Spend Analytics
Why is Spend Analytics Important for My Organization?
Spend analytics is an important tool for any organization looking to grow and succeed. By answering simple questions such as Who is buying?, What is being bought?, From whom are we buying?, and When was it bought?, a spend analysis creates large insights on a company’s spending patterns to identify savings opportunities and improve procurement efficiency.
By analyzing spend data, organizations can also increase their abilities to make well-informed decisions, for example, using spending insights to e.g., reduce unnecessary cost, negotiate better terms with suppliers or ensure the company’s expenditures align with the strategic direction and improves business performance through KPIs and measure effectiveness in the organization.
How to Perform Spend Analysis?
A spend analysis can either be conducted as a top-down exercise with the purpose of increasing spend transparency and identifying high-level savings opportunities, or it can be applied on specific categories or cost drivers as part of a project / cost savings initiative. In either way, PIR’s approach for spend analysis ensures thorough analysis, insights and identification of opportunities. The process is carried out in three steps:
- Data collection & data management: Collecting exhaustive spend and supplier data from multiple sources such as accounts payable, procurement systems, and general ledger. Ensuring that data from different sources is standardized by cleansing it and mapping it to common denominators to create high-quality data sets for analysis.
- Data analysis: Analysis of the data sets by creating connections between different data input values and categorize costs. Studying the data from different perspectives such as suppliers, categorizations, and business units to identify patterns or trends and create hypotheses. Establishing KPIs, such as spend under management, cost increase or contract compliance rate, that highlight the effectiveness of procurement activities and areas for improvements.
- Opportunity identification: Validating identified hypotheses with the organization by involving cost owners, purchasers, or other key stakeholders in the analysis results, e.g., through workshops or one-to-one discussions interpreting findings and qualifying them into specific savings opportunities.
What Are the Key Success Factors for Spend Analytics?
The success of spend analytics depends on several critical factors:
Exhaustive data:
Ensure exhaustive data from multiple data sources to enable the creation of a comprehensive data set with high data quality and reliability. Understand the context and quality of the data. Validate, triangulate and qualify data where there are uncertainties (e.g. consider asking vendors for data where there are gaps or granularity issues) This is essential for conducting accurate analysis and identify valuable insights.
High level of collaboration:
Involve stakeholders across all relevant departments to exhaustively validate identified opportunities and create buy-in on savings initiatives from all affected stakeholders / parts of the organization.
Digital tools:
Leverage analytical tools and software to increase efficiency and automation of the analysis. Consider investing in structures and tools that allows for continuous updates and regular follow-up on trends and insights and the ability to adapt it to evolving business needs.
Categorization:
To ensure that the analysis is fruitful and can be derived into actionable insights, it is crucial that you can effectively categorize cost to specific categories or KPIs.
Forward projections:
Spend analysis is by nature focused on historical data – in a changing environment, it needs to be complemented with forward projections (e.g. from budgets, forecasts, market indications etc.) to form a complete base for opportunity identification and decision making.
What Value Does a Spend Analysis Result In?
In conclusion, spend analytics is an indispensable tool that empowers organizations to gain a deep understanding of their spending patterns, identify cost-saving opportunities, and enhance procurement efficiency. By adhering to a structured approach and focusing on key success factors such as data quality, technology, collaboration, expertise, and continuous improvement, companies can achieve significant value. This value is delivered through improved decision-making, stronger supplier negotiations, compliance with procurement policies, and ultimately, a more strategic and sustainable procurement process. See further under “Opportunity Assessment”
