Vendor Spend Analytics
I believe Manufacturing companies spend more than 50% of their costs on materials alone, hence materials become the single largest cost contributor. Bringing down costs by adopting best strategies will bring in increased margins, and better market penetration. I think VSA is more suitable for a manufacturing sector than any other.
VSA offers some of these best procurement strategies, as it focuses on the biggest cost area. Looking at procurement function, we can think of multiple facets like maintaining relationship with suppliers, understand more on their performance: what quality of the products they are supplying, how punctual they are in their delivery timelines, what is their turn-around time from the purchase order to delivery etc.
On the other hand, VSA also enables to understand the purchasing behaviour our Procurement executives, like, who are the preferred suppliers for some of the executives, how much amount of business we are doing with each supplier, are we availing the discounts and fully exploiting the payment terms, check on utilisation of freebies offered by suppliers in terms of goods or service, check on the long term vendor agreements signed & utilisation of the same, leverage big sources for more discounts etc.
VSA also acts as a good platform to integrate with the procurement processes with the sales forecasting, production planning, and raw material planning engines.
We can clearly see that VSA focusses on External, Internal and Integration Fronts. The first one is to understand the relationship with the suppliers, second one is more on the purchase practices and the last one is alignment with the company goals (short term and long term).
Probably, we can categorise VSA into Tactical and Strategic pieces. Tactical piece will be required to streamline the vendor relationships, vendor consolidation, discount maximisation. The Strategic piece will be required to integrate the sales and production planning, and also in arriving at the Economic Order Quantities (EOQs).
For a good implementation of VSA, we need some sort of Master Data Management to cleanse and maintain the vendor and product codes.
