Spend analysis is a process that identifies, cleans, categorizes, and analyzes your business spend data. . However, there is more to this question than meets the eye. The process of spend analysis has specific goals of efficiency and saving money by increasing visibility into spend, which can decrease overall procurement costs.
Read on to learn more about the benefits of spend analysis, the process, methods, and why implementing it correctly . is vital to procurement and the supply chain. We’ll also cover why choosing the right spend analysis software is critical to success.
What Is Spend Analysis: Choosing the Right Software
An important piece of modern-day spend analysis in procurement is choosing the right software. Previously, companies would use software such as spreadsheets, which were difficult to use and manage. Today, you have many spend analysis software options from which to choose. They can help automate your process and streamline procurement and eSourcing. Some include:
- Licensed software. This software is licensed and sold to you by a company. This is usually sold as a one-time lump sum purchase. However, large upgrades may require more licensing.
- In-house software. This is created and designed for a company’s particular needs. It can be added to an existing procurement software, or it can stand alone.
- Software as a service (SaaS). This software is a subscription and is typically not housed locally. (It is often cloud-based).
The right software for you often depends on whether you’re a small business or an enterprise. You should look for some features in procurement spend analysis software. Some of these include:
- In-depth spend analysis reports
- Real-time spend alerts
- Ability to set spend thresholds
- Transform and integrate source spend data from key systems into one data set
- Ability to bid in real-time in eSourcing
- Savings tracking and savings opportunity tools
- Ability to integrate spend data to support source-to-pay cycle activities like supplier management, spend management, and savings project management
- Ability to log on 24/7 from any of your devices
- Business intelligence and analytical spending analysis reports
- Ability to perform RFx (RFP. RFQ, RFI, etc.)
These are only a few features that the right platform can offer. However, these are important to achieve cost-effectiveness and savings. One of the most important things when you make your choice is that the product is user-friendly and intuitive to use. If your team and vendors are confused by the change, and there’s quite a learning curve, eSourcing, procurement, and the supply chain may be affected by improper spend analysis.
What Is Spend Analysis: Key Terms to Know
There can be spend analysis challenges, and things can get confusing sometimes. Let’s review some key terms that describe what is spend analysis? These include:
- Spend data management. This is a process in which data is collected, sorted, and managed.
- Spend data. Spend data is information on a company’s overall spend, not just spend data with vendors and suppliers.
- Spend analysis. What is spend analysis? A more straightforward definition of spend analysis is analyzing spend data to increase efficiency, save money, and improve supplier relationships.
- Spend analytics. Spend analytics is collecting, classifying, analyzing, and cleansing data, often using a suite or spend cube.
Do note the differences between spend analysis and spend analytics, as the terms are not used interchangeably.
What Is Spend Analysis: The Spend Analysis Process
The three core areas of spend analysis are visibility, analysis, and process, and generally, there are seven steps in procurement and spend analysis. These include:
- Identifying all of your spend. As the process moves forward, you’ll want to perform processes like supplier spend analysis and tail spend analysis. You also want to look at your general ledger, pCard, accounts payable, and your procurement systems.
- Centralizing your data. Gather all of your spend data and ensure that it is in one centralized location. This may be difficult if some items are in different languages or currencies, but the right platform and analysis tool can help streamline this job.
- Cleaning your data. This includes finding errors and making corrections. You will enable a good outcome if your data is very clean, and you’ll be able to make better business and procurement decisions.
- Supplier management. The next step is to group by supplier—for example, some vendors have parent companies.
- Categorize. Next, it’s time to categorize your data. There are classification systems such as UNSPSC and ECLASS, but you can use your own company-specific classification system if that is a better solution.
- Analyze. Finally, it’s time to analyze and measure the data against KPIs (key performance indicators). Ensure that you track savings and cost reduction, but some companies may focus on supplier compliance management and strategic sourcing.
- Repeat. Going through the process once can be great for your procurement game, but you’ll want more practice. Go through the process a second time and compare your results.
What Is Spend Analysis: Most Common Spend Data Types
When you look at your spend data, you’ll be looking at these most common areas:
- Vendor and supplier data
- Enterprise resource planning (ERP) tools
- Purchase orders (POs)
- Data from transactions
- Credit ratings
- Risk reviews
These are in addition to the aforementioned general ledger, one of the things you must look at and ERP tools.
What Is Spend Analysis: Benefits of Spend Analysis
There are many benefits to spend analysis, and they go beyond cost-effectiveness and efficiency. As you ask, “what is spend analysis?”, think about your specific goals for your company. Spend analysis has very clear goals and benefits, such as:
- Because spend analysis tools are built to automate, it removes subjectivity and human error. This more formalized process leads to better outcomes.
- Spend analysis builds trust, not only between you and your procurement team but with your suppliers, vendors, and strategic suppliers, too. Team members also feel more confident when all of the information is concise and in a centralized location.
- Of course, the biggest benefit of spend analysis is finding ways to save. You can also do these by setting performance benchmarks and developing procurement strategies.
- Makes handling contracts and bids easier. Since you have all of your supplier and vendor information in a centralized location, you can make better decisions when it comes to eSourcing. Visibility is so vital for supplier compliance and management, and the correct spend analysis tools can help eSourcing and your eAuctions run more smoothly.
Interested in spend analysis software that can help streamline your procurement process? Contact a Simfoni representative today for a quote.