Steps of the Spend Analysis18.06.2018
The spend analysis gathers, categorises and analyses the spend data. It helps to plan spending better for the future and gives a clear picture where the money is going. It is important, but not necessarily easy to do.
There are many variations of the steps as there are different reasons to use it. In this post we present you one of the variations: 7 steps of the spend analysis.
The 7 Steps of the Spend Analysis:
Identifying the data includes locating the data from different areas of the business, such as the departments, plants and the business units that purchase the items. For example, areas like procurement, financing and marketing usually generate a huge portion of the spend data. Also, using data from accounts payable and order processing systems like eProcurement systems can help.
It is important to know what kind of data you are collecting. Data can be then classified by the name, address and spend amount of the suppliers.
The next step is to gather and consolidate all the data to one central database, making it understandable and comparable by putting all the information, including the units, languages and currencies in the same format. If needed, enter any paper invoices manually.
After the information has been collected and formatted, errors are then needed to be identified and corrected. This can be removing duplicates, standardising the name of the same suppliers to reduce variations, and correcting errors in descriptions as well as in transactions. After this process, the data should be precise and easy to read.
Grouping means combining purchases from same suppliers together.
After the grouping, data needs to be categorised by defining where the money spent is and what is being bought. In this part the data is classified into multiple categories such as marketing, office supplies, software, and legal.
Once the information has been collected, cleansed and grouped for easy reading, the changes can be compared to previous spending data and you will be able to see if there is an opportunity to make new and meaningful changes.
Data needs to be constantly updated to ensure the fulfilment of the contract terms and to keep up with the changes in the company spend.
The benefits of the spend analysis
So, how exactly will the spend analysis be beneficial to your enterprise? Here are some benefits it will grant you:
Firstly, spend analysis facilitates finding cost-saving opportunities in the procurement cycle, thus reducing opportunity costs by standardising the spend practices. For example, irregular spending can be result of different buyers obtaining the same items in different quantities. Standardising the sizes and formats purchased can lead to consistent branding, increased order volumes and better negotiation rates which save costs.
Secondly, purchase decisions will be evidence-based. Informed purchase decisions can be made with the provision of solid factual data. This allows the company to improve the process and make purchasing decisions more intelligently and strategically across the organisation.
Thirdly, streamlined procurement means less suppliers per category and, therefore, better management of spend, risk, and easier supplier relationship management.
Finally, spend analysis provides data on how to optimise and manage purchases efficiently. The company can use analytics to spend more efficiently and, therefore, spend less. The real-time visibility of spend by category helps sourcing your products better. Besides, the spend analysis data can be used to measure project impact. By reviewing past spend data, eventually cost optimisation can be achieved.
For these reasons it is important to do spend analysis and do it correctly. It will increase profit margin by saving time and money and providing a better picture of the company spend.
Blog post by Haaga-Helia students:
Nor Nabilah Binti Mohd Fadzil
Wong Tsz Yan
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- "Six Steps to Implementing Spend Analysis." ESourcing Forum. N.p., 3 Aug. 2011. Web. 07 Feb. 2018.