Pro Tip for Direct Materials Spend Analytics and Sourcing: The Real Gold Deposits Are Always Under the Surface (Metals Procurement Pun Intended!)
Bad Analytics: Avoiding Spend Analysis Traps for Metal Procurement Most larger procurement orgs have access to “spend analysis” technology. And every single consulting firm that does cost takeout for clients does some type of spend analysis and prioritizes projects by dollars spent or overall commodity volume/dollars by category. But these approaches can easily lead you down the wrong path for metals spend. It’s not about the surface level data. Pareto-driven approaches (which often work for indirect and services spend, and even some direct categories) do not work for metals. Why? Current approaches focus on the biggest volume categories vs. those which can drive the greatest savings. And a spend cube is often a red herring for where the value is. In practice, often the largest savings potential is in smaller categories with higher margins. Surface level insights cause you to miss out on the bigger opportunity for savings that lie under SKU or line-level data that is not part of a spend cube or excel model. Here’s how to fix it. One way is in your Excel, BI or spend cube environment, include the underlying data sets that drive the line level detail that actually matters to your savings and cost management efforts and benchmark against the actual market. These include: Form Grade Alloy Regional/local price points Then understand price benchmarks based on detailed should-cost workups. A second way is so obvious but worth sharing - focus on the metal categories that are more expensive at the unit or each level. Aluminum tends to have more price compression opportunities than say carbon steel. It’s not always true in every case but sometimes a smaller stainless spend will yield greater savings than a larger carbon steel spend. What do you all think? And don’t forget to sign up for our weekly newsletter where we share metal price trends and tips on metals based sourcing: https://lnkd.in/eDYjDrbq
Helping growing companies harness supplier value.
8moGood point Lisa Reisman. Having purchased multiple categories in my career including aluminum and other similar commodities, it is very important to understand the cost drivers for the type of material bought. It takes time to do this but brings about much better cost insight and negotiation leverage.