The business owners are aware that procurement Savings Tracking is the main KPI (Key performance indicator) for any department. The procurement experts always pay attention to this important key factor.
If you will pay attention you will find a lot of evidence that supports the importance of saving and Spend Analytics. According to the recent survey it has been claimed by 79% of the CPO’s that saving tracking is their first priority. 57% said it helps to manage the risks associated with their KPI. These results show the maturity of the industry.
It is important for the stakeholders that they manage their savings tracking with the other projects of the company to assure that they can enjoy the long-term benefits that come with the system. There are many reasons why companies should focus on the Tail Spend Management, here we have included some of them.
Tracking is easy
The best thing about saving tracking is that it is the simplest and easy way of measuring the performance of procurement. As well as it is the main mission of the procurement department in companies because they have the manage their performance. That is why the Tail Spend stats are commonly visible and they are tracked continuously to maintain the performance of the company.
As compared to other metrics used for management of risks in the company Spend Analysis has the highest impact. No doubt that management of risk is important but the only way authorities will be able to know about the associated risks is with the help of saving the track. It is similar to the insurance that we get. We will only understand the importance of the insurance when we will need the money. Cost saving could be a major factor depending on the industry that you are working in. That is why senior management cannot ignore the importance of savings management.
Cost avoidance vs Cost saving
When it comes to Tail Spend Automation the most important thing you have to consider is the cost avoidance and cost savings. You should know that your saving tracking will be incomplete if you will not understand the difference between both these terms. Your Procurement Analytics will be managed between both cost savings and cost avoidance. Here we have a complete comparison that will help you understand both terms equally.
Cost avoidance is the reduction in cost that results in the spending of a company that is lower than the planned cost avoidance ratio of the company which has not been undertaken yet. This is the reason that cost avoidance is commonly known as soft saving.
In case that you are going to spend a certain amount of the production of some products. The vendor has said that there would be a 10% increase in the cost of the services every year. In order to save yourself from the 10% increase in the cost the best solution you have is to sign a long-term contract. In this way, you will get high-quality products at the same rate.
The cost-saving concept is a little vulnerable because you have to manage it properly. It is known as the state of the hard dollar. The best example of this case is the one that you have been purchasing the papers from a company at the rate of $30 per batch. If you will need 1000 batches per month it means that you will spend $30,000 on the papers. The better solution to this problem is that you should buy the paper batch in bulk and ask the supplier to charge $28 for each batch. In this way, you will be able to buy more batches at the same time and save $2000. It will be profitable for you in the long term and you will not have to deal with any side effects of the process.
Which is more important
A common question that most people have in this situation is that whether they should consider cost avoidance or cost saving. In order to run a company successfully it is important for the managers to maintain a balance between both terms because that is the only way, they will be able to get the results that they wanted in the first place. No doubt that it will take some time in the beginning but with experience managers will understand that how they can manage both cases with perfection to assure that they will not have to deal with any issues in future. Another question that commonly arises here is that what are the benefits of this system. Here we have some of them that you have to consider.
Gain trust of stakeholders
In the companies trust of the stakeholders is very important because they will provide the investment for the management of the projects. You have to show them that you are running the company efficiently and saving tracking is one of the best ways to make it possible. When the experts will notice that how professionally you have been able to reduce the spending cost and increased the savings of the company, they will know that your services are reliable. In this way, the experts will trust all the projects that you have planned for the company and they will surely provide you with the investment that you have been looking for. They will financially support the projects.
Generate and view reports
You will notice that it would easier for you to generate the spending and savings report of the company. Once you will have the reports in your hand it will be easier to identify all the mistakes that you have made previously and how you can improve the situation effectively. Make sure that you get the reports on a regular basis because that is the only way you can get effective results for the company.
If saving tracking is hard for you a better option is hiring a professional. They will meet your demands perfectly and share plans that will help in saving management.