to the rescue here. The unit needs to analyze the quantity and price bought over a period of time.  The back office / outsourced unit will build data on the purchases, the locations from where these materials came, the cost of transportation, any trends in the material requirement and a few other parameters. As a further step, they will try to assess the capacity of these suppliers, in discussion with them. Based on a combination of these data points, a trend chart will be created or some modeling tool will be used to create an optimal purchase pattern, making the process more predictable. If you involve a six sigma resource, he will be able to create a regression equation for the same. Some key things used for this analysis would be:

  • Raw material demand by the client
  • Total price of raw material to the client
  • Component of transport charges and days to deliver
  • Price offered by each supplier, both in slump and peak periods.
  • Pushing some favorable suppliers in increasing output, especially in anticipated emergency periods.

Almost 15 years back, a premium computer manufacturer had actually ask their suppliers to relocate the raw material manufacturing units to a location within 50 km of their facility, and the inputs came from  an extensive set of spend analytics.

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