Sometimes organisations who want to incorporate a more substantial spend analysis capability into their procurement process have difficulty articulating exactly why they need special-purpose tools to budget holders and decision makers within their organisation. This article describes the fundamental goals of Spend Analysis and what you can achieve with better data and visibility.
What is Spend Analysis?
The fundamental goal of spend analysis is to gain and sustain a clear understanding of an organisation’s expenditure and how it might be managed better. Spend analysis is clearly an essential tool for strategic sourcing. But using detailed spend information as a basis for discussion also makes it much easier to have informed conversations with buyers and stakeholders, to influence and change behaviour, and to deliver savings and efficiencies.
Spend Analysis has two principle elements. The first is to enable the initial and on-going collection of an organisation’s raw, historic expenditure data from all available sources, and the transformation of that raw data into information that the procurement team can effectively use. The second element is a platform that procurement professionals and others can use to easily analyse and manage their organisation’s spending using that information. Both steps are critical. Good analysis tools are important, but if the data they are analysing is poor, the outputs will be inaccurate which will result in wasted time and effort.
What Can You Achieve with Effective Spend Analysis?
Spend analysis helps you deliver savings and efficiencies for the entire otganisation. It enables you to:
Spend analysis helps you bring more of your spend under management. It enables you to:
- Ensure that all departments are getting the same 'best rates' and terms with each vendor
- Identify opportunities to implement or renegotiate contracts based on actual spend value rather than estimated values or values provided by the supplier
- Use the data in competitive sourcing processes and supplier negotiations to strengthen the organisation's information advantage and negotiating position with suppliers
- Aggregate demand to use the organisation’s full buying power to drive down costs in categories of spend that span the entire organisation
- Identify opportunities for greater internal and external collaboration in procurements
Spend analysis helps you change buying behaviour within the organisation. It enables you to:
- Provide a solid foundation of information for decision making which includes an aggregated view of spend from all systems and transaction types
- Identify the key areas of spend that should be targeted by professional procurement teams
- Identify non-compliant spend, enabling procurement teams to work with buyers and suppliers to maintain a high level of spend under contract
- Profile and manage suppliers according to levels of value, risk, and potential opportunity for savings
- Enable the benchmarking and measurement of procurement performance over time
Spend analysis helps you monitor and maximise the impact of your spend with targeted supplier groups such as:
- Provide key stakeholders with visibility of spend on goods and services that goes well beyond simply whether or not spend was under or over the allocated budget
- Help department managers and people with budget responsibility more effectively manage their spend, save money, and use those savings to deliver on their missions
- Monitor internal and supplier compliance against contracts
- Identify non-compliant spend, then provide the information needed to have informed conversations and take action with buyers and managers
- Identify suppliers with large numbers of transactions where there may be opportunities for accounts payable efficiencies through methods such as electronic invoices or purchasing cards
- Monitor the number of transactions without purchase orders so that the procurement team can take steps to ensure that spend goes through the proper approval processes
Spend analysis helps you increase the capacity of your procurement team. It enables you to:
- Small and medium sized businesses
- Local companies
- Minority owned business enterprises
- Make it easy to access spend information so that time and resources can be focused on delivering savings rather than cleaning up data and struggling with complicated analysis tools
- Identify opportunities for reducing the number of unnecessary suppliers and therefore the administration of multiple contracts, etc
In the next article, we will describe: why not to do spend analysis by yourself, how PROACTIS Spend Analysis makes it so much easier, and a summary of spend analysis benefits.
To learn more about PROACTIS Spend Analysis click here