In an economic context where cost optimization is crucial, making the most of your company's purchasing data can become a strategic lever for improving profitability. But how can you turn this information into a real asset? Here's a practical guide to help you do just that.
1. Retrieve data from accounting data
The first step is to extract the relevant data from the company's accounting systems. This information is generally found in accounts payable modules or ERP expense reports (SAP, Oracle , QuickBooks Company , Sage...). To retrieve this data, it is essential to structure your purchase accounting processes properly, in particular by ensuring that each transaction is correctly classified.
The accounting accounts concerned are expense accounts 60, 61 and 62 for operating expenses on the income statement. Also included are balance sheet accounts 23 for capital purchases (investment in progress).
The aim of this first phase is to obtain an overview of the company's purchasing “spend”.
2. Information to be identified
Here's an overview of the accounting data you can use:
- Amount of purchases: Tracking amounts enables you to identify the most important expenditure items. => accessible from accounting data
- Supplier: Identify strategic suppliers for better negotiation. => accessible from accounting data. The supplier's NACE code also provides information on the sector, and therefore potentially on the INSEE indexes to be used for the purchase.
- Type of purchase: Distinguish between supplies, services or work, which facilitates analysis of costs by category => the accounting system can provide some of the information, the rest has to be done “by hand” unless you have defined purchase items that carry this information.
- Nature of purchases: Production purchases (raw materials) or general purchases (office equipment, transport), to understand the breakdown of expenses => idem type of purchases
Commodity purchases: energy, consumables, where prices are often volatile => accounting can provide information: consumables, for example, are in class 60. - Project or investment purchases: These are one-off, often large-scale expenses, requiring specific management => more complex to track, and purchasing information must be carefully enhanced to provide a clear picture of these expenses.
3. Price data and indices
Price monitoring is essential to assess the competitiveness of your purchases. In addition to negotiated prices, integrate economic indices such as those from INSEE or the Comité National Routier to track sectoral cost trends. You can also rely on Banque de France data for currency parity and interest rates. There are many other sources of information, both free and fee-based.
Segmentation of purchasing expenditure by sector enables us to compare price trends within the company with those of the corresponding sector index(es).
In this way, we can approach a breakdown of the “company basket”, i.e. the weighting of the company's various purchasing cost drivers.
For example, an industrial company might have a breakdown of its purchases with :
20% energy (electricity, gas, fuel oil, steam, etc.),
15% raw materials (metals, chemicals, agricultural products ....),
5% industrial supplies (PPE, production tool cleaning products, tools, etc.),
30% machine purchases (machining centers, special machines, etc.: as investments),
25% subcontracted and temporary labor,
5% general purchases (office automation, administration, IT, etc.).
This overview enables us to quickly identify the strengths and weaknesses of the company's purchasing practices.
4. Market sector data and purchasing marketing
Purchasing marketing involves analyzing supplier markets to identify the best opportunities. To do this, it's important to monitor industry trends and the practices of your competitors.
As with sales, there is a purchasing market, and if your company accounts for 50% of purchases in a given market, your position is not the same as if it only represents 1%. Some suppliers may even refuse to supply you, considering you too small a customer. Knowing your purchasing markets and your position in each of them is therefore strategic. This may lead you to modify your product in order to change supply markets, for example, by using standard equipment to return to a more competitive market with more offers.
The data needed to analyze a company's position in a market are both internal and external. Market studies are available for external use. It can also be carried out by specialized service providers. (Xerfi, Les Echos Etudes, Euromonitor International , Consumer Panel Services GfK ...). The Direction Générale des Entreprises provides files that can provide useful information.
For internal data, knowledge of purchasing volumes, prices and quality levels is essential, and gathering all this data is not always easy.
5. Defining internal needs
To buy well, you need to define your requirements clearly. It is at this stage of the process that the greatest gains can be made. Defining the need therefore involves gathering qualitative and quantitative data on the requirement from all internal stakeholders.
Forecasting these internal needs is closely linked to forecasting your overall business activity, and if the synchronization between sales and purchasing trends is poor, the risks are either of having disruptions and not being able to keep pace in the event of an increase in activity, or on the contrary, of adapting too late to a reduction in activity and seeing sales fall below the break-even point. For this reason, purchases that form part of fixed costs need to be closely monitored.
If the need is already covered by a purchase (recurring expense), feedback is essential: quantity, price, quality, disputes: everything must be taken into account.
For a new purchase or an investment purchase, the absence of experience makes it even more important to identify the need, including from a Full Cost perspective in the case of an investment. In the latter case, you also need to take into account the profitability of the investment, which often includes the cost of money.
6. Supplier data: supplier risk
Supplier data goes beyond simple financial information. It's crucial to take supplier risk into account, including solvency, reliability and exposure to geopolitical risks.
See the example of the war in Ukraine, which disrupted the supply chain of certain companies, or the impact of the earthquake in Japan in 2011, and the tsunami that followed, which brought some Japanese companies to a complete standstill for several months.
Specialized websites such as Altares Dun & Bradstreet, Creditsafe and NOTA-PME can provide this information. For large listed companies, there are the 3 big American names: S&P Global , Moody's Corporation , Fitch Ratings, which produce ratings for Credit Risk (debt repayment) as well as Corporate Credit Rating, which assesses a company's solvency.
7. Consumption data
Collecting purchase volumes is just as important as collecting prices. Knowing the quantities purchased makes it possible to detect over-consumption and optimize orders. Looking at purchases in euros alone is not enough. And sometimes, the data needed to get a clear picture of volumes consumed are hard to find... or non-existent!
This is one of the cases in which your company's data, your consumption, is better known ... by entities outside your company, in this case your suppliers, because they keep precise track of quantities and prices, since it's their sales!
8. Calculating Total Cost of Ownership (TCO)
TCO (Total Cost of Ownership) is a method for evaluating the overall cost of a purchase, taking into account not only the purchase price, but also the costs associated with product use, maintenance and end-of-life. It is useful in the case of major purchases and for installations or equipment with a long service life.
9. Integrate data analysis tools
To take things a step further, you can integrate data analysis tools, such as Business Intelligence (BI) or Data Analytics solutions. These tools enable you to cross-reference your purchasing data with other data sources (such as economic indices, the amount of CO2 generated by purchases, quality indicators, etc.) to obtain more refined analyses and make better decisions.
10. Conclusion: A process of continuous improvement
Enhancing purchasing data is not a one-off operation. It's a continuous improvement process requiring constant monitoring, regular adjustments and close collaboration between finance, purchasing and operational departments.
By following these steps, you'll not only gain a better understanding of your spending, but also identify savings opportunities, improve supplier relations and optimize your company's overall performance.