Spend analysis is the technique and process of obtaining and analyzing data from a company’s expenses with the objective of improving monetary performance, expending less, and leveraging optimized orders.
With a spend analysis managers can answers questions such as: what are my major expenses? What are the contracts that takes most investments? Is the performance suitable for the expenses?
Above all, expend analysis seeks to increase profitability. That can be accomplish by reducing lead times, optimizing contracts, improving strategic sourcing and a better supplier management.
How to start spend analysis?
Firstly, you need to perceive the whole cost of your operations. Having visibility of the spend is fundamental to making a good spend analysis. For that it’s important to set good KPIs for measurement of your business performance.
Then, with the data collected, it’s time to analyze and find patterns and categories on the information. Here it’s the point to look for competitive prices, supplier data and information to understand better the market and your own process.
That analysis will give you results that can enable improve your operations. Make a roadmap of your corrections, following the ones that are more important or cheaper. Also, this roadmap will provide a good way to monitor changes.
Why conduct a spend analysis?
One side gain from the spend analysis is the confidence in data your business gets. When the company analyze its own information, all the process are improve and profitability raises.
Also, your process will be more trustworthy since it’s based on reliable information extract from your own historical data. That leads to faster decision-making and more efficiency of your team.
Finally, the data provides good insights on what’s to come and new possibilities. Besides setting new ways to evaluate performance. Spend analysis gives good directions to developing new strategies.
Spend KPIs
A couple of basics KPIs can give a direction on how to start measuring your procurement operation and your expenses on operations, they are:
- Cost Savings.
- Spend under management.
- Supplier performance.
- Operations KPIs.
- Employee performance.
- Cost avoidance.
- Contract compliance.
- Delivery.
- Cycle time.
The idea is to establish a routine of evaluation of those KPIs and look for ways to improve them trough data analysis. A good process will always look at the things that aren’t working to try to fix it.
Sources for Spend Analysis Data
On operations that deal with multiple scenarios, it’s common to have a lot of information transiting between the teams. On that context it’s not always easy to have a clear understanding of where the data is coming.
So, sources that can be used to gather data for spend analysis are various. But we can focus on the ones that are direct relatable to procurement itself. For instance, a good one is purchase orders.
Another possibility is look at the data from the suppliers. As they also gathered data from the market itself, they can provide valuable information on the process and how to improve it.
A source that can’t be ignored though are the organizations own’s financial data, because it sets the ground on how operations are doing and what are the bigger problems on the company.
After that, you can look at credit ratings and risk reviews as a way to determine if there were any let downs during the process or if everything was executed as supposed.
In sum
Spend analysis can help your organization accomplish a lot of things, among finding better ways to manage your financial, identifying new suppliers and opportunities and make your process on supply chain better.
At the end, it’s a key factor to make your procurement more efficiency and profitable, because it improvs the decision-making and assure more suitable actions while keeping record of data that can be used at the future.
