Down reports, for example, enable users to view spending information from broad level into the category, supplier, and even the sub-category level. In today’s competitive business landscape, organizations are constantly seeking ways to optimize their operations what are retained earnings and improve their bottom line. One crucial aspect of achieving this goal is through effective procurement strategies, which can be significantly enhanced by spend analysis. In this article, we will explore the world of spend analysis and learn how to drive business value through informed procurement strategies. Spend analysis is just one piece of the much larger field of spend management. It is used to visualize all your data so you can make better sourcing and supplier decisions.

Top 6 Best Practices for Financial Planning

This allows you to analyze supplier performance, identify trends, and spending patterns without jumping between systems. Spend analysis software can also aggregate anonymized procurement data across multiple organizations. This aggregation provides external benchmarks that help teams evaluate their performance and identify opportunities to improve supplier terms, pricing, and sourcing strategies. One of the core benefits of spend analytics software is its ability to pull procurement data from multiple sources, including ERP systems, supplier portals, external benchmarks, and more. With automated connectors, teams can skip the time-consuming data preparation and proceed directly to analysis. Suplari is a procurement intelligence solution that helps businesses modernize procurement operations using AI.

Procurement Spend Analysis: Steps, Key Metrics, & Best Practices

Instead, it’s a strategic way to make smarter decisions about who you do business with and how. Coca-Cola implements this strategy across all its partner companies, making its strategic procurement one of the best in the industry. Group critical suppliers handle essential items like sweeteners and packaging materials, which are vital for production, and Coca-Cola HBC spends a significant percentage of its budget on them.

Peer-Based Community Data Benchmarking

As time goes by, some products or services may no longer be used or needed. Set priorities on each expense so that you know whether it is essential or a nice to have. You may need to work with your staff or department heads to be sure that you understand how each thing you’re paying for is used. Get the guidance and support you need to manage your finances with confidence—so you can stop stressing about money. You might have even tried to manage your budget with Mint and since let it slide. If there’s a particular category where you have struggled in the past, I’ve found that the more you break it down, the easier it is to see where the overspending is happening.

• Spend data is often spread across different ERP systems, procurement platforms, invoices, and, of course, spreadsheets.
• Challenges include incorrect entries, duplicate data, and missing information.
• For example, an IT director might want to see trends in contingent labor or annual software maintenance costs.
• Tools can automate data collection and cleansing, reducing the time and effort required for these tasks.
• An analysis requires spend data processed into KPIs and metrics and then visualized to show patterns.

Benchmark Your Organization’s Performance

Below is a recap of Coca-Cola HBC’s spend visibility with suppliers in 2023. It should include details like how much you spend with them, how frequently you place orders, and what specific products or services they provide. To start, gather all your purchase orders, invoices, and contracts to create a comprehensive profile for each supplier. In fact, a 2023 survey by Globality reveals that more than 80% of procurement leaders believe their indirect spend isn’t properly managed because of data silos and a lack of collaboration.

Gain financial clarity and control

• This leads to more reliable supply chains, less overspending, and fewer delivery delays.
• For spend analysis, our system stores data of each purchase order and invoice, so your teams can easily view, track, and extract data in real-time.
• This step of the process is often where key lessons emerge, so be patient and methodical.
• Raw spending data requires extensive cleaning to ensure accuracy and usability.
• Furthermore, RFX Spend Analysis enables better supplier management by providing visibility into supplier performance metrics such as delivery timescales or pricing discrepancies.
• Spend analysis can be an arduous task, but it is well worth the effort when done right.
• This lack of centralized oversight over indirect spend makes it harder to track and control it.

This step is where you want to measure against some spend analysis key performance indicators to get a better feel for how you’re performing. You should be tracking savings, cost reduction, and more, but many organizations will want to emphasize the supplier performance side. In practice, it entails cleaning errors, dividing expenditure into categories like SaaS subscriptions or office supplies, and applying category management techniques to identify trends. It also highlights maverick buying behavior (off-policy automated spend analysis purchasing), unmanaged tail spend management, and opportunities for supplier base optimization. In SaaS-heavy enterprises, spend analysis extends into SaaS spend analysis, where teams track licenses and renewals to reduce waste and maximize ROI. Spend analysis is the process of collecting, cleaning, classifying, and analyzing procurement data to gain visibility, identify savings opportunities, and improve decision-making.

• However, he further notes that, by analyzing your tail spend, you can spot these small but numerous transactions and find ways to consolidate them with fewer, more strategic suppliers.
• As procurement professionals can attest to, financial data often comes in a less-than-pristine state.
• Benchmarking gives you the external reference points you need to answer these questions with confidence.
• However, ensuring that stakeholders have the right access to this data can be a challenge.
• By following these best practices and techniques, organizations can unlock the full potential of spend analysis and drive business success.
• To analyze spends well, you need to understand the difference between direct and indirect spends.

For example, finance and planning can use the spending data to understand recurring vendor spending along with long-term contracts to forecast the next few years’ expenditure budgets. These insights allow procurement teams to group related items into categories and create targeted strategies to control costs. It consolidates data from different sources, such as invoices, purchase orders, and expense reports, into a single, organized view. For example, if a construction company is purchasing the same materials, like lumber or concrete, from multiple suppliers without Opening Entry standardization, it creates inefficiencies. By understanding exactly what they’re buying, they can consolidate orders, negotiate better prices, and reduce unnecessary costs across projects.