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Variance analysis: definition and important aspects for buyers
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Deviation analysis in a nutshell:
Variance analysis is a systematic comparison between target and actual values to identify and evaluate differences in key performance indicators. In purchasing, it enables the early detection of cost deviations, delivery delays and quality problems, allowing countermeasures to be initiated promptly.
Example: An automotive supplier discovers through monthly variance analyses that the actual material costs in the first quarter of 2023 are 12% above the planned budget of EUR 500,000, whereupon renegotiations are immediately initiated with the suppliers concerned.
Contents
Variance analysis: a key component of purchasing controlling
What is variance analysis?
Variance analysis is a methodical tool for identifying and investigating differences between planned and actual results. In purchasing, it refers to the comparison of budgeted procurement costs, delivery dates or quality standards with the realized values. The aim is to identify the causes of deviations and initiate suitable measures for correction or improvement.
Core elements of the variance analysis
Importance of variance analysis in purchasing
In the purchasing process, variance analysis helps to increase the efficiency and effectiveness of procurement activities. By identifying deviations at an early stage, risks can be minimized and opportunities exploited. It supports purchasers in ensuring cost control, optimizing supplier relationships and ensuring compliance with quality standards.
Application of variance analysis in purchasing
Variance analysis in purchasing is used to identify and understand differences between planned and actual procurement costs. By analyzing price and quantity variances, cost overruns can be identified and their causes determined.
Calculation example
Initial situation:
A company plans to purchase 1,000 units of a component at a price of €20 per unit. The planned procurement budget is therefore €20,000.
Actual procurement:
However, 1,200 units were procured at a price of €22 per unit. The actual procurement costs therefore amount to €26,400.
Calculation of deviations:
Price variance:
Price variance = (Actual price - Planned price) × Actual quantity
Price deviation = (22 € - 20 €) × 1,200 units = 2 € × 1,200 = 2,400 €
Quantity deviation:
Quantity variance = (Actual quantity - Planned quantity) × Planned price
Quantity deviation = (1,200 pieces - 1,000 pieces) × €20 = 200 pieces × €20 = €4,000
Total deviation:
Total variance = price variance + quantity variance
Total variance = € 2,400 + € 4,000 = € 6,400
Interpretation:
The total variance of € 6,400 shows that the procurement was significantly more expensive than planned. The price variance of € 2,400 is the result of the higher purchase price, while the quantity variance of € 4,000 is due to the purchase of more units than planned.
Measures:
- Negotiating price reductions with the supplier in order to minimize future price deviations.
- Review of the requirements plan to avoid unnecessary quantity overruns.
- Optimization of the ordering process for better coordination of requirements and orders.
Evaluation and strategic findings
✓ Critical success factors
→ Systematic data acquisition: precise and timely recording of target and actual values for meaningful comparisons
→ Process integration: Integration of variance analysis into existing controlling and purchasing processes
→ Action orientation: direct linking of analytical findings with concrete measures
⚠ Challenges and limits
→ Determining causes: Complex interactions between price and quantity deviations make clear allocation difficult
→ Time delay: Gap between detection and implementation of countermeasures
→ Dynamic markets: external factors such as commodity prices can quickly overtake planning principles
Future trends and strategic implications:
"The integration of AI and predictive analytics will transform deviation analysis from a reactive to a proactive management tool."
→ Automated early warning systems for cost deviations
→ Predictive modeling for price trends
→ AI-supported root cause analysis
→ Real-time monitoring of procurement costs
Conclusion on the variance analysis
Variance analysis is an indispensable tool in modern purchasing, which contributes to the optimization of procurement processes by systematically recording and evaluating planned and actual values. It not only enables the early detection of cost deviations, but also forms the basis for strategic decisions in supplier management. With increasing digitalization and AI integration, variance analysis is evolving from a reactive control instrument to a proactive management tool that helps companies minimize risks and improve purchasing processes in the long term.
