SaaS procurement is often complicated due to lengthy cycles, hidden costs, and unclear pricing. These unpredictable expenses and extended negotiations drain valuable time and resources away from core business operations.

This triggers an urgent necessity of a more effective and transparent system of analyzing the existing contracts and making the future purchases. To gather information throughout its supply chain, forward-looking companies are turning to tech-enabled procurement. Although the collection of data plays a crucial role in the construction of strategies, it is not the end, companies have to employ analytics to transform raw numbers into actionable responses.

As Carly Fiorina, former HP CEO, once said:

 The goal is to turn data into information, and information into insight.

Procurement analytics is the process of interpreting procurement data to achieve specific business goals. In this guide, we’ll introduce the concept, explain its importance, and highlight key KPIs every procurement leader should track.

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What is procurement analytics?

Procurement analytics helps businesses interpret the data collected from different sources, such as supplier performance metrics and contract terms, detailed purchase order and invoice histories, insights from internal systems, etc., to generate actionable insights. 

These findings are used for making critical purchase decisions on the go, reviewing the shortcomings of current practices, improving processes, and eliminating procurement risks. 

4 Types Of Procurement Analytics

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Procurement analytics isn’t just about tracking spend it applies different methods of analysis to provide insights at various stages of decision-making. These can be grouped into four types:

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1. Descriptive Analytics

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Analyzes past procurement activities using historical data.

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• Example: Checking the previous vendor performance, compliance with contracts, and by category spending.
• Advantage: Provides procurement heads with an insight into purchasing trends and areas of inefficiency.

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2. Diagnostic Analytics

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Explains why procurement problems occurred by identifying root causes.

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• Example: Finding out why supply lead times were higher or why there was a budget variance.
• Advantage: Assists in determining the underlying causes like supplier reliability, mismanagement of contract or spikes in demand.

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3. Predictive Analytics

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Uses data models and forecasting to show what is likely to happen next.

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• Example: Forecasting price increases in SaaS renewals or predicting supplier delivery delays based on historical trends.
• Benefit: Enables proactive planning and negotiation strategies.

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4. Prescriptive Analytics

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Recommends what should be done by providing actionable insights and optimal decisions.

• Example: Suggesting which SaaS contracts to consolidate, which vendors to renegotiate with, or how to balance inventory levels.‍
• Benefit: Turns data into strategy, guiding procurement teams toward the most cost-effective and low-risk actions.

Data Sources for Procurement Analytics

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The precision and effectiveness of procurement analytics depend on the quality of data it uses.These data sources may be divided into two broad categories internal (in the organization) and external (outside market and supplier data).

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Internal Data Sources

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1. Purchase Orders (POs) - Documentation of all the accepted purchases orders such as cost, quantity and schedule.
2. Invoices- Supplier billing data that aids in monitoring payment terms, variances and compliance.
3. Contracts and Renewal Data - The information on the agreed pricing, SLAs, renewal schedule, and negotiated terms.
4. Accounts Payable Records - Payments, outstanding and cash flow are affected.
5. ERP/Finance Systems Central financial data, budgets and expense allocations.
6. SaaS Usage Data License usage, log-ins, and feature adoption by application.
7. Inventory and Warehouse Information Stock, carrying cost, storage cost and shrinkage/losses.
8. Supplier Performance Records- On time deliveries, rejections, dispute records and compliance audits.
9. Expense Reporting Data & Credit Card Data -Unauthorized SaaS or vendor purchases by employees (shadow IT).
   
   

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External Data Sources

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1. Supplier Price Lists and Catalogs - Direct quotes on the market rates and products availability with the vendors.
2. Benchmarking Databases Industry standard price, expenditure benchmarks, and performance.
3. Third-Party Risk Databases Vendor credit ratings, compliance certifications, and security risk information.
4. Market Price Indexes SaaS market price, commodity, and exchange rates.
5. Industry Report (Gartner, Deloitte, etc.) – Information about procurement trends, SaaS implementation, and ROI rate.
6. Regulatory Data - The regulatory requirements (GDPR, SOC 2, ISO 27001) that influence the qualification of the vendors.
7. Geopolitical/ Environmental Data- Data on disruptions such as wars, natural disasters or pandemics.
8. Peer Reviews and Analyst Reports- Reviews of other organizations on reliability and performance of a vendor.
9. Contractor and Supplier Networks - Wider supplier ecosystems that disclose the risks of fourth-party or subcontractor.
   
   

Benefits of procurement analytics

Procurement analytics can initially seem complex to managers due to varying data types and impacts across industries. However, its benefits are widely recognized and consistent across different sectors:
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Solve procurement challenges 

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Procurement analytics enables a team to address sourcing, purchasing and accounts payable challenges before they cause a disruption in the supply chain. With historical data, market references, and foresight, procurement leaders can fix the inefficiencies at an early stage and create enhanced collaboration, shorter lead times, and lower costs throughout the organization.

Deloitte Global Chief Procurement Officer (CPO) Survey shows that high performing procurement organizations apply advanced analytics to enhance decision-making, with 62% of such companies doing so, as opposed to 27% of their peers. This shows why it is quantifiable that analytics be incorporated in procurement operations.

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Procurement challenges solved by analytics.

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1. Vendor Commercial and Procurement.

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 Analytics is used to compare previous performance of vendors and their prices, as well as, market trends to allow procurement to select good suppliers. This avoids wastage and minimizes risks associated with low quality of vendors.

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2. Cost Excess and Budget Management.

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 With the ability to monitor the real expenditure versus the budgets, analytics helps in quick detection of variances and gives visibility of cost drivers. This guarantees superior predictions and discipline of the budgets.

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3. Contract and Renewal Management.

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 Analytics point out under-utilized licenses, duplicate contracts and renewals. This will avoid last-minute renewal at high costs and enhance the success of negotiations.

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4. Supplier Lead Times

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 With the help of the analysis of the delivery tendencies, the procurement will be able to find vendors that delay constantly and make certain alternatives. This will provide a smoother planning of production and eliminate bottlenecks.

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5. Paying accounts Inefficiencies.

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Analytics can detect invoice errors, overdue payments, or irregularities in accounts payable leading to faster payments and stronger supplier relationships.

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6. Supply Chain Risk

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 Geopolitical, financial or operational factors can be monitored and analyzed using data, which allows procurement to become diversified and reduce its reliance on high-risk suppliers.

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7. Inventory Management

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 The procurement analytics will offer demand forecasting and consumption trends that will assist in maintaining optimal inventory levels and reduce carrying costs.

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Lower costs

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The Procurement leaders are subject to constant pressure of meeting the cost control demands and getting value out of the vendors. Using solutions, such as Spend Analytics, teams will have a profound insight into spending trends, compare prices to industry rates, and enter smarter contracts.

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Case Study: How Spendflo Reduced SaaS Costs for a High-Growth Tech Company

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One of the rapidly expanding SaaS companies chose Spendflo to manage its vendor expenses. Within the first year:

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• Saving of costs through optimization of SaaS licenses and renegotiations with the vendors amounted to 375,000.
• The contract leakage was minimized 40% as Spendflo found a difference between contracted value and real usage.
• More than 100 SaaS applications were merged, which removed duplicate applications and shadow IT.

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Mitigate risks

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The whole supply chain, inclusive of delays in deliveries and compliance problems can be destabilized by unparalleled dangers. Procurement analytics makes the spend data transparent and provides the data on vendor performance metrics, including delivery times, acceptance rates and rejection rates. This assists the procurement managers to filter and eliminate vendors with poor performance as well as establish trustworthy alliances.

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These are the major kinds of risks that procurement analytics can help in alleviating:

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1. Supplier Performance Risk

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The failure of vendors to meet deadlines during delivery or deliver goods of poor quality is able to derail projects. Models identify such patterns at the initial stage to help the procurement teams to change the suppliers to more credible ones.

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2. Financial Risk

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Sellers with unstable economic conditions might default their obligation. Procurement analytics allows the monitoring of cost trends and contract adherence to alert of financial distress before it turns into an issue.

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3. Compliance and Regulatory Risk.

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Failure to adhere to regulations or contractual provisions may cause fines and publicity. Analytics also provides a view on the compliance to contracts, certifications, and audit trails.

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4. Operational Risk

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There are unexpected upheavals like strike, lack of labor supply or unexpected capacity constraints which can stop the operations. The tracking of trends in the performance of the supplier assists procurement to plan the alternatives.

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5. Supply Chain Disruption Risk.

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Suppliers in a certain region can be affected by events such as geopolitical tensions, natural disasters or pandemics. Analytics will diversify the vendors, and there will not be a dependency on one supplier or region.

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6. Reputation Risk

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Collaboration with vendors associated with unethical business can harm the brand image. The analytics of procurement gives a more accurate insight into the history of the vendor and compliance and makes sure that it complies with corporate values.

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Procurement Analytics Tools

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Procurement analytics can be powered by different types of tools, depending on the depth of analysis and automation required. Broadly, these fall into three categories: Business Intelligence (BI) tools, dedicated procurement software, and AI-driven platforms.

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1. Business Intelligence (BI) Tools

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General purpose platforms like Tableau, Power BI, or Qlik which consolidate procurement data collected by various sources and visualize it.

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• Strengths: Resourceful dashboards, data visualization, finance/ERP system integration.
• Limitations: Data must be prepared by hand, it is not designed to support procurement processes.
  
  

2. Dedicated Procurement Software

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Solutions like Coupa, Ariba, or Jaggaer designed for procurement operations.

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• Strengths: End-to-end procure-to-pay (P2P), contract management, compliance monitoring, and spend control.
• Limitations: Can be complex to implement, require training, and may not optimize SaaS-specific spend.
  
  

3. AI-Powered Procurement Platforms

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Next-gen apps, such as Spendflo, which involves analytics, automation, and expert services.

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• Strengths: Live spend analysis, vendor benchmarking, automated renewal alerts, SaaS license optimization, and built-in negotiation support.‍
• Limitations: Only works well with SaaS-intensive businesses and mid-to-large enterprises.

Tool Comparison Table

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Here’s a visual-style chart comparing the three categories:

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8 procurement metrics and KPIs to track

Procurement teams use KPIs to gauge the effectiveness of their operations. The most relevant KPIs vary by organizational goals and industry, but there's a common set tracked by most teams: 
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Cost-Related KPIs

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1. Spend vs Budget

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Monitors the level of accuracy in the actual procurement spending against the planned budget. A less desirable variance is indicative of improved forecasting and financial discipline.

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• Benchmarks: Leading performers maintain variance rates at 5 per cent, whereas average organizations lie at 8-12 per cent. World-class teams have 95 per cent or more budget compliance.
  
  

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2. Spend Under Management

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 Determines the amount of total expenditure that is under the control of procurement. Increased figures imply greater exposure and greater control over costs.

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3. Purchase Price Variance (PPV)

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 Compare the normative (anticipated) price with the actual price paid. Reduced variance implies the improved negotiation with suppliers and control of costs.

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4. Price Competitiveness

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 Assesses the offerings of suppliers in relation to the market standards in terms of price. It does not only incorporate the purchase cost but the overall ownership costs such as logistics and maintenance costs.

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5. Inventory Carrying Cost

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 This is the total expenditure of inventory, such as rent, salaries, utilities and losses. By maintaining this at a low level and optimum stock levels it assist in releasing the working capital.

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Performance-Related KPIs

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6. Procurement ROI

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Determines the profitability of the procurement functions by dividing costs savings by the procurement costs.

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• Case Study: An example of a company is a mid-market SaaS which was able to save 500,000 dollars, migrate 70% of SaaS spending to under management in 60 days, and liberate 4 hours per user of finance to Spendflo- and realized a 3x ROI in the first year.
  
  

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7. Supplier Lead Time

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 Monitors the duration of the supplier to deliver goods upon receiving an order. The reduced lead times translate to responsiveness and agility.

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8. Supplier Compliance Rate

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 Measures the frequency of supplier compliance (price, quality, timelines). Compliance is high minimizing risks and inefficiency in operations.

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Risk-Related KPIs

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9. Cost Avoidance

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Concentrates on avoiding unexpected expenses not included in financial statements but whose impact is on profitability.

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• Example: Protection against interference in a business by geopolitical circumstances or natural disasters through pre-established alternative vendor agreements.
• Industry Reference: According to the Global CPO Survey conducted by Deloitte, risk management and cost avoidance are the priorities of the top procurement teams.
  
  

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10. Exchange Rate Exposure

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 It is also known as currency risk and it is a measure of the variations in the cost of procurement in case of the sourcing of suppliers located across the world. To reduce this risk, teams usually enter into a fixed-price contract or find a supplier beyond the supplier base.

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Efficiency-Related KPIs

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11. Procurement Cycle Time

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 The time taken to make a requisition into a purchase order. Shorter cycles decrease the bottlenecks and enhance efficiency in operations.

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12. Average Payment Term

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 Determines the mean days of payment of the supplier invoices. Long-term as compared to accounts receivable assists in maintaining good cash flow.

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13. Negotiation Cost Savings.

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 Monitors the variation of the supplier quote and the negotiated price. This underscores the direct savings brought by procurement.

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Get expert guidance on tracking procurement analytics with Spendflo

Spendflo is an advanced SaaS buying and optimization platform that enables procurement teams to track spend analytics, gather deep insights, and make data-backed decisions. The intuitive saving dashboard can help your procurement team stay on top of critical indicators in a matter of minutes. 

Here’s what you can achieve with the platform:

• Get a complete understanding of the overall SaaS spending
• Keep track of the most expensive SaaS contracts
• Monitor the timeline of your requests and remove bottlenecks
• Understand spending across different departments and identify where you’re overpaying
• Never miss renewals by tracking them in a calendar format

Read this case study to learn how the Digital Experience Platform (DXP) Crownpeak used the Spendflo dashboard to get timely reminders on SaaS renewals and save 30% on their annual SaaS expense.

To understand how Spendflo empowers your procurement team with relevant metrics, get a free savings analysis from our certified procurement experts today.

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Frequently Asked Questions

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1. What’s the difference between procurement analytics and spend analytics?

Spend analytics is a subset of procurement analytics.Spend analytics focuses mainly on analyzing historical expenditures to uncover cost-saving opportunities and trends, while procurement analytics goes further covering supplier performance, contract management, risk tracking, and predictive insights.

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2. Can small companies benefit from procurement analytics?

Yes. Also small businesses struggle with such issues as vendor sprawl, shadow IT, or lack of visibility of contracts. Procurement analytics enables them to have control, make better deals and not waste money without having a huge procurement department.

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3. What if our procurement data is messy or incomplete?

That’s a common challenge. The initial one is data cleansing, standardization of supplier names, duplicates, and alignment of categories. A lot of contemporary services, such as artificial intelligence solutions such as Spendflo, streamline much of this, so you do not have to load your staff.

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4. What’s more important: advanced analytics features or ease of use?

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The two are important, but they will be adopted depending on ease of use. The features of advanced features are only good when they are used by the teams. Such a platform as Spendflo comes to the rescue of balance and provides AI-based analytics, presented as a convenient dashboard, supported by procurement specialists.

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