Posted by Data Stems ● May 26, 2021 11:45:00 AM
What is Spend Analysis and Why it Matters?
The process of identifying, collecting, grouping, categorizing, cleaning and analyzing the organization’s spend data is referred to as spend analysis. Its goal is to improve efficiencies by maximizing visibility, finding cost reduction opportunities, and reducing procurement costs.
Critical Parts Of Spend Analysis
- Spend Visibility
Conducting a proper spend analysis will give you complete transparency and visibility into your spending. Whether you are doing spend analysis for the first time or the fifteenth time, you want it to succeed. How? By using KPIs (key performance indicators), you can quantify success. To get spend visibility, identify all sourcing-related and procurement data sources. Gather all data into one location and cleanse it for more accurate processing. Lastly, categorize materials and data into logical hierarchies.
- Spend Analysis For Maximum Versatility
Once all data are organized and cleansed into relevant categories, it’s time to start analyzing. Follow trends and demonstrate that you are leveraging vendor data to get competitive rates. Spend analysis data is highly versatile; therefore, use this pool of spend information to determine your spending flow. This can help you improve relationships with suppliers and develop the right approach to supplier management. Supplier data are the least utilized and least visible among many procurement teams, and your business has a huge opportunity to stand out from the competition by taking its advantages.
Moreover, your supplier data and purchasing can help other departments budget and plan, manage inventory, and create a strategic sourcing roadmap.
- Improving The Procurement Processes
This is the step to start planning your process roadmap or applying course correction where essential. To improve procurement processes, you need credible data gathered from spend analysis. This data will allow you to transform the procurement processes from strategic to technical sourcing. How? You can use fact-based data to alter behaviors and enhance your decision-making. For instance, you can develop a spend report with every lap of spend analysis. Over time, you can compare results, and determine how behaviors and processes have changed.
WHY SPEND ANALYSIS MATTERS
- Greater Visibility On Expenditures And Suppliers
Companies can acquire greater visibility and valuable information on the money it spends through the use of spend analysis. Information including expenses for buying services/materials and suppliers who incur high costs can allow organizations to modify and adapt proficient procurement practices to manage categories and supplier relationships efficiently.
- Manage Risks
Working with the same suppliers for years can incur two risks. If vendors rely on your spending and you decide to change suppliers, then they can cause publicity issue. Secondly, if you rely on particular suppliers and they want to step back, your business could run out of services or goods that are important for your production line. Enriching the spend information with the supplier’s credit scores and annual revenue data will allow you to assess your business’s overall failure risk.
- Optimize Working Capital
One of the quick wins of robust spend analysis is optimized working capital. Identifying categories and vendors with feasible payment terms offers a great starting point for saving working capital.
- Benchmark Internally
Spend analysis offers the opportunity to benchmark performance internally across your business units in multiple locations. This paves the way for significant compassions for strategic decision-making. Gathering and organizing spend data in one place allows you to answer a wide range of questions like spend by category, the average number of suppliers, and which suppliers generate maximum cumulative revenues. Determining this is essential to set targets for achievable and realistic improvements.
- External Auditing
An external expert auditing the data can identify multiple opportunities and risks that the internal team might miss. Spend analysis when used with business development processes can potentially allow the business to maximize its competitiveness while maintaining a low level of risk. The cost of hiring an expert to perform external auditing can be higher, but it can bring potential advantages.
By focusing on spend analysis, firms can facilitate cost reduction to impact the company’s balance sheet positively. Spend analysis is not all about understanding and identifying the expense pattern of business, but it can help in categorizing data patterns and providing meaningful insights to devise effective procurement and sourcing strategies.
In today’s world of increased automation, an organization with different business units can have other ERP solutions and accounting systems to manage overall day-to-day transactions effectively. Therefore, efficient analytics software is essential to assist in aggregation, classification-categorization, and cleansing of the business’s spend.
Here at Data Stems, our highly proficient team builds automated programs specifically for your business’s unique needs. We develop accounting software, robust Point of Sale systems, and various ERPs to automate your business processes easily. We use an intuitive approach to build optimal software to make your workflows flexible and put users in control. We automate approval-based, form-intensive processes across different departments, whether it’s business planning, development, sales, marketing, and many more, to drive the highest functional performance and agility levels.