How Direct Spend Analysis Can Benefit Your Business

Does your procurement function have complete visibility of direct spend? Does the team fully understand who is spending on what?

Does it have sufficient data and information about suppliers? And can it derive meaningful insights from the massive amount of spend data?

If your procurement function does not have a definite answer to these questions, it needs to change the way it operates. In fact, it is missing out on several opportunities to realize savings.

The analysis of direct spend, which involves procuring goods and services critical to manufacturing and delivering the end products, is vital for a business.

That’s because direct spend comprises a major portion of organizational spend. Managed effectively, direct spend can boost savings and profitability and lower the time to market.

While a lot of data related to direct spend is generated by typical enterprise systems, there isn’t a way to decode this data to get thorough visibility and understanding.

The result?

Spend data remains just plain data. It is scattered across multiple systems and therefore not utilized or leveraged in a manner that can help a business boost savings.

The question now is: How can businesses derive meaning from the massive amount of direct spend data?

This is where they need a spend management software.

How Direct Spend Analysis Technology Helps

Direct spend analysis software helps establish spend trends and conduct opportunity analysis to identify potential savings. It can also turn these opportunities into structured savings projects with clearly defined milestones and performance metrics.

It cleanses, validates, classifies and reports spend data from all source systems to provide accurate, actionable information with granular, item-level visibility across the enterprise. It can also integrate with back-office and ERP systems, thereby bringing the entire spend together in one place.

With end-to-end visibility, spend analysis technology helps you understand what you spend on and who’s spending where. It also helps determine if you are getting your money’s worth.

Spend analysis pinpoints the reasons behind the spending and suggests ways to minimize spend effectively.

Detailed insights help enterprises identify new savings opportunities, curb maverick buying and cut costs substantially.

Powered by artificial intelligence, spend analytics software scans through spend data to identify hotspots where supplier count is too high for the level of spend or there are too many different payment terms in a category. It can also determine if demand can be aggregated to enhance savings.

Advanced AI and machine learning algorithms look for clues in raw direct spend data, examine every line of every invoice and classify the spend accordingly. Accurate classification and rule-based validation of spend data helps create a holistic understanding of spend.

By handling repetitive sourcing events, RFPs, auctions and contracts, algorithms can also scale the quantity of structured negotiations for optimal pricing.

As technology gathers comprehensive understanding of data, it accelerates the cleansing, classification and validation process with each data refresh. This, in turn, helps a business create and share accurate spend analysis reports.

Additionally, spend analysis software has the capability to constantly learn and improve. Along with comprehensive spend analysis, it can incorporate real-time market intelligence and insights to help procurement make informed decisions.

Dashboards Provide a Quick Reference

We have seen how spend analysis software provides end-to-end spend visibility.

However, procurement does not always need in-depth spend analysis to create or share a report. Instead, it needs to check a specific aspect related to spend for quick reference.

Spend dashboards make this possible with an instant, up-to-date view of spend.

For example, dashboards can reveal region-wise or supplier-wise spend. They can also show spend for each category. Additionally, by drilling down and filtering these dashboards, procurement can run some instant spend analysis.

Overall, spend analysis software addresses all key requirements of modern procurement organizations. When teams have complete visibility and understanding of direct spend, they can not only manage spend easily but also create opportunities to increase potential savings and align functional goals with strategic, long-term objectives.

Learn how GEP can help your business manage direct spend effectively.