What is the Procurement Spend Analysis Process?
Spend analysis is one of the most important pieces of procurement management. Spend analysis will give you an honest insight into spend, how you can make significant changes, how you can decrease costs, and improve relationships with your suppliers.
However, it’s always good to take a look at your process and ensure everything is running smoothly, especially evaluating if you’re using the right procurement spend analysis template and software for your specific needs.
The Procurement Spend Analysis Process: What Is Spend Analysis?
The basic principles of the procurement spend analysis process answers a series of questions. While you will be gathering data and evaluating that data, the data will serve to answer questions such as:
- What are we buying?
- When did we buy it?
- Who are we purchasing it from?
- How often are we buying it?
- Who is buying it?
- Are we satisfied with what we had purchased?
- How does the product and price compare to previous or similar purchases?
These are general questions, and you may want to ask more specific questions, depending on the nature of your business. However, those are the generalities of spend analysis. The next part of the process is ensuring that the data is being gathered and evaluated correctly.
The Procurement Spend Analysis Process: Data Collection
One of the issues that people run into when performing spend analysis is problems with data collection. You must first gather all data from all available sources.
It may not all be formatted the same way. It may have missing fields, and it may not be all in the same currency—these are issues that must be addressed before data entry. The next step is data aggregation, getting all of the data into one file and removing duplicates.
If you have strong spend analysis software, you should enter this seamlessly into your procurement spend analysis dashboard. If not, it may be time to shop around for new software that is more intuitive and easy to use.
The final output here is the spend cube, which allows you to look at spend from multiple angles to make informed decisions about spend moving forward.
The Procurement Spend Analysis Process: What Should Your Software Do?
If you find that your procurement spend analysis process is lacking, it may be because your software isn’t the right fit for you. You should look for software with methods that can:
- Perform real-time analytics. You should be able to look at spend in real-time or near real-time.
- Visible reporting. It’s a must to be able to generate spend cubes, visualizations, charts, and graphs.
- Keep procurement records. All of your important order information should be visible to you, such as vendors, payment terms and costs, and order histories.
- Spend categorization. Your software should be able to categorize your spend by category so that you can easily see where you might want to run a sourcing event.
- Supplier classification. The software should be able to classify suppliers as well.
- Configurable. The software should allow you, the user, to create and save views or reports with the data you care about and filtered to your use case.
Having the right software work for you can help make your procurement spend analysis process more efficient.
The Procurement Spend Analysis Process: Benefits of Spend Analysis in Procurement
There are many benefits of spend analysis in procurement. Perhaps the most obvious one is that you’ll be able to review the analytics and make changes to cut costs and boost efficiency. But there are others, such as:
- Improvement of data quality. Because you must clean data every time you run analytics, your data quality will improve by proxy.
- Risk management. Spend analytics can help you manage risk more effectively, especially when you have a transparent view of spend by risk categories.
- Better relationships with suppliers. When data is more organized and you have a better understanding of which suppliers are performing better, relationships will ultimately improve.
- Improved delivery performance. When everything is seamless and organized on your end, you will likely see a delivery performance on the supplier side.
- Savings leakage. With proper spend analysis, you will be able to catch roque spending more quickly thereby enabling you to make corrections sooner.
Because the procurement spend analysis process also boosts efficiency, you may see a benefit with collaboration when it comes to your team.
If you’d like to hear more about how the procurement spend analysis process works or you would like to request a demo, contact us at EC Sourcing Group today at 973-936-9672. We want to help you reimagine the way you think about procurement.