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What is spend analysis?

Posted by minteclimited on Apr 29, 2019 12:31:44 PM

3 key factors to consider

For hard pressed procurement teams, the effective management of spend is a core activity as they try to: 

  • Control costs, to remain profitable and stay ahead of the competition
  • Improve efficiency, by reducing the time - ensuring you buy at the lowest cost
  • Manage risk, to protect the business from an increasingly competitive environment and respond quickly to market-making trends

The ability to increase efficiency, so as to reduce procurement costs, and ensure that potential risks are identified and understood, is essential. The key goal of spend analysis is to support efforts to reduce procurement costs and help improve the efficiency of the organisation.

To do this it is important that the business is equipped to undertake effective spend analysis. The procurement function needs a process where it can analyse the distribution of procurement's cost across the business and it is spend analysis that enables them to do this.

Through effective spend analysis procurement can identify and group together spend on the raw material and commodities purchased by each supplier. Further segmentation of this data can be undertaken using a wide range of variables including geography, category manager and individual product or category. This adds an even greater degree of granularity to pin-point where variance occurs and identify potential cost savings.

Combining this with real-time data and analytics, including input such as current market prices, can digitally transform procurement. By helping to identify opportunities to reduce costs and to support decisions base this on data-driven insight.

Access to price data and market analytics helps provide the greatest level of insight possible helping the business to save money and advance efficiency.

Spend Analysis enables procurement leaders to gain a level of insight across the business of where, on what and with who they are spending. The analysis helps identify spending patterns and anomalies which can help inform decisions ranging from supplier management, product substitution, as well as current practices and procedures.

Complementing this internal view on the organisations spend can be further enhanced by combining the analysis with external market pricing. Benchmarking the companies costs to current market prices enable comparisons to be made and help assess the companies purchasing performance with regards to the competition.   

Being able visualise spend data in this way helps the business to evaluate sourcing options to make better supplier decisions. This enables the business to identify and respond to potential risks, which improve compliance as well as identifying spend anomalies.

Furthermore, it can help category managers have stronger supplier negotiations with evidence-based data-driven discussions.

How can access to market price data and data-driven insight help you?

 

Topics: procurement

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