How Poor Spend Data Affects Financial Business Decisions

How Poor Spend Data Affects Financial Business Decisions

Businesses are increasingly utilizing data to optimize everything from marketing to talent recruitment, and procurement should be no exception. Yet many companies have significant room for improvement in this regard, as they only have visibility into how they’re spending with their largest suppliers, while many smaller ones get overlooked. In fact, only 6% of procurement leaders say they have full transparency of their entire supply chain, according to a Deloitte 2018 survey.

Even if companies know their overall procurement costs, they often lack quality spend data and ways to extract insights such as:

  • How spend varies across departments
  • How spend varies across suppliers
  • Which categories of spend have changed over time
  • Where purchases are made
  • And more...

This poor spend data causes businesses to:

1)    Struggle to manage budgets

If companies lack data that shows specific spending patterns and lack a way to synthesize this information, they could miss signs that they will go over budget. Conversely, not having quality insights could also cause companies to mistakenly think they’re tracking toward going over budget, which could lead to decisions such as an unnecessary spending freeze.

For example, a department might decide to place an unusually large order with a certain supplier, while reducing spend with another supplier. If a company does not have a system in place to centralize spend data, they might not connect the dots between these two orders. As such, if they only focus on the large order, they might assume they are trending toward going over budget. And if they focus on the small order while missing the unusually large order, they might assume they’re under budget.

2)    Overspend on orders

Another downside to poor spend data is that if companies can’t easily compare purchases and track spending, they could miss cases where they make unnecessary purchases.

First, companies might overspend when employees don’t know that someone else within the company has already placed the same order, and then there’s no system in place to stop duplicate transactions. Second, companies might overspend when employees make purchases they shouldn’t be authorized to make, or when they buy more of certain items than they need.

Thus, companies need better data to make cost-saving decisions like instituting stricter approval processes to ensure these instances of overspending don’t occur.

3)    Miss cost-saving opportunities with suppliers

Poor spend data also makes it difficult for companies to compare spend across suppliers, and as such, they could miss instances where they’re not getting the best prices. For example, quality spend data might show that employees are purchasing similar goods from two different suppliers with different prices, yet without this insight, companies can’t direct their employees to purchase from the cheaper supplier.

Moreover, poor spend data limits a company’s ability to negotiate lower prices from suppliers, because they might not have the insights to use a competitor’s pricing as leverage. This lack of knowledge makes it more difficult to decide on what suppliers to work with and what contracts to agree to.

4)    Overlook key risks

Lastly, poor spend data can cause companies to not recognize a variety of risks, including supply-chain risk and fraud/compliance risk. For example, not having clarity over how spending changes over time or how spending varies from employee to employee can make it difficult to spot instances where an employee overspends as a result of misappropriating company funds for personal use.

Moreover, lacking quality spend data makes it difficult to know whether companies are spending enough with certain suppliers to the point where that supplier’s reputation could affect that of the purchasing company, or whether certain suppliers are falling short in some way that poses a risk, such as by being consistently late on deliveries. As such, companies could struggle to make risk management decisions that align with the actual risks they face.

As you can see, poor spend data affects a variety of financial business decisions that extend beyond cost concerns. Companies need to do a better job collecting full spend data through a centralized process that makes it easier to then analyze this information in a way that yields quality insights. Doing so will improve companies’ ability to make a wide range of financial business decisions.

To learn more about how your business can gain full visibility into spend data and maintain frictionless purchasing protocols, schedule a demo with GoProcure today. You can also read more about how our platform improves the full procurement lifecycle.