What does spend analysis has to do in procurement

spend analysis
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Spend analysis is the term which is hardly understood. Since it plays a major part in the procurement of the organization, it has become a matter of concern. Spend analysis is the procedure to collect, cleanse, classify and analyze expenditure information with the aim to reduce procurement costs, improve efficiency and monitor compliance.  It can also have an impact on other areas of business like product development, inventory management and planning, and budgeting.

There are three areas of spend analytics i.e visibility, analysis, and process. By targeting all three the company will be able to find answers for the question of where the company is spending, with whom it is spending and either it is getting what has been promised or not. The spend analytics perform the following functions in the organization.

  1. Identifying:

All the sources available for spend data from all the units, departments and plants are identified. It can include general ledger, accounts payable, eProcurement systems, pCard etc.

  1. Gathering:

Gathering and consolidating all the exclusive data into one main database. It may become difficult if the data is in different formats, different currencies or different languages, however, there are procedures available in the spend analytics specially designed to achieve this.

  1. Cleansing:

Cleaning the data is another role of spend analytics. It includes visualizing and correcting the errors in transactions and descriptions along with standardizing the spend data so that the company can easily view it.

  1. Grouping:

For better supply chain management it is better to group or linked the suppliers. For example, if the purchases are being made by the IBM then IBM or Cognos should be linked together as they are the same supplier.

  1. Categorizing:

The spend must be categorized. If the company is using UNSPSC, eClass or other specific categories then it must be able to understand that where the money is being spent. All the spend must be categorized accurately including the marketing travel, office supplies, legal, direct and indirect spend.

  1. Analyzing:

Analyzing the spend data is the vital part for the spend analytics. It is better to ensure that the best contract deals with each supplier are being negotiated since all the spend is now identified per supplier. Also, ensure that all the buyers of the company are purchasing from the preferred suppliers. The number of suppliers per category should also be reduced.

  1. Repeating:

Considering spend analytics is great in order to start identifying savings, however, the company must constantly update data to ensure that the contract terms are being followed, buyers are purchasing from the selected suppliers and identifying the saving opportunities.

There are many companies that deliver spend analytics within their organization. Also, real-time examples can also easily be found by searching Procurement analysis sample for power BI to spend analysis. Spend analytics can help to transform the cost-savings of the organization, it should never be ignored. Various steps must be taken in order to manage tail spend.