Spending can have a forecast which prepares a data on how and when the spending will be done and why people would do that. It is a wise step for the procurement decision maker.
Spend Forecasting is the most important tool for procurement. Why?
The rules applicable in the context of direct spend are not at all for the indirect spend (spend not directly linked with travel, end products etc.)
To increase the price, you need to present arguments and the increase is accepted on two basis: wage changes and raw material price. The direct reasons will do good.
Direct categories are managed by the Procurement Category Manager from the perspective of cost and process while the other ( indirect) categories are managed by the same but from process perspective only.
Spend Forecasting – What good it does?
The forecasting tool presents the estimate of the savings expected in the numerical way. The analysis of the qualitative factors is presented that influence the competition in the world of different firms. It has a broad application where not only the problem is found, but the necessary changes are also made. The projected cost are shown in charts created with the given information. The monthly or annual report is created at the end showing all the estimation and the reasons (activities that make it happen over a period of time).
What we need to do?
To obtain its full benefits, the information or data should be properly applied. Given the required data, it can show all the ins and outs.
It is necessary to note that under competition, no problem is posed with the analysis and the forecasting.
Regression model is a method used for spend forecasting. The estimate is created by calculating the arithmetic average of the percent price reduction in contract unit price. A large dispersion falls between average with high of 52.8 and low of -29.4 percent.
What else we get to know during and after the analyzing?
- The analysis show the firm in competition with the firm whose data is processed and analyzed. In this case, focus on savings should be made.
- If the decision of no competition is displayed, then the firm can continue to source alone.
- Re-evaluation of the data ensures the sensitive variables are closely analyzed.
- On forecast of positive savings and a negative competition index, the decision is not automatic and a judgement needs to be made.
- The base of the data on which the model is prepared should not be randomly created but consciously made.
Spend forecasting tool is attracting many people due to its efficient methodology and ease. The accuracy of information combined with a grip on history and the ability to concentrate on the less looked variables make it valuable. This is definitely going to be in trends in the procurement. Together they make a perfect combo and the real time value or spend is attained.
Future forecast spending ensures that the cost trends do not exceed the level of the expectations of any particular firm.
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