5 Tips for Your Procurement Spend Analysis
Running regular procurement spend analysis reports can be helpful when cutting costs and seeing exactly where spend is going. Reports should be an integral part of your software suite, and you should have a procurement spend analysis dashboard readily available. That doesn’t mean the report comes out with the push of a button, however, and that it’s always intuitive. If you’re slightly confused by the concept of procurement spend analysis, you may have a tougher time reaping the full benefits of the reports. Read on to get a breakdown of the procurement spend analysis process and some tips to make procurement spend analysis more seamless.
Procurement Spend Analysis: The Three Parts of Spend Analysis
The entire process of spend analysis in procurement is broken down into three parts: spend aggregation and cleansing, spend visibility, and spend analysis compliance / spend improvement.
Spend aggregation is where you gather all of your data, from all source systems; spend visibility is where you view the data in your own taxonomy in the reports and charts to understand total spend by category better.
Spend analysis and compliance is where you review spend perhaps after a recent sourcing event to spot parts of the organization who aren’t using a preferred supplier and correct that as soon as possible.
Procurement Spend Analysis: 5 Tips to Get the Most Out of Your Reports
Typically, your procurement spend analysis template or software will do the work for you once you enter all the data. One of the main problems with spend analysis going wrong is when spend is entered incorrectly in the first place, such as tagged to the wrong category. To optimize your reports and get buy-in from most users, you have to make sure your data is correct.
To make procurement spend analysis work for you, you must:
- Collect spend data from all sources. This could be data from ledgers, eProcurement software, ERP systems, P-cards, and more. You need all of the data for an accurate readout.
- Gather all the data into one location. You can use ETL systems to extract data to get it to a centralized location.
- Clean the data. Things such as language and currency should all be uniform.
- Make sure all fields are complete. When data is coming from several sources, there’s a good chance you’ll have missing fields and incomplete entries.
- Categorize data. You can use existing taxonomies, such as eClass, UNSPSC (United Nations Standard Products and Services Code), or NAICS (North American Industry Classification System).
Once your data has been cleaned and organized, you can then view it more easily in the charts and dashboards in most spend analytics platforms.
This will allow you to ensure that everyone throughout the organization follows the decisions made in the past regarding preferred suppliers.
Procurement Spend Analysis: What Are the Benefits of Spend Analysis?
The benefits of spend analysis in procurement are many, and it is vital to keep costs down.
One of the most obvious benefits is the transparency into spend. Provided that you are cleaning and organizing your data and getting an accurate report, having clear visibility offers you a more controlled, centralized procurement process. Other benefits include:
- Direct savings. Once you can see where all the money is going, you can make better decisions prioritizing sourcing events as well as have more negotiation leverage when talking to suppliers. Both of these lead to higher savings.
- Compliance. With cleaner reports, you will be better equipped to catch rogue spend, thereby correcting it sooner. In most cases, you will see new spend two weeks after the end of the month.
- Risk management. Running procurement spend analysis helps view and monitor your suppliers and spend by risk categories, thereby enabling you to manage risk more effectively.
It’s a good idea to ensure that your Procurement software has robust spend analysis features, which can help when it comes to categorizing and cleaning data.
To hear more about tips for procurement spend analysis, or to request a software demo, contact EC Sourcing Group today at 973-936-9672. We want to help you reimagine the way you think about procurement.