Your Guide to Spend Analysis and Opportunity Assessments
There are many reasons you want to run spend analysis reports, and at the end of the day, you want to improve your overall spend management and return on procurement investment or ROI. Trying to improve your procurement management process is always a distinct possibility, even if you’ve already made a move to a digital platform.
Spend analysis and opportunity assessments go hand in hand—because if you have spend analysis software and have the data in your hand but can’t take action on it, you are leaving money on the table (i.e., don’t take opportunities to improve). The reports are worth nothing more than the paper they’re printed on.
However, with the right understanding of spend, savings potential, and market maturity as part of the process of spend analysis, you can increase your ROI significantly.
Spend Analysis and Opportunity Assessments: What Is the Spend Analysis Process?
When you’re conducting spend analysis, it goes beyond having the right spend analysis software companies or using the correct spend analysis technology. Having the right tools is indeed important, but it’s broken down into more in-depth questions. You want to consider things, such as:
- What are we buying?
- Who are we buying this from? (are there too many suppliers per category, etc.)
- Who is doing the buying?
- When are we buying it?
- How much did we pay?
- What was delivered (did we get what we were promised)?
- How does this compare to other years/companies
Of course, your questions will differ slightly, but spend analysis is all about the who/what/where/when/how of procurement.
Once you’ve answered all these questions numerically, your next steps are to gather the data and then view other factors like market maturity, propensity to consolidate the spend in your procurement spend analysis dashboard, assuming you’re using a procurement suite or some other type of software.
You can also run reports with spreadsheets, but they are not as reliable and often won’t include these other important ROI factors. In terms of spend analysis and opportunity assessments, you want to determine which categories offer the highest savings potential and which categories are also easy to source.
Being easy to source relates to two primary things: availability of supply from alternate suppliers and how difficult it will be for the organization to switch suppliers. These two things, along with the amount of spend, comprise the spend analysis opportunity assessment.
You must also think about indirect spend analysis, which includes overhead costs and other expenses. These must also be included in your spend analysis reports too.
Spend Analysis and Opportunity Assessments: What Is Opportunity Assessment?
There are different types of spend analysis reports. A spend cube is often looked at when talking about spend analysis and opportunity assessments together. It is essentially a 3D, graphical representation of the spend analysis output, offering category analysis, which looks at goods and services purchased, cost center analysis, which looks at demand within the organization, and supplier analysis.
When it comes to spend analysis and opportunity assessment, it gives the C-level execs within the organization (CEOs, CFOs, CPOs, etc.) an easy way to interpret the data to make intelligent decisions, particularly when it comes to investing their procurement resources (i.e. against which category, etc.). A spend cube isn’t the only opportunity assessment tool, but it is a common one.
Spend Analysis and Opportunity Assessment: What Types of Improvements Are Possible?
When done correctly, meaning the data was entered and interpreted correctly, spend analysis and opportunity assessment can help you:
- Improve efficiency, cost-effectiveness, and ROI
- Improve data accuracy
- Identify the best cost-saving opportunities
- Tighten your spend management
- Identify strategic suppliers and build a solid supplier database
- Manage risk and maverick spending
- Work collaboratively in-house and with other organizations
If you’d like to hear more about how to conduct spend analysis and opportunity assessment reports, or you would like to hear about other procurement software solutions, contact EC Sourcing today to schedule a demo, or call 973-936-9672.