Proven Trend Analysis Techniques to Boost Sales: Must-Read for Procurement Managers
The advent of the “Big Data” age has made the intelligent acquisition, storage, analysis, and interpretation of all accessible information relevant to a business essential for its survival and competitive edge. Traditionally, spend data obtained primarily from within an organization has been used to make decisions about the business’s current state and future prospects. However, big data analytics has recently come to play a significant role in customer behavior analysis, trend analysis, and demand prediction, particularly in supply-chain management.
Trend analysis involves regression analysis (used if the trend can be assumed to be linear; if the trend is assumed to be non-linear, non-parametric tests, such as the Mann-Kendall test, are used) using historical, current, and predictive data to aid spend forecasting over months, quarters, and even years. The patterns that emerge from this analysis can then be used to make decisions about an organization’s internal financial and operational processes (good processes can be promoted and streamlined and bad processes can be corrected) and external movement through markets (predictions about cost and demand can aid decisions regarding suppliers and fraud and rogue to spend for example).
The following are three major trend analysis techniques that procurement managers can use to make better decisions for their company:
1. Cost forecasting
Cost forecasting uses trend analysis to identify categories that need to be invested in to avoid rising costs and those from which cash can be freed due to flat or dropping costs. Intelligent cost forecasting for current commodity prices; energy, labor, and transportation costs; category-specific spending for the supply chain; and current market prices can aid strategic sourcing, budget decisions, and cash flow maintenance in response to unexpected expenses and opportunities.
2. Demand forecasting
Demand forecasting involves the analysis of data from stock market trends, industry intelligence, and events like regulatory changes, global economic disruptions, and natural disasters to determine their impact on the cost and demand of raw materials and other goods and services required for operations over a given period of time.
Insights obtained can then be used to make good decisions regarding supply chain optimization and the total cost of ownership. They can be used to improve saving and cash flow by buying goods used on a regular basis that is predicted to cost more and to free cash for investment and innovation from the purchasing and storage of expensive goods that may or may not continue being used long-term (due to technology and internal process changes).
3. Currency Forecasting
Currency forecasting involves a trend analysis of global currency and economic conditions to determine an optimal frequency for overall spend forecasting (to keep spending low, minimize supply-chain disruption, and ensure business continuity); improve the accuracy of cost forecasting; identify and invest (time, money, and resources) more in key suppliers for the most business-critical categories; and identify the best suppliers in the best locations with the best currencies in order to improve profitability, value creation, contract management, and supplier relationships.
In terms of sales, here is how trend analysis can help provide valuable information:
1. “Sales by product” analysis can identify products with a steep increase in sales growth and those with a steep decline. It is a judgement on the market performance of a product. For each product sold by an organization, there must be a product analysis
2. “Sales by region” analysis can determine if the sales in a region have hit maturity and aid decision-making regarding the building of a distribution system, retail stores, and/or a regional sales force to build sales in a new region.
3. “Sales by customer” analysis is usually performed for the largest customers of an organization in order to ensure the sales staff’s focus on the organization’s relationship with them in the eventuality of a sudden decrease or flattening of sales for these customers.
4. “Sales by channel” analysis reveals the maximized usage of a distribution channel through a spike in sales and predicts an eventual flattening of sales. A sales channel is the process of distributing a product to the market, typically by segmenting sales operations to focus on different selling vessels. For example, a company might use a channel sales strategy to sell a product via in-house sales teams, dealers, retailers, affiliates, or direct marketing.
5. “Sales by contract” analysis allows the prediction of sales trends by contract till a contract lasts. Once a contract ends, this type of analysis is highly suspect, as the customer may choose to switch buyers without an explanation.
Overall, it would help procurement managers to bear in mind that trend analysis is a major part of spend forecasting and should be invested in, whether through individual hiring or outsourcing of talent, to obtain actionable insights for cutting costs, lowering total cost of ownership, and ensuring the measurable value of and maximum return on investment for an organization.
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