SPA Strategic Purchasing Analytics: The Path to 2% to 4% Cost Savings

SPA’s Strategic Purchasing Analytics help distributors to quickly and reliably identify and capture cost savings opportunities that are often overlooked in the course of day-to-day cost management.

The data volume and analytical complexity that come with managing the costs of thousands of SKUs can be daunting. As a result, distributors commonly tackle the challenge from a reactive rather than a proactive posture, doing their best to mitigate upcoming cost increases with imperfect data, while rarely finding the time to initiate cost reduction negotiations with their vendors. The outcome of this process is significant missed cost savings opportunities that typically represent 2% to 4% of COGS.

SPA’s Strategic Purchasing Analytics module applies a statistical framework to the problem, efficiently and comprehensively assessing dozens of relevant variables across your entire product portfolio to quantify and prioritize cost savings opportunities and then package those findings into actionable recommendations.

The Strategic Purchasing Cube is a representation of SPA’s statistical model which scores each vendor and each item across three primary dimensions: profitability, cost-to-serve, and leverage.

  • Profitability: the level of return the product is able to earn in the marketplace given its current cost position
  • Cost-to-Serve: the operational expense associated with carrying and serving the product
  • Leverage: your negotiating position vis-à-vis the supplier and the likelihood of being able to realize cost concessions
  • Every vendor is assigned a Profitability rating, a Cost-to-Serve rating, and a Leverage rating
  • Every product is assigned a Profitability rating, a Cost-to-Serve rating, and a Leverage rating
  • The intersection of vendor and product scores feeds a cost savings target
  • A comprehensive profile of each product and vendor’s performance builds the case for cost relief and guides the negotiation with the supplier for improved outcomes