What is Spend Analysis: Examples, Benefits, Best Practices and KPIs

With these features, a centralized procurement system will significantly accelerate the whole spend analysis process and enable you to stay regular. It’s tedious and Online Bookkeeping time-consuming to search for vital information for spend analysis when there’s no centralized approach to creating and storing procurement documents or when there is no supplier/item catalog. If you want to focus on suppliers, you may also group them based on payment terms, spend category, purchase frequency, and other criteria important to your company. Clean spend data helps to avoid mistakes and confusion in spend analysis results as it implies that all the information is checked and verified. In many companies, there is no centralized system for spend data, which is instead scattered across different business units, departments, and facilities.

Benchmarking Dashboard: Tips for Better Insights

Then, companies can benefit by substituting these items for cheaper solutions. First and foremost, spend analysis helps companies achieve transparency when it comes to how much money is spent and on what items. It also reveals insights about suppliers and the terms business is conducted under. As a sourcing manager, the primary driver for conducting a spend analysis is to meet your cost-reduction goals.

Final tips for a better taxonomy

• The expansionary monetary policy aims to increase spending by lowering loan interest rates to encourage people to borrow money and spend.
• This segmentation allows Coca-Cola HBC to prioritize relationships with key suppliers and negotiate more effectively, thus ensuring a stable and cost-effective supply chain.
• This strategic use of integrated spend analysis solutions strengthened American Eagle Outfitters’ vendor relationships and enhanced its overall procurement efficiency.
• You may also identify spend leakage issues, such as purchasing from non-preferred vendors and maverick spend.

Businesses can use a spend analytics solution to achieve cost savings and improve contract management, prices, and payment terms by improving procurement operations, sourcing strategy, and controls. Modern spend analytics software offers a range of powerful features that help businesses optimize procurement, reduce inefficiencies, and drive cost savings. Spend analysis is a process that helps businesses understand where their money is going. By examining financial data in a systematic way, organizations can identify patterns in their spending habits, pinpoint areas where they can negotiate better deals, and locate potential savings. The next step involves spotting data sources across every business department so that the organization doesn’t limit itself to the information received from the purchasing team only.

Step 5: Edit Your Spend Report

Interactive dashboards are responsive to real-time updates and can easily organize various streams of information into multiple formats. Because interactive dashboards can typically be customized to best match your needs, this option is great for digging into information and gaining both granular and big-picture insights. By analyzing contract spend, procurement teams have better insight into securing the best contract deals so buyers opt for preferred suppliers. A tail spend analysis centralizes this information and provides end-to-end visibility. Direct procurement spend is the purchasing of products or services that are required to produce value for customers and, as a result, generate revenue. Indirect procurement spend is the purchasing of services or products essential for day-to-day business operations but which don’t necessarily provide a direct value to customers or generate revenue.

This step categorises spend into spend categories (e.g. IT, raw materials, logistics), aligned to internal or industry-standard taxonomies like UNSPSC. Spend by category is the foundation for any further analysis of direct and indirect spend. Part of spend analysis is grouping expenditures into direct and indirect spend categories. Direct spend is for product inventory and supplies used directly in manufacturing products. Procurement needs to evolve from a tactical function into a strategic business partner. The ability to transform raw spend data into actionable intelligence has become a critical competitive advantage.

If you’re not ready to invest in spend analytics software, you can regularly update a spend cube using commonly used business intelligence tools like Power BI or Tableau. Spend analysis software is a specialized tool designed to help procurement teams bookkeeping gain a deep understanding of their organization’s spending patterns. By analyzing spend data, organizations can evaluate supplier performance based on factors such as delivery times, quality of goods or services, and compliance with contract terms. This comprehensive evaluation helps identify top-performing suppliers and those that may require improvement.

• BI platforms process large datasets in real-time, enabling procurement professionals to work with the latest data.
• The spend cube is a way to look at spend data projected as a multidimensional cube.
• Connecting Carbon emission data to your spend can help reduce your Scope 3 emissions.
• Machine learning (ML) has been instrumental in making this classification more accurate and scalable.
• It helps startups measure their progress in reducing expenses and optimizing their procurement processes over time.

If the data accumulated by the company is inaccurate, it cannot offer any valuable insight. Hence, businesses must review the accumulated data thoroughly to spot errors and rectify them. The three core areas of spend analysis are visibility, analysis, and process. Pareto charts, based on the 80/20 rule, visually highlight the key suppliers or categories that account for the majority of spend, aiding in opportunity identification.

The advantage of these consistent and scalable methods is that spend analysis can be done faster, more scalably, and repeatedly. Spend analytics is the adaptation of data analytics to meet the  needs of procurement. This makes cleaning and analyzing data easy, with results and updates reflected in real time with seamless data integration. That means you can connect your existing data sources — such as Excel, ERP, or e-procurement or invoice systems — so all stakeholders are looped in and flows of communication are open. If the level of spending is too high or much higher than the acceptable level, then that is a sign of purchases being made outside the defined spending policy and scope.

External Data

At Art of Procurement we track over 25 different procurement analytics software providers from emerging best-of-breed tools to full-suite solutions for large enterprise organizations. A supplier spend analysis measures how much a company spends on goods and services from suppliers or vendors. This type of analysis gathers data related to supplier invoices in order to identify patterns and opportunities to increase savings. Payment term spend analysis looks at the payment terms you’ve agreed on with your suppliers and how these terms impact your cash flow and potential cost savings. The tool also revealed shadow spend and improved supplier landscape visibility, ultimately driving substantial cost savings and optimizing their procurement processes. Track key performance indicators (KPIs) like cost savings, compliance rates, or supplier automated spend analysis performance after implementing changes.