How Private Equity Firms Can Find Immediate Savings Across Portcos
The private equity industry has experienced unprecedented growth, however, as fears of economic turbulence persist, many firms are searching for new and innovative ways to cut costs and improve efficiencies across their portfolio accounts.
One way to quickly achieve these goals is by utilizing niche digital procurement technology to aggregate and consolidate spend data from across your entire portfolio, in order to provide in-depth and actionable views of data from across disparate systems and locations. The result? High-level views of corporate spending that can be used to improve sourcing strategies, reduce risk, improve compliance, and identify opportunities for cost reductions. Most firms recognize the importance of detailed spend analysis, but few know how to find all the relevant data, aggregate it, cleanse it, normalize it, and make it continuously reveal meaningful, actionable insights. That’s where firms like Simfoni can help.
Here are four ways private equity can leverage spend analytics to help drive immediate savings.
1. Supplier Consolidation:
When you can see where your portcos are spending and across which suppliers, you can also encourage better purchasing decisions. Armed with access to cross-portfolio buying power, you can aid efforts to reduce the total number of suppliers that firms purchase from, which also enables reduced purchasing and processing costs – helping your portcos to operate more efficiently and at a lower cost.
With Spend Analytics, private equity gains access to unique supplier insights, including which suppliers are providing the best value for your portcos. By focusing purchasing power with strategic suppliers, the result is stronger relationships with key suppliers and increased cost savings from volume discounts and potentially improved payment terms.
2. Tail Spend Management:
Most companies have a large tail spend which is the money spent on low-value, high volume purchases outside of the strategic transactions that make up the bulk of a company’s spend. Firms can’t manage their tail spend if they don’t know where the money is going, so with spend analytics, private equity can help portcos take the first critical step in addressing the tail – opening the door for a savings opportunity of up to 15-30%.
And the benefits do not stop there. Poorly managed tail spend can hide many problems – such as wasteful purchasing, maverick spending (or off-contract spending), and even potential compliance risks. By introducing solutions to help encourage smarter, more strategic purchasing decisions, firms are creating opportunities for everyone to benefit.
3. eSourcing and eAuction:
How you conduct sourcing (including RFx management) and relationships with suppliers are vital, and if mismanaged, can derail opportunities for savings. eSourcing and eAuction software is set up to be transparent, which allows for better collaboration between your portco’s and their suppliers. eSourcing makes the bidding process easier for suppliers and levels the playing field for smaller businesses – all while giving buyers access to a wider pool of potential suppliers to source from. This increases the opportunity to negotiate better pricing and source from the best possible suppliers. These technologies will also allow your portfolio companies to drive more efficiency within complex sourcing processes – such as evaluating bids or maintaining vendor relationships and allowing procurement to scale quickly as demand spikes.
4. Demand aggregation:
Spend Analytics allows you to see holistic spend across multiple business units and geographies, giving portcos visibility into the total spend for any given supplier or category. This highlights opportunities for cost reductions, increases purchasing leverage, and improves long-term purchasing decisions by aggregating a large volume of transactions from multiple geographies into a single platform that allows sophisticated analysis and modeling.
To stay ahead of economic downturns, it’s important to find new and innovative ways to reduce costs and improve the efficiency of your portco operations – without negatively impacting productivity. By leveraging best-in-breed, composable spend analytics and eSourcing tools, like those offered by Simfoni, you can quickly identify inefficiencies and hidden (or not so hidden) costs that may be hindering profitability and growth and drive quick wins that will improve your bottom line.