Spending, spending, spending. That is all many businesses seem to do and their commercial success will depend heavily on how they manage their operational spending and procurement process. Subsequently, it is essential to take control of spending and to have visibility. Otherwise, you’ll lose track of what you have spent money on, who you have spent with, and whether you are getting value for money.
This is why spend analysis is crucial for any business – and it is a simple way of collecting procurement spending information and using analytical tools to identify cost reduction opportunities, increase efficiency, and drive value beyond savings.
What is Spend Analysis?
Spend analysis involves identifying and gathering, cleansing, and classifying all your data. It then means analyzing the information to understand how the organization is spending its money and where improvements can be made. Not only will this help reduce costs and get the best value from the procurement process, but it can also open up opportunities to streamline purchases and negotiate improved contracts.
To get spend analysis off to the perfect start, you need a clear objective. Without one, it will be difficult to understand what data needs to be analyzed. So, a good starting point is to define your goals at the outset. This could mean, for example, looking at ways to reduce costs or simply getting better value from trusted suppliers.
Your analysis is, however, only as good as the data you use. And it is important for your data to be held in one place to gain the fullest picture of your business’s spending habits. To do this, it’s important to check the spending data from every department across the business. It can be sourced from anywhere from accounts payable and receivables to the general ledger.
You’ll be aware that data can come in all forms, whether it’s different currencies or different languages. So, once the data sources have been identified you need to pull all the data together into a single database and importantly convert it into a single format and currency. Once set, follow our five-step plan to make your spend analysis complete.
Five-Step Plan to Make Your Spending Analysis Complete
Clean it
Bad data, makes for poor analysis, it is as simple as that. You will need to cleanse your data, removing corrupt or irrelevant information and formatting it into a language that computers can understand for optimal analysis. This is essential to get the best results and powerful insights.
Group it
It makes sends to link your suppliers where they belong to the same parent company, as you’ll then have a clearer picture of your supply chain. This also makes it easier to achieve economies of scale and leverage large orders from the same supplier.
Categorize it
Company’s looking to control what they spend should categorize or group their spending. This can be done by using company-specific categories or classification systems such as the United Nations Standard Products and Services Code (UNSPSC) – a global, multi-sector standard for accurately classifying goods and services. The code breaks down spending into categories that include legal, marketing, office supplies, and direct and indirect spending which will help provide clear spend-management visibility.
Measure it
It is highly advisable to establish key performance indicators (KPIs) to track and analyze your spending according to your objectives. You can also consider tracking the percentage of spending that is directed to your preferred suppliers and the percentage of maverick spend to monitor progress against spending goals.
Review it
Your spending patterns will continuously change. Orders will fluctuate and suppliers will come and go. Subsequently, you should repeat and review your spending analysis regularly to ensure your procurement process isn’t leaking and that you are capitalizing on every spending opportunity.
Penny makes it easy
One of the most efficient, cost-effective, and rigorous routes to achieving robust spending analysis is with an end-to-end digital procurement platform. One of the fastest growing is the cloud-based ‘procure-to-pay’ company, Penny – a procurement system that helps you to digitize and manage your full procurement cycle, providing real-time, properly segmented analysis of what is being spent, on what, and with whom.
Penny was designed to make things easy and to consolidate all of your organization’s spending needs into one intelligent system – and it has been certified by Procure Tech & Kearney Consulting as one of the 100 most innovative procurement solutions globally.
With penny, you can be sure that procurement is demystified, made simple, and perfectly tailored to your organization’s unique needs. It is cost-effective and designed to demystify spend analysis, making it possible for every aspect of spending to be incorporated transparently and effectively into your corporate strategy.
