A spend analysis is an important piece of a company’s procurement puzzle. It is done with the main goal of understanding your spend better -- who are you buying products and services from? What are those products and services? Is there any overlap in what those suppliers are providing? How much money is being spent and who are we spending it with? We all know Pareto's Principle in tackling our expenditrues... but true Spend Analysis goes much deeper. Once you've take that deep dive, or partnered with a company that can take that deep dive with you, you will be in a great position to achieve what is every company's primary goal in procurement: decreasing procurement costs. With that said, let us get into How to do a Spend Analysis.
1. Figure out your data sources
The first step in your spend analysis is to get a general overview of which spend will be covered in your spend analysis doing this will help you not get overwhelmed with information and help you focus on the important key points for your spend analysis.
Then you should identify all the sources for the data you would need, these sources could include: ProCard, accounts payable, eProcurement software and systems, and general ledger; These could come from different departments in your business including finance, procurement, and marketing.
2. Gathering data into one central location
The second step you should focus on is gathering your data and storing it in one location after you have successfully consolidated it. This can be tricky as data is often in different formats, currencies, and languages. However, this can be made easier with the help of programs designed for this such as SPENDESK, Sievo, and JAGGAER. If you were already using a platform to keep track of this data then this step would be much easier, if not then just focus on collecting all the data that you need and then convert it, so all the data follows the same format.
3. Cleaning your data
The third step is cleaning your data, this step encompasses finding and removing inaccuracies in your data these range from duplicates, typos, errors in transactional data or errors in descriptions, etc.
This step allows you to identify what information in your database is incomplete or irrelevant to your analysis, if you have got incomplete data work towards making it complete. The cleaner your data is the more accurate results and so it is important to clean your data thoroughly as unclean data can lead your spend analysis to fail. An accurate spend analysis can help you make the right decisions.
This step can be daunting so don’t shy away from asking for help, splitting up the workload of this step makes it a lot easier, as long as there are clear guidelines and standards in place, and everyone understands the overall goal.
4. Grouping and classifying your spend
In this step, you should do two things. The first is to group your spend by supplier, this means that if you purchase from different suppliers, but those suppliers are all under the same parent company then they should be grouped and classified as one supplier. For instance, if you purchase from Cognos, SoftLayer Technologies Inc., and Red Hat Inc. are all owned by IBM so they should be grouped together.
The second takes after the first as well but instead of grouping and classifying by supplier, you will group and classify by the type of product you are buying, for example, if you bought packing tape, boxes, or bubble wrap all of those can be grouped up and classified as shipping and packaging materials.
Doing this allows you to have a better view and understanding of what your organization is spending the most money on, which can help you to reduce costs by finding other suppliers who are willing to offer you similar products at a lower price.
5. Analyzing your data
The final step is to analyze your data which involves comparing your data against some spend analysis KPIs, these include: cost reduction, savings, cost avoidance, maverick spend, overall spend under management, contribution to overall spend, contract compliances, supplier management, and purchase price variance.
Your analysis can be directed towards a lot of different issues, for example, making sure that purchases are from your preferred suppliers, or making sure that you have the best contract prices and deals from your suppliers. This can help you find opportunities to limit the number of suppliers for every category and negotiate better pricing. The greatest theorized way for saving costs can only be implemented if your estimates have been calculated properly, so make sure that you are thorough with them.
Running a spend analysis just once is a great way to start finding ways to save and reduce costs however you need to do it continuously and keep your data updated. You also need to keep detailed notes with each spend analysis you make as that will make your next spend analysis easier.
Here at CenterPoint Group, we understand how daunting doing a spend analysis can be, however, we are determined to be assiduous to help you accomplish your business goals.
Find out what your CenterPoint team can do for you today!
CenterPoint Group provides discounts to key suppliers such as Office Depot, Travel Leaders Corporate, W.W. Grainger, Verizon Wireless, and more...
The information contained in this article is intended for general information purposes only and is based on information available as of the initial date of publication. No representation is made that the information or references are complete or remain current. This article is not a substitute for review of current applicable government regulations, industry standards, or other standards specific to your business and/or activities and should not be construed as legal advice or opinion. Readers with specific questions should refer to the applicable standards or consult with an attorney.