Spend analysis 101: how to optimize your procurement process
Spend analysis helps reduce costs, increase efficiency and improve supplier relationships. Using advanced analytics and data visualization capabilities, spend analysis tools answer the 5 Ws and 1 H of a company’s spending.
Spend analysis is the practice of analyzing and optimizing procurement spend that maximizes value for the organization’s dollar. It decreases costs by identifying long-term saving opportunities, increases efficiency and improves supplier relationships.
It’s an aspect of spend management that has a significant effect on the supply chain. It assesses the who, what, why, when, how and where of an organization’s spending.
Spend analysis seeks to answer three questions:
- How much is being spent?
- Which suppliers are being requisitioned?
- Is the organization getting what was promised?
Gartner says that enterprise IT spending on public cloud computing will overtake spending on traditional IT in 2025. When it is not uncommon for companies to spend 5 million on SaaS licenses, analyzing SaaS spend is essential.
In this guide, you will learn:
- The difference between spend analysis and spend analytics
- How to carry out spend analysis
- How to choose the best software to conduct your spend analysis
Why is spend analysis important?
APQC’s Open Standards Benchmarking in Procurement reveals that organizations with spend analysis programs have better procurement operations, supplier relationships, process efficiency, cycle time, cost effectiveness and staff productivity.
Thus, spend analysis helps to:
- Generate more accurate budgeting and spend forecasts
- Identify unauthorized spending
- Consolidate or take advantage of similar products or services
Spend analytics vs. spend analysis
Spend analytics and spend analysis are used interchangeably, but they have different meanings.
While spend analytics involves collecting, cleansing, classifying and analyzing data using dedicated software, spend analysis involves analyzing spend data to reduce costs, increase efficiency and improve supplier relationships.
Spend analytics begins with the collection and cleansing of data to ensure it is accurate and reliable. Next, it is classified and consolidated to organize it into meaningful groups and comprehensible categories. This data is then combined with external sources, it is ready for spend analysis.
In spend analysis, procurement teams study specific segments of the spend data to enhance visibility into corporate expenditure, drive performance improvement, ensure contract compliance and save costs. When SaaS companies perform a similar exercise to analyze usage of SaaS tools and rightsize spending, it is known as SaaS spend analysis.
Procurement spending analysis establishes a benchmark against which progress can be measured, enabling organizations to gauge improvements and make informed decisions regarding strategies aimed at achieving short- and long-term savings.
How to perform spend analysis
There are six general steps in spend analysis:
- Identify and capture spend data
Begin by identifying all sources of spend data within the organization, including accounts payable, e-procurement, global mass payments, tail spend and the ERP system. Ensure that spend data from all business units is captured even if it resides in siloed systems. This data should flow into the general ledger for accounting purposes.
- Cleanse and standardize spend data
Cleanse the spend data by standardizing formats, eliminating errors and addressing any blank fields. Given the diverse sources of spend data, standard formatting may not be consistently applied.
- Centralize spend data
Store all the cleansed spend data in a centralized database so that it can be accessed for meaningful analysis.
- Automate spend data analysis and reporting
Use spend software to automate the analysis of spend data, which increases visibility into suppliers, spending patterns and cost-saving opportunities. It also reduces errors, enhances spend control and streamlines vendor management.
- Make informed decisions
Base your decision-making on the visibility, reports and recommendations provided by the analysis. Apply a cost-benefit analysis filter when considering potential changes to purchasing processes or procurement practices aimed at cost savings.
For instance, consider implementing a software-based tail spend management e-procurement system for low-cost repetitive purchases like office supplies. This can help control maverick spending while allowing employees to use company-approved payment methods.
- Implement decisions and continuously improve
Once the spending analysis is complete, implement the decisions made based on the analysis. Make impactful changes to save money, improve procurement processes and enhance controls.
Spending analysis is a repeatable process that should be continuously carried out to drive ongoing improvements.
Benefits of spend analysis
Here are some of the benefits of conducting a spending analysis:
- Cost savings: By analyzing spending patterns, an organization can reduce costs and improve financial performance.
High-growth companies have hundreds of SaaS tools in their arsenal. Due to the decentralized buying process, there are duplications or unused subscriptions leading to waste of money.
- Improved supplier management: The one-off agreement during procurement may not serve the best interest of the organization over time. By analyzing spends, organizations gain visibility into supplier performance allowing them to make informed decisions about supplier selection, consolidation and contract re-negotiations. This improves supplier relationships and drives better value from suppliers.
- Risk management: Potential risks associated with suppliers, such as over-reliance on a single supplier or poor supplier performance, can be identified. A consolidated view of the supplier information enables proactive risk mitigation strategies and ensures continuity of supply.
- Enhanced compliance: Organizations can ensure compliance with regulatory requirements and internal policies by analyzing historical spend data. Spending analysis identifies non-compliant spending, enabling better tracking of contract compliance. It helps ensure adherence to procurement guidelines.
- Strategic decision-making: With insights derived from spending analysis, organizations can make informed strategic decisions regarding sourcing strategies, product rationalization and supplier consolidation.
Spend analysis software
Spending analysis software is a powerful tool designed to streamline spend data and automate analysis. It provides comprehensive visibility into spending patterns, supplier performance, and potential cost-saving opportunities. By leveraging advanced analytics and data visualization capabilities, spending analysis software empowers procurement professionals to make informed decisions and optimize their procurement strategies.
Types of spend analysis software
- On-premise software: These solutions are installed and hosted on the organization's own servers, providing full control over data security and customization. On-premise software requires IT infrastructure and dedicated resources for maintenance and updates.
- Cloud-based software: It is hosted on remote servers and is accessible through the internet. It offers scalability, flexibility and ease of implementation, as there is no need for extensive IT infrastructure. Cloud-based solutions often provide regular updates and maintenance. Software-as-a-service (SaaS) tools belong to this category.
Key features of spend analysis software
When selecting spend analysis software, here are the features you should consider:
- Data integration: It should be able integrate data from various sources, such as ERP systems, accounts payable and e-procurement platforms to provide a consolidated view of spend data.
- Data cleansing and classification: The tool should cleanse and standardize data and eliminate errors and inconsistencies. It should also offer robust classification capabilities, enabling the categorization and grouping of spend data based on specific parameters.
- Advanced analytics: It should employ sophisticated analytics techniques to uncover trends, identify outliers and perform in-depth analysis. These analytics capabilities provide valuable insights into spending patterns, supplier performance and savings opportunities.
- Data visualization: Intuitive visualizations, such as charts, graphs and dashboards to present spend analysis results in a user-friendly and easily understandable format. This enables stakeholders to grasp key insights and trends.
- Supplier management: Some software solutions incorporate supplier management features, allowing users to evaluate supplier performance, track contract compliance and identify potential risks associated with suppliers.
- Reporting and collaboration: It facilitates collaboration among procurement teams, enabling them to work together on data-driven decision-making.
Why choose Spendflo as your spend analysis software?
Spendflo is a SaaS buying and optimization platform that can help you save up to 30% on your SaaS stack. It helps you gain visibility over your vendors, automate procurement and spend less on every SaaS tool you use.
Some specific features are:
Granular spend attribution: Allows spend attribution based on teams, users and categories. This helps observe spending patterns across different departments. This helps streamline budget allocation across various departments and identify potential saving opportunities.
Monitoring usage: Unlocks usage patterns and drives higher ROI from your SaaS toolkit. You can optimize SaaS spending by understanding the requirements of your team and the value driven from each transaction.
Consolidated data: Consolidates all your SaaS spending data in one platform. Spendflo empowers you to make informed decisions with increased transparency and advanced data integration across various channels such as Slack, Netsuite and G Suite.
Tech stack evaluation: Helps align your tech stack with your organizational requirements. Helps analyze new tools, check compatibility with existing tech stack and provides alerts for new products.
Contract management: Allows you to manage all your SaaS and non-SaaS contracts from one window. Gain greater visibility to manage upgrades, downgrades and renewal with greater ease.
You can save thousands by using a spend analysis software to automate an integral part of the procurement cycle. With robust reporting, consolidated data access and simplified renewal process, you can stay on top of the procurement functions.
Want to know more? Get a free savings analysis today!
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