Conducting a Spend Analysis

Spending analysis and tracking of returns is a crucial function for any organization that aspires to perform well. Procurement experts understand that conducting a thorough spend analysis requires exhaustive data to understand the movement of capital and to produce actionable insights for optimizing business processes and produce better profits.

For spend analysis, procurement agents start by collecting data and then organize and clean it for analysis. The analysis is then performed on all internal business units to look at avenues for savings and also to implement strategic sourcing to optimize the supply chain.

Due to ongoing digitalization, most companies have begun to rely on spend analysis software tools, which come either as standalone software or a part of procurement software packages. The software then integrates with all company applications used for transactions and collects the data. These tools make data collection much easier and also have functions to make the analysis simpler. Using these, a procurement expert can identify patterns and issues which can further contribute towards finding a solution to make the business more efficient.

Benefits of conducting a spend analysis:

• Due to the collection of company data at such a vast scale, it becomes simpler for stakeholders to have a more holistic view of the spending.
• Much of the data can be visualised apart from conducting the analysis. The visualised data can then be presented to stakeholders.
• Spend analysis helps in identifying the major cost drivers and the ability to understand the costs better. This, in turn, can be used for reducing unnecessary costs by optimizing the current processes and also dealing with underperforming vendors.
• The insights can also be used to explore saving opportunities by adjusting forecasts to minimize inventory and also to leverage economies of scale to reduce production costs as well.
• Spend analysis doesn’t only help with saving money. A deeper understanding reveals that it also helps in maintaining the current value generation. Efforts such as rehabilitation of vendors and diversification of suppliers provide intangible value to the company that doesn’t necessarily impact the current profits but contributes to the more long-term sustainability of the business.

Read: Optimizing Procurement Spend with AI and Technology

Photo by Jason Briscoe on Unsplash

Steps for performing a spend analysis:

1. Identification of the objective of the study and having a specific goal in mind.
2. Identification of all the sources of data encompassing all business units and teams.
3. Collection and consolidation of all this data in a way that it can be appropriately processed.
4. Cleaning of the data for interpretation and to also ensure that there are no gaps in the data.
5. Categorization of the spending and mapping them to specific suppliers to look at cost drivers
6. Performing a spend analysis by using the relevant tools available in analysis software packages and coming up with understandable and actionable insights to present to the stakeholders.
7. Repeat the same process after an interval to ensure that the actions taken have been effective.

Investing in the right spending analysis tool and hiring experienced procurement agents can provide sustainable, tangible as well as intangible benefits to the business and its supply chain.