Most companies and organizations are in their revenues highly dependent on products and services provided by their suppliers. The following figure shows how this dependency varies per industry.
Figure 1 Purchasing volume as a percentage of revenue
The figure above shows that as a percentage of their revenues, retail and automotive organizations spend more on purchased products and services than professional service organizations. However, this says nothing about the risks that these companies run with the relevant supplier. For example the delivery of an IT system for a bank can be just as crucial as the delivery of car windows for a car manufacturer.
When we visit companies, we often see they do not know how much they actually spend on purchased products and services. Furthermore, they are often not aware of how much they spend on a supplier and therefore suppliers are regularly asked to share their sales data with the Procurement department. Which is an undesirable situation for any company.
This situation is caused by the fact that companies often work with different ERP systems in which supplier master data is not harmonized. Orders/Invoices are not posted with the correct cost codes, with the result that it is not possible to gain insights into the products and services that are purchased. The consequence is that companies have limited options to manage their suppliers.
At this moment 80% of the companies create a spend analysis once a year. This is an analysis that provides insight in how expenditures on products and services are distributed among suppliers and departments involved. This gives a one-off look in the rear-view mirror, but in a market that is moving rapidly, you would expect a company to be able to have real time insights in what is being spent, with which suppliers, what risks are involved, what the cash flow looks like, etc.
KPMG recognizes these situations from client engagements and that is why it has launched its procurement analytics solution KREO/Sofy about five years ago. This solution, which ALM (an independent consulting firm evaluator) sees as market-leading, gives a company the following options:
- Transparency in spending: The use of KREO gives companies a complete and up-to-date picture of their spending on products, services and suppliers as well as an overview of key procurement figures.
- Transparency in process: The use of KREO gives the company a complete and up-to-date picture of the entire order-to-payment process including all deviations from pre-set standards.
- Transparency in risks: The use of KREO gives companies insight into how the spend is distributed among suppliers, categories and countries and what the related risks are.
- Transparency in compliance: Many organizations are judged on compliance. This solution automatically provides insight into contract and supplier compliance.
- Identification of savings: The solution provides proactive savings advice such as:
- Which products/services have not been purchased from the right suppliers?
- Which volume discounts have been missed?
- Are invoices paid twice?
- Are payment terms met?
- Are the correct prices applied?
- Optimization of Master Data: Companies can use the solution to clean their master data because the solution provides insights in whether master data is properly included in systems or not.
How does KPMG manage the above? Based on its audit practice, KPMG has developed a solution that analyzes the end-to-end order-to-payment process for unusual transactions. We have extended this solution with procurement operations knowledge. In addition, we have applied matters such as artificial intelligence, computer-based learning and links with external databases to accelerate the optimization of supplier master data and categorization of spend. The result is a solution that is currently seen as leading in the market: KREO.
Do you want to learn more? Or do you have any questions, let us know and contact us.