Spend Analysis: How to Get it Right

Monitoring spend has become critical as businesses look to adapt to a new normal.

Many are now using spend analysis to spot areas of excess spending and take corrective action. They are also using the analysis to make informed decisions.

However, this can only be done by carefully analyzing spend data. While it may seem simple, many companies struggle with how to use spend analysis effectively.

What is Spend Analysis?

Spend analysis is the process of collecting, analyzing and reporting data about the organization’s procurement activities. It allows organizations to identify areas where they could save money through procurement optimization.

Spend analysis is a business intelligence tool that allows organizations to monitor spend and uncover areas for savings. It is often used in conjunction with procurement optimization. Procurement optimization is a strategy that uses spend analysis to identify areas of excess spending. The data collected from procurement optimization can then be used to negotiate discounts with suppliers.

Why is Spend Analysis Important?

Spend analysis helps organizations understand their cost structure – the key to managing and growing a business. It allows an organization to forecast its expenses. This, in turn, helps it forecast its revenues.

Moreover, spend analysis is also critical to procurement optimization, which is an important procurement best practice. Procurement optimization is the process of purchasing goods and services at the best possible price.

How to Conduct Spend Analysis

Organizations can conduct spend analysis in one of two ways. The first is manually compiling data from transaction sources. Manual data compilation can be time-consuming, as it involves combing through every transaction to find procurement data.

The second is through spend analysis software, which automates the process. Spend analysis software allows businesses to quickly and accurately compile procurement data. This can be done by integrating the software into their existing procurement systems.

Types of Spend Analysis

There are three types of spend analysis: descriptive, diagnostic, and predictive.

• Descriptive: Descriptive spend analysis describes procurement data in terms of the current state.
• Diagnostic: Diagnostic spend analysis identifies areas of potential savings through an analysis of past data.
• Predictive: Predictive spend analysis forecasts procurement data. This can help organizations identify areas of potential savings.

Key Takeaway

Spend analysis is important for all organizations, regardless of size or industry. There are many benefits of using spend analysis as part of a company’s analytics strategy.

It helps businesses understand their cost structure and identify areas of potential savings. This can prove crucial given the growing uncertainty in the business landscape.