Procurement
• 8 min read
Spend Analysis: How To Manage Procurement Spend
25th October, 2023
SHARE ON:
Spend analysis is a vital step in the procurement process. It provides businesses with actionable insights and data that can lead to savings and increased efficiency.
This article will walk you through the basics of spend analysis, benefits, and the best practices for controlling your costs so you can focus on growing your business.
Businesses today are always looking for ways to improve their innovation and productivity, but one crucial aspect that is often overlooked is their spending. As companies rely on funds to run their day-to-day operations, ensuring that all the money coming into and out of your business is monitored and accounted for properly is crucial.
Imagine a world where you can use data to go beyond the basics of your business: where you can find the absolute best deal for your organization on every purchase, improve business processes and operations, and reduce costs. Sounds rewarding? Yes!
With spend analysis, you can understand your cost projections and optimize resources thoroughly at the lowest price. By identifying trends, setting budgets and adjusting operational plans based on research, you'll be able to drive down costs and save time overall. It gives you tremendous visibility into your spending so that everyone in the organization can make better decisions faster. Let's jump right in and understand the basics of spend analysis.
What Is Spend Analysis?
Spend analysis is the practice of analyzing the spend in a procurement process for business results, reducing costs and increasing efficiency. The best part is that the reports generated from the analyses provide recommendations based on solid facts and not just assumptions. So it's more than just a spending report; spend analysis helps businesses to plan their spend strategy, target vendors more effectively, drive sales growth, and thrive in a changing world.
Spend analysis is frequently considered the cornerstone of sourcing. Executives in charge of sourcing might use it as a tool to design better performance. The knowledge gained from spend analysis leads to cost reductions, performance enhancement, contract compliance, and better visibility into company spending.
Understanding how much your company spends on supplies and services to support its operations is an essential first step in creating a strategic improvement plan. Providing a baseline of information to evaluate performance and then recommending strategies to realize savings helps ensure that you are on track toward achieving your goals.
Why Is Spend Analysis Important?
Spend analysis converts raw data into valuable information. Spend analysis can reveal where to find significant cost-saving opportunities and how to reduce your overall cost to procure goods and services. A typical spend analysis for a small business includes about two hours of work, one hour with an external consultant or advisor, and one to four hours focused on internal analysis.
Spend analysis provides firms with many opportunities to support the expansion of their supply chain and businesses as a whole. It reduces maverick buying, improves delivery performance, benchmarks performance, finds pricing discrepancies, controls risks, and maximizes working capital with its assistance.
These are a few specific ways procurement spend analysis might benefit a company. There are many more reasons why spend analysis is prioritized in many organizations.
Companies may increase their cash flow, cut costs, and accomplish their procurement goals by strategically doing expenditure analysis and making wise selections. Without spend analysis, a company's profit margins and procurement schedule deteriorate.
What Are the Benefits of Spend Analysis in Procurement?
Spend analysis helps companies helps organizations realize the following benefits –
Items running out of stock can disrupt the supply chain. Spend analysis can assist in locating things that are only sourced and build a multi-supplier basis for these items.
Spend analysis provides insights into spending trends and purchasing patterns across the enterprise. This will help you make better, future-friendly decisions.
Spend analysis allows you to create opportunities for supplier consolidation and benchmarking that can help you drive efficiency across the value chain. In addition, economies of scale can be explored within sourcing categories, which can help you drive efficiency and reduce costs at multiple levels along the supply chain.
With a thorough spend analysis, you can manage your working capital in a better way. For example, identifying suppliers with lower payment arrangements frees up working capital for other business needs. You'll also be able to use the proceeds of lower payments in your business to make investments that generate immediate and long-term benefits for your company.
Spend analysis identifies the process challenges and ways to improve efficiency. This can be achieved in several ways, such as by automating repetitive steps, streamlining processes, and eliminating excessive activities.
Spend analysis determines the sustainability profile and impact of an organization. Goals for sustainability are defined and monitored using the results. Against a previously established baseline, it also makes it possible to trace past spending for fact-based savings reporting.
Steps for Conducting Spend Analysis in Procurement
The spend analysis process is relatively simple and will take some time to complete. However, moving forward will be far more straightforward once you've done it the first time.
1. Set your goals
To perform a practical spend analysis, you must determine your analysis's purpose, objective, and goal. For instance, if you are interested in getting more value from suppliers and reducing negotiating time with vendors, then identifying which of your accounts are least profitable would be a good place to start.
Each company is unique, and the overall financial picture will ultimately depend on specific goals. Once you have all your recurring costs lined up, you can better understand where the company will spend money in the future. You can identify fraud or impropriety, ways to save money long-term, and opportunities to increase business revenue by offering a product or service that people need.
2. Identify data sources
Identify various data sources from all company departments to gain a precise picture of your present spending. For example, spending information can be obtained from the general ledger or accounts payable. In addition, you may monitor expenditure data from all sources using e-procurement systems.
Doing this can limit purchases to a select few crucial vendors. Instead, you can divide your spending into many categories and determine all the expenditure data sources from your departments, facilities, and business units. Start by deciding which departments inside your company, such as procurement, finance, and marketing, make essential purchases. And where will you find the spending data? Let's have a look.
For the majority of businesses, the following places have the spending data:
Procurement tools.
Invoice processing.
Payroll software.
The ERP.
Additional financial records and spreadsheets.
Business credit cards and linked bank accounts.
3. Consolidate data
Since the data you're working with, whether first-party or third-party, might need to be more organized, consolidating spend data can be a real challenge. Consolidating spend data is a crucial stage in the analytical process, though. You may maximize your return on investment by consolidating the data into a single, centralized platform via integrations or APIs.
This may be tricky if your data is in multiple formats, languages, and currencies. But there are programs out there that are expressly made to do this. This phase will be significantly simpler if you currently collect most of your spend data on a single platform. If not, concentrate first on gathering everything and then work to organize it into a format that everyone can use.
Establish explicit guidelines and expectations for problems as you gather your spend data to ensure that your analysis is consistent each time you finish it.
4. Cleaning and enriching data
Cleaning is identifying data sets' errors and eliminating faulty records and redundant information. This includes identifying and removing mistakes and errors in descriptions and transactions to ensure correctness. You may determine which contacts in your database are missing information or are irrelevant by performing data cleansing. For accurate information, typos are deleted, and missing codes are verified and fixed.
The practice of enhancing, modifying, and improving unprocessed expenditure data is known as data enrichment. Standardizing the spend data is another aspect that makes it easier to analyze. The header, line-level names, and details are all verified to be accurate and adhere to a particular naming standard by enriching the spend data. As a result, misspellings, abbreviations, and wrongly coded fields are frequently found in data, and specific fields are frequently absent.
5. Classify and Categorize
Utilize company-specific taxonomy or a uniform classification scheme to classify your spending information. Teams can see which categories can be combined or which ones can be negotiated for, which improves spend management visibility and aids in sustained cost reduction. Grouping many suppliers who belong to the same parent firm or organization is a common classification practice.
Additionally, you can combine the data into relevant categories (such as marketing, office supplies, and software) to determine how and where the company spends its money. The enterprise's spending is easier to handle and manage when heterogeneous expenditure data is unified into clearly defined categories. To make better sourcing decisions, procurement can obtain visibility into global expenditure by classifying all purchase transactions into a unified taxonomy.
6. Analysis of Spend Data
Finding opportunities for cost-savings and other procurement improvements is the final step. Analysis can be used to examine various business issues, such as ensuring you have the best contract agreements with each supplier or verifying that customers are buying from favoured suppliers. Solutions like Zluri help you optimize spends and ensure you have access to crucial data that will help you assess how successfully your company is meeting its KPIs. Measure the data you've obtained against key performance indicators using software to help you with this process to see where your spend plan is lacking. Spend data can be evaluated in several ways to reveal insights.
Teams in charge of procurement analyze tail spend expenditure to determine the most expensive purchases so you can streamline the purchasing process for deals. They discover where costs might be further reduced by concluding individual purchases and business spending trends. They examine how you can expedite the processing of invoices to benefit from vendor discounts for early payments. They analyze supplier spending to determine which supplier offers the best ROI and set priorities accordingly. Procurement teams also analyze category expenditure to decide which categories experience the highest overpayment by looking at the category spend data.
7. Share spend report
Here's where your spend analysis pays off, the team leaders and senior managers have a much better understanding of the overall budget and the knowledge of how to allocate their funds. That knowledge will allow these groups to make the right changes and ensure that they result in better ROI. You should ask your team leaders for feedback on what they think has worked well for them and suggestions about areas where there might be room for improvement.
Using simple techniques to put the proper context around your data and draw meaning from it, you'll be in a much better position to make intelligent decisions. And when you do make changes, they should be appropriate and effective – Because taking action on spend analysis is just as important as keeping records. Therefore, you should create a report that is easy to understand, brief, and actionable.
Live and personalized presentations for all those significant stakeholders or a shareable paper they may review at their convenience could be used. The fact that it addresses each issue on an individual basis, however, is what matters most. You'll need to be explicit and ensure the upcoming renewals are significant, if there are any. Practices like these will help the enterprise in the long run.
Manage Your SaaS Spend With Zluri
It would be best if you had a complete and accurate picture of your SaaS landscape to maintain a smooth-running environment. You will be able to see whether or not you need to add new apps and services, if there are overlapped features or duplicates in your app store, or if new tools are eating into your bottom line. And how do you fund that out? Spreadsheets? No! They could be more clunky and time-consuming. Even with the most up-to-date pricing plans, you must remember to update them regularly.
Keep the prices of your plans the same. All you need is an SMP to manage your SaaS Spends. Zluri can easily provide this information to help you simultaneously improve performance and cut costs. In addition, Zluri helps you stay ahead of your competitors by tracking the real-time pricing of all your SaaS subscriptions and plan.
Zluri transforms all the tedious work of managing your SaaS accounts into a simple, easy-to-use platform that takes care of all the account setup and tracking for you. In addition, it lets you manage pricing plans effortlessly, which makes planning your subscription costs a breeze. It also includes an intuitive interface that combines all the tools you need to manage your subscription plans effectively.
Zluri helps you easily manage your spends by tracking application usage & costs with the help of an intelligent system that understands your SaaS ecosystem and then gives recommendations in a few steps. With the help of spend analysis, Zluri effortlessly provides information while simultaneously ensuring that you can use it to make the right choice, and of course! Save money.
Convinced enough to try Zluri? Book a demo today!
Related Blogs
See More
Subscribe to our Newsletter
Get updates in your inbox
