GETTING STARTED WITH SPEND CUBE ANALYSIS
Comprehensive Guide by Simfoni’s Procurement Professionals
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Table of Contents
The spend cube is an invaluable tool for procurement departments to review and analyze historical spend data. By presenting the data in a multidimensional cube, it allows stakeholders or departments to review subcategories of purchases, compare spending across different suppliers as well as gain insights into trends within their organization. The visual representation of the three-dimensional cube also makes it easier to identify patterns and anomalies that may be hard to spot using other means. Spend cubes are therefore a great asset for any business looking at improving their cost management processes while gaining valuable insights into their spending habits.
Spend Cube analysis has gained much popularity in the market as, with the emerging world, companies are gaining more insight on how to save more and establish a good profile, even in internal business matters. Understanding how Spend Cube or Spend Cube analysis works can be the best decision for an enterprise that wants to see the company on the path of growth.
The term spends cube is not a system but a proper way of looking at the spend data as it is expressed in a multidimensional cube indicating three central units. Each of the units is categorized separately in suppliers of the products, corporate business, and item’s category. Subcategories are also part of these three units for targeting the different areas and types of organizations and cost centers.
The spend analysis process displays the final output in a spend cube that permits one to have an eye on the data. The data which is analyzed earlier can be looked at from different angles. Hence, using a spend cube becomes essential if the organization manages entire percentages of all the vital expenditures available in various units of business.
The three different spend cube axes show the other category, further explained here:
- Category or What are you purchasing?
- Cost center or who are you purchasing it for?
- Supplier or who are you purchasing it from?
The three spent cube shows that if any of the cube’s sides do not exist, the model collapses, meaning that each axis plays an essential role in conveying some critical information.
Category analysis is the first part which shows the specific kinds of products and services a company owns. The next part, Cost Center analysis, shows the particular element that drives the demand among the company’s various functions, for example, the end users. The third part, Supplier analysis, reveals the current supplier giving you the money. This information provides many benefits as if the company’s expenditures are not organized and are cumulative, and the supplier can have different contracts.
If the organization or the company initially gathers the data, it can further set the strategies. It means you can divide the data into small parts to analyze it from all possible directions. It helps ensure that one sourcing strategy is in use and no other is involved. Slicing and dicing data helps decide and choose the end users whom you should align with, and it also gives a blue picture of the suppliers you should select for renegotiating business matters.
Introduction to Spend Cube Analysis
A company can better analyze its performance by understanding its spending, which is highly recommended. The process helps the companies see the supplier’s expenditure for decreasing the cost of the products and improving efficiency. It also directly impacts the relationship with the supplier with transparent communication about the current spending and intended goals.
The companies collect, clean, and categorize the data through this process for further analysis using sophisticated analytics software. The tool automatically views the overall procedure through a spend cube.
The Spend cube is similar to the puzzle cubes kids and adults play to solve by putting all the merged pieces together. The question of how the different elements have been merged is similarly investigated through Spend Cube. The three-dimension-based approach helps companies by thoroughly understanding the financial conditions involving suppliers, business units, and categories. Therefore, the company makes wise decisions about what to keep in the long run or what to exclude, where the company should spend and how much it should spend.
The companies collect, clean, and categorize the data through this process for further analysis using sophisticated analytics software. The tool automatically views the overall procedure through a spend cube.
Spend Cube definition
Spend a cube is a spend analysis tool mainly used in automated or AI systems. AI systems have the demand to use the different factors they can find in a data cube, including the supplier and the other business units. It also includes the division of various departments in a business, whole company/companies, and different locations. Categorizing the items purchased by the company is also part of such analysis, so the amount of quantities purchased is mainly analyzed in spend analysis.
Therefore, the Spend cube plays an essential role in procurement as it searches and identifies all abnormal purchases. For example, if a company’s data shows that it has purchased many mechanical supplies without any particular need, it can identify and even stop such activity in the future. The company can also negotiate with the vendor to remove the collection, mainly optional, by analyzing the present need.
Furthermore, the spend cube also tells the total amount spent on leverage; see all the alternative sources, including the highly used vendor for replacing quality suppliers. It can also include the areas where saving is required for inadequate time.
Therefore, the three-dimensional representation of Spend Cube displays the different sections, such as suppliers, significant units of corporate business, and the categories of items.
What is a Spend Cube?
Spend data displayed in the multidimensional Spend cube aims to answer three questions.
- X-axis answers Who?
- Y-axis answers What?
- Z-axis answers Where?
As described earlier, all three questions answer significant processes.
- Who are the suppliers from which you buy the business units?
- What category/categories of items or services are you buying from this particular supplier?
- Where are these suppliers located? From whom are you buying the item category?
From purchase price variance to supplier diversity to items purchased across- business units, there are actionable insights in almost every area from the spend analysis process. The information leads to smarter, data-driven, business decisions regarding the purchases made in every part of an organization. The outcome of the analysis is a set of initiatives that will help improve purchasing efficiency, save cost, and reduce supply risk.
Importance of the Spend Cube
Many renowned companies have prioritized analyzing spending data as they have a significant infrastructure for accommodating thousands of suppliers. Therefore, the spend cube is a fantastic tool for professionals who want to handle business matters for long-term success. Review of the data regularly through a spend cube without underestimating its value helps in better decision-making for business growth and development. Therefore, the spend cube is a powerful tool admired and used by millions of heads of procurement and professionals to resource team members effectively.
Elements of the Spend Cube
- The clarity of data that the companies have analyzed has impacted the companies considerably, including the following.
- The total value of spending for the current business
- The total value of the expenditure in the scope of work which includes more influence of procurement
- The spend levels are either direct and core or indirect or non-core.
- The value of spend for each category.
- The total number of authorized suppliers for each category.
- The value of spend for each of the suppliers.
- The different trends of suppliers send and all the movements that change over time. The trends that are monitored monthly or annually are also included in it.
Main benefits of Spend Cube
If the company’s head of procurement has fully understood the different categories of the spend, it has successfully built its team structure with proper resources. Spend cube has even assisted companies such as waste management by indulging with the suppliers who look after the additional purchases of items needed for regular operations.
The procurement manager who handles the category of items needs to evaluate the spending of the class and even the number of total suppliers before creating the sort strategy. For the professional, it is necessary to understand the leverage in the spend category for building information and involving supplier Requests for Information. It also assists the professionals in creating clarity on the overall demand profiles and Requests for Proposals. Moreover, supplier reclassification is also catered to through it.
Following are the results that the professionals can see through the consistent use of a spend cube.
- Minimization in the supply base
- Lower Cost
- Better value add offers ( taken from the suppliers)
- Improvement communication with the supplier
- Expansion of Preferred Supplier List
- Formal contracts for the supply of products
- Formal contract leakage compliances, SRM, and other supply management contracts
If the situation occurs in which the new supplier asks for a process, then it also needs a proper approach; to prevent the supplier from adding anything to the spend category. It results in improving compliance with the compliances to PSL category.
The spend cube helps review the current market and the national market requirements. It also assists in reducing the total number of suppliers from eleven to 5 in their category, so finding the potential supplier becomes not a challenging task. Therefore, you get access to 5 x PSL suppliers with multiple benefits, such as the following.
Enhanced lead time
- Better support connected to the value-add of the local sites
- More savings on the category spend means a cost reduction if achieved at 20% annually.
- More standardized contracts of suppliers and terms of payment for a better supplier
Spend Cube Overview and Benefits
Professionals work on many elements by working on the three-dimensional spend cube to analyze the specific category of goods and services that require purchase. It also helps analyze the organization’s demand for the goods and services and identifies the supplier that is being offered the cost of the service.
Online Analytical Process is the leading technology that has worked hard to create an efficient spend cube system that has done wonders. It is a system that does the work of intelligence for business and overall procurement and handles all of the applications of the finance department. Therefore, the result of data consolidation, categorization, and connection needs to be manipulated for a better review as a cube is handled through the system. In such a way, different areas are better taken as the role of data is contextualized.
Thus, different dimensions of spend are catered here to generate different spending cubes. Various types of unique spend analysis are therefore used for analyzing a multitude of data that cannot be handled in any other way effectively.
Here are the details of different analysis types that help get the data needed.
Analysis of contract spending to check the contract compliance for improving the management connected with the contract. It optimizes the various terms and conditions and puts up the price from the preferable vendors available in the market.
Analysis of payment is spent per term to streamline the process connected with procure-to-pay to reduce the company’s waste and other kinds of fraud. It also facilitates the maverick spend that is conducted through checking payment patterns and the order cycle of purchases of items. Furthermore, it approves the bottlenecks which have become hard to handle. Other than that, a complete insight into the improvements seen in the cash flow is fully observed. The discounts related to early payments and special saving is also covered.
Analysis of tail spending also emulates the rough expenditures by creating a visibility of all of the purchases in indirect spending. A keen eye on transaction data ensures a clear check that helps improve internal compliances as it helps optimize the supply chain process with the help of consolidation from the vendor.
Analysis of vendor spending specifies the overall percentage of the company’s spend, which is mainly connected with the critical supplier. It does so by supporting the management of the supplier and strategic sourcing through the measure of performance check of the supplier. Accordingly, an assessment of supplier compliance is also considered to ensure the best performance. Alongside this, it reduces the number of suppliers and eventually creates contingencies for all materials-producing goods and services.
The spend category analysis examines all purchase dimensions by categorizing them. This involves the support required for improving the management of categories, handling the supply chain, controlling internal spending, and administering contracts through better communication with the professionals. It consists of more precise business forecasting to reduce any of the risks attached to the management.
Analysis of item spending determines the expenditure to the level of line-it, which shows the redundancy and discrepancy in the system. It can provide detailed information such as secret information such as Plant A and B are purchasing specific items from different suppliers at varying costs, which means that the company is bearing unnecessary expenses that must be identified and stopped as soon as possible. It also exposes the maverick spend and selects the vendor by seeing its optimal value.
What is Spend Cube Analysis?
To ensure continuous improvement, businesses must keep investing time and commitment to measure and analyze performance, enabling them to get a good insight into their current practices. The teams of these businesses have to ensure improved efficiency for productive spending management.
Spend analysis, therefore, is the right tool for monitoring and improving the different operations, such as strategic sourcing and other procurement process efficiency. It also influences the value creation of the business and impacts the supply chain that supports the business’s profitability on a competitive level.
Spend Cube Analysis is a tool that collects and reviews the company’s spending data to get insights that can improve the performance and profit of the company.
Elements of Spend Cube Analysis
The following are the main elements of spend cube analysis.
- Maximum short-term and long-term savings to achieve excellent spend visibility, process improvements, and improvement in the compliance of contracts.
- Considerable efficiency in the functions of the procurement department and connected organization
- Product relationship with the supplier
- Advance capacity for purchase and implementation of strategic sourcing
- Recognition and management of risk exposure
Spend analysis creates the baseline for spending data and then assists strategic procurement. It further supports financial planning and gives importance to the company’s goals. Furthermore, it works on the total cost of ownership and enhances the return on investment for transferring the procurement away to reduce cost and create value.
Steps to analyze Spend Data:
1. Measurement of the company's total spend
Identification of the analysis of the company’s total spending by choosing the groups helps analyze the specific categories of the product. These main subcategories include the products, the number of suppliers and departments, and the business units.
2. Capturing the Spend data
Data extraction is the collection of Spend data, including data consolidation from various formats. Here, the business depends on different programs such as ERP or Enterprise Planning Systems as it depends on other data formats. It can cover the different solutions of accounting, office programs Microsoft Excel for tracking and managing data.
Spend Cube Process
Many procurement software can develop confined information from dissimilar data easier.
Removing or cleaning is the stage that reviews the data to find any discrepancies or corruption of files. Any redundancies are also catered to as the data is thoroughly assessed and the experts remove the errors. In this stage, the experts excise unnecessary stakeholders and redundant suppliers and update the records to reflect the present information.
Development is the next stage in which businesses take the earlier cleansed raw data and refine it for standardization. The experts update the files to use the exact format and tagging conventions. In the same stage, the system adds and corrects the category codes.
Categorization or classification is the channel in which the supplier refines the spending data. Specific groups are made for sorting the data, and grouping the items bought from the copier manufacturer is done here in which each product is divided into supplier-based categories. You can also divide the products based on the need and demand in various departments and units. This process keeps the grouping secure, ensuring that all transaction and spending data is attached and easy to analyze. It further provides that the data can be examined and manipulated using an individual classification or taxonomy.
Evaluation or analysis of the data involves collecting, cleaning, and categorizing the data. It also further uses data analytics to provide factual information and verify it. Therefore, the buyers use the internal control system to get the products and services from particular suppliers. The most important aspects of a product supply chain are the terms and conditions that the professionals have to follow to succeed.
They have to ensure that the actual spending patterns control the overall look. Which of the products following TCO parameters need improvement? If the procurement team has complete access to consolidating data, it can generate an excellent functional spend cube.
Why Spend Cube Analysis?
If you are planning to gain more confidence in making strategic decisions regarding your business and secure more savings, then investment in spend cube analysis is the right way to achieve it. With the image of a crystal ball, a spend cube can take your company to the next level you aim for. You can reach the skies over time by effort in the future only if you invest in your finance team and pay attention to the procurement team. Below are the ten proven ways spend cube analysis can help your business flourish.
1. Analyses the health of spending data
The company starters and professionals can analyze the data’s health by seeing the statistics. By having a keen eye on current spending, you can investigate your business’s future circumstances quickly. Companies need help to check effective and proficient saving levers in the rapidly transforming economy. If your spending is extensive, you might need to know what you are spending on.
2. Foretell about Business Spend Story
Many times, businesses ignore the spending story of their companies. However, if you can easily correlate the existing habits of the business’s success, you can easily see what ways or practices are keeping your business healthy. Analyzing the industry spending stories is good because it helps identify whether companies need to negotiate the price of products or services and learn how to make better financial decisions based on different required strategies.
3. Tells the effectiveness of the category management program
Once the business knows the spending story, it can quickly develop the category of best strategy from two different opinions. Here is what the spend cube helps to do as it tells the effectiveness of the category management program from two different angles. The first way is to understand the need to reclassify requirements, such as changing the status or work of a category. Such an example comes from the section of the IT outsourcing subcategory that the buyer or buyer can replace. Companies can also see line-item details for tracking the saving or reducing the risks to uncover the higher value. Spend cube analysis can help the business.
Secondly, businesses need to understand granular, line-item detail to track savings, mitigate leakage and reveal the higher value. Spend cube can do wonders by setting the strategy of category management.
4. Decision-making for prioritizing suppliers
The economy keeps fluctuating, and the current prices either increase or decrease in the future. The prices you selected five years ago are likely unsuitable today. Therefore, the Spend cube helps determine whether to divert the focus of negotiations or consolidate the current spending. It also identifies whether a particular supplier can reach a point of better partnership and less transactional level. Here, the spend cube analysis outcomes are seen in terms of trust between parties, security of decision, flexibility of relationships, and interchangeable plans.
5. Effectiveness of Supplier delivery program
A very unusual but equally important element of spend cube analysis is to see whether a company’s spending targets the different minority groups of society, such as women-owned enterprises. It shows the effectiveness of the company and gives social security to others who are mainly and commonly neglected.
6. Current Status of the company
Further analysis helps see more of the supplier’s status by asking questions such as whether the supplier is fulfilling the standard of sustainability. Here the professionals can leverage the spending data by informing the company’s decision to improve the program’s impact, directly enhancing the business’s bottom line.
7. Existing risk level
Without any doubt, any company’s geographical landscape can shift from one pattern to another, so if the company has a good understanding of such shifts, it can recognize the different kinds of risks attached to the shift. Therefore, solving or handling the risks also becomes easier for professionals leading the business to success.
8. Status of non-compliant spend
The spend cube is a highly effective process that even assists businesses in seeing the noncompliant spending by highlighting the time frame. It analyzes the two levels of detail: the procurement level of the most attention. The great line-item-based point helps the business look for fraud or criminal matters.
9. The health of the processes
The following most crucial identification is checking the health of the existing processes, which mainly answers the question of whether the buying decisions impact the stakeholders’ preferences. It also analysis cross-department communication and see how to improve the relationship and work between people to improve the quality of work.
10. The need for knowledge about contracts
Professionals can quickly negotiate renewals with potential vendors if they can connect spending with the contract data in a qualitative form. It directly reduces the consistently delayed renewal fees and any new discounts on products that are mainly missing. It also helps identify the main elements of contracts, such as the date and duration that correlates with the saving, to check the status of future deliverance.
The above mention ten detailed points show that the visibility of spend analysis can increase the company’s overall operation of all the departments by bringing everyone in the loophole of accountability.
Different Types of Spend Analysis
Many different types of spending analysis are used to track down the company’s spend. Among the many different styles, the company can see the relevant class to see which suits them best to fulfill their current requirement.
Direct and Indirect Spend Analysis
The company purchases many products from suppliers, for which data visibility gives more information about current spending. This total visibility in indirect spending helps the company make good, informed decisions about the quality of purchases. Therefore, the business carefully chooses what to buy and what to exclude from the list in the long run. In such a way, internal compliance improves, directly impacting the organization’s running smoothly. The process eliminates any kind of maverick spending and brings the company on the right track.
Supplier Spend Analysis
Strategic sourcing and the management of suppliers are two rigorous processes for which supplier spend analysis becomes the root of functioning correctly. Through this analysis, the company can get the data of top suppliers and then assess their performance. It further analyses the total percentage of the company’s spending for each supplier. Through a systematic evaluation of suppliers, the company receives and uses a more fact-based approach for consolidating the base of suppliers. It further assists in developing the customer and achieving the best of all services.
Category Spend Analysis
The following kind of spend analysis examines the business spending at the category level for making a strategic plan. The strategy depends on planning the essential materials and commodities to see where the money is transferring and thus develop a different approach to manage the money transaction. Therefore, category spending analysis helps improve business performance and management through supply chain contracts based on informative data. The internal controls developed for forecasting and managing any risks associated with the business are also included in it.
Item Spend Analysis
The last type of analysis assists the company in a precise beneficial level as the company can avoid all kinds of redundancies and other discrepancies in different departments. It handles the purchasing department and gives clear pictures of maverick spending in the sections it is occurring. It also assists in the selection of sub-optimal vendors.
Spend Analysis by Simfoni
Simfoni Spend Intelligence has done wonders in the world of spend analysis as it purifies and organizes even the most complex spending data of the company. The spend intelligence system enables the company to search for different ways to save money and adopt an approach of complete digital procurement, gaining more visibility in current spending trends. The data is managed through a proper platform, and then further insights are sorted out related to the price, status of vendors, overall spending, different categories, and the complete diversity of the commodities.
In such a way, the company gains more power in making better decisions regarding purchases and negotiating with suppliers. It is an excellent system for all procurement professionals who want to act proactively, not reactively, to discover opportunities and spending savings. In other words, the system gives complete real-time visibility in all the available categories and helps companies identify what new opportunities they can grab for protection.
Spend Analysis by Simfoni provides unique dashboards to the company so it can visualize spending and orchestrate the savings lifecycle. The following modules further help the company make synergies during the process of procurement to boost the company’s profits.
- Opportunity assessment
- Sourcing Pipeline
- Negotiation insights
The need to analyze spending differently has increased the current time, for which Simfoni’s latest modules can do wonders.
- Advance analytics modules
- Impact Assessment and Supplier Diversity
As mentioned earlier, the modules help companies track, measure, and take action related to savings. Thus, the modules provide enough support to the company to stay sustainable and receive immediate savings. Simfoni does such kind of wonders because of its AI technology that automates valuable time by bringing it into a process that allows the team to concentrate on cost saving. It also helps in constructing a supply chain that is more resilient and proves best for companies. The companies have full access to select the modules they want to take for analyzing the data and leave the parts that do not work.
You can start with clean and accurate data and rely on artificial intelligence for different purposes, such as consolidating, sorting, and converting data. This data is converted to KPIs and other metrics and processed faster and more efficiently than the previous ancient methods available in the market. This further leads to yielding valuable insights into quality saving.
Simfoni is an exciting platform that uses fused artificial intelligence with deep domain for interrogating cross-company information to see the saving on the company. It brings results by presenting a prioritized set of applicable sourcing events and excellent initiatives. All of the activities are done in a wave plan in service of the company’s procurement team for executing and achieving tangible savings for the enterprise.
Simfoni offers procurement initiatives that are different in nature and number and brings good results for the company. For example, its wondrous Saving Reporting module, which works as on add-on, keeps getting more savings in the company’s life cycle. Thus it keeps track of all the company’s channels and reports of existing and future savings.
Payment Terms Analysis
The cash flow position of any company can be better with Simfoni as the payment term analysis can handle it well. The add-on module of this term analysis regularly tracks the record of vendor payment and then recognizes the places that need an adjustment on payment terms. These adjustments are necessary to release the company’s cash for use as work capital.
Purchase Price Variance Analysis
Through Simfoni spend analysis, the company can have detailed data on the difference in price that it pays to one or multiple vendors. The company can also compare the current spending at an accurate price and then analyze whether there are further opportunities for additional savings in the market.
The impact of Simfoni’s spending analysis is more significant than any other analysis as the actions the system takes to run the business impact the business and the environment positively. It measures the goods and services to provide and create opportunities for saving. Data visibility brings everything to one platform, making it easy for the company to do other functions.
Supplier Diversity Analytics
A company that gives importance to the creative goals related to supplier diversity leads to success. It does so by analysing the best situation and taking action, which can reward even the suppliers by giving them more business. It thus enhances the chances of better leadership through positive and progressive movements.
Should Cost Analysis
The following analysis that Simfoni pays attention to is the Should Cost analysis that takes place when the company is sourcing new commodities. Here the question can arise: what happens when a company keeps buying an item for months and years? Undoubtedly, price fluctuation is becoming common for various reasons, such as blocked shipping canals and other major seismic events. In such cases, Should Cost gives better directional guidance to the company to pay a certain amount suitable according to the market’s movements, so if any price increases by vendor, the company can easily handle it.
The sourcing project exists in the form of a long list in which active, recently completed, and awaiting. Simfoni gives a complete facility to the user or the company to access the management of the project and the performance of the company. The data management helps conduct sourcing activity through a tool called Sourcing Pipeline that tracks the company’s progress, monitors its current version, and even stores all of the data in one place so the company can use it for future use.
The next benefit the Simfoni spend analysis gives to the company is the management of all of its contracts, similar to x-ray Goggles that scan everything. It provides a detailed analysis of the spending covered by the company’s contracts, the standard terms and conditions, and the purchasing activities that bring risks for the company in non-compliance. It also determines whether the company is exposed to the unfair obligation of the vendor.
Therefore, spend Cube and spend cube analysis help companies analyse spend data. This helps companies keep track of consistent development that every enterprise desires. Therefore, the companies can rely entirely on Spend Cube Analysis as the processes are beneficial for the companies to manage their procurement best as possible. The need analysis can be conducted regularly to see whether there is a requirement for manual or a software-based spend analysis.
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