Spend digital twin: A tool for volatility

Investment Rating - The report does not explicitly state an investment rating for the industry Core Insights - The report discusses the significant volatility in commodity markets, particularly in energy, metals, and polymers, with sharp price increases observed from the end of 2021 through 2022, followed by price decreases in 2023 and 2024 [4] - Purchasing organizations are now required to adjust commodity and component prices back to a "fair price" level based on actual raw material costs and energy price developments [4] - The introduction of a spend digital twin is highlighted as a transformative tool for procurement, enabling buyers to gain a clear and real-time view of fair market prices [4][5] Summary by Sections Spend Digital Twin Overview - A spend digital twin allows for a comprehensive analysis of spending, enabling detailed examination of cost drivers at the category level and assessing market developments over time [4] - This tool helps establish a fair market price index that can be compared against actual price progression to identify negotiation points [4] Applications of Spend Digital Twin - Identifying negotiation potentials by comparing fair market price indices with actual price changes [7] - Preparing for supplier negotiations by calculating clawback opportunities and fair price adjustments [7][8] - Supporting the derivation of indexation contracts by analyzing historical price developments relative to fair market indices [8] Performance Measurement and Stakeholder Communication - A spend digital twin aids in measuring purchasing performance and separating market movements from negotiation performance [9] - It facilitates sharing information with cross-functional stakeholders, particularly the sales department, to inform pricing strategies based on cost developments [9] Implementation and Value Capture - Setting up a spend digital twin can take several weeks to months, depending on the model's complexity, but even a basic setup can provide valuable insights [9] - The report emphasizes that leveraging a spend digital twin can enhance procurement strategies, drive cost efficiencies, and sustain competitiveness in fluctuating market conditions [9]