Spend analysis is analyzing a subset of financial transactions to glean actionable intelligence. Proactively identifying savings possibilities, managing risks, and optimizing the purchasing power of a business are all things that procurement departments do. Procol is a procurement solution that helps ease the process of spend analytics.
Companies need to prioritize spend analysis and learn the fundamentals of spend management to remain competitive in the face of intensifying market pressures in 2022.
Contract conditions should be revised in light of industry best practices to increase savings and curb rogue spending. In addition, they must rationalize their supplier base, find price arbitrage opportunities, and manage risks efficiently to get beyond conventional obstacles and enhance their sourcing strategy. Let’s take a look at how you can leverage spend analytics to improve strategic sourcing.
Spend Analytics: What Exactly is it?
Strategic sourcing would be lacking without spend analytics. It can detect, collect, cleanse, organize, categorize, and analyze a company’s spending data in real-time. Through more transparency in the sourcing environment, it hopes to cut down on wasteful spending and boost productivity during the procurement process.
The use of spend analytics has been shown to decrease “maverick” expenditure while simultaneously increasing contract compliance and decreasing cycle times.
What is the Process of Spend Analysis?
As long as you put in the work upfront, you can construct a flexible, self-sustaining analytical process that will allow you to track your progress as you make changes. According to research, procurement departments handle just around 60% of all corporate spending. This leaves over 40% of expenditures outside of procurement’s sphere of control. A cause for alarm, surely.
The three pillars upon which expenditure analysis rests are visibility, analysis, and procedure. By analyzing these three metrics, you can determine where your money is going, to whom, and how profitable it is.
1. Get Visibility
A thorough spend analysis will reveal all of your expenditures and help in spend management. Whether this is your first or tenth expenditure analysis, you want to get the most out of it. How? With the use of KPIs. They are an excellent way to measure success.
A spend analysis may be thought of as the central nervous system of your business, transforming raw data into a treasure trove of knowledge and insights. Successful expenditure analysis relies heavily on obtaining transparency. Remember that you can’t protect what your eyes don’t see.
2. Consider the Spending Data for Maximum Flexibility
You can begin analysis when you have cleaned and categorized your data. Analyze patterns and double-check that you are utilizing supplier data to obtain the best possible cost. Use the collected data on all expenditures to learn more about your spending habits and the businesses you’re dealing with.
As a result, you may improve your supplier management practices and forge stronger bonds with suppliers previously unaware were responsible for a sizable portion of your spending.
Aberdeen Research estimates that organizations lose $260 billion each year due to ineffective expenditure management.
Your chief financial officer or buying officer can utilize your company’s purchasing and supplier data to analyze current spending and identify patterns. This information may be shared with other divisions for use in inventory management, financial forecasting, and developing a strategic sourcing plan. Information gleaned from a spend analysis can be used in various settings.
2. Make Improvements in the Process
Now is the time to start sketching out your roadmap and making any required adjustments. The reliable data from your expenditure analysis should be the foundation for any process improvements you make. You may go from a purely technical sourcing approach to a more strategic one with the help of this information.
This can be done by modifying your actions and making smarter choices with the help of these empirical facts. Every iteration of the spend analysis, for instance, can result in the generation of a category-specific report detailing all the money spent. Results may be compared, and changes in procedures and behavior can be tracked as time progresses.
How Can You Profit From Spend Analytics?
- Confidence in data is an essential advantage of a well-executed spend analysis process, but it may be hard to quantify. This gives the procurement department more clout with upper-level management. You may better represent your team and achieve executive buy-in with the help of formalized procedures and simple reports that make data easier to comprehend and trust.
- Everyone on the team will have more faith in themselves. If the data you’re working with is solid, you can trust it to steer you in the right direction and speed up the decision-making process. There is no need to worry about whether or not you are using up-to-date data; you can be sure you are. Instead of becoming bogged down by incongruent reports or data, your team can move fast and adapt to emerging strategic difficulties.
- You may use this information to enhance processes, establish new procurement strategies, and set performance targets, resulting in further cost savings.
A strategic sourcing-oriented spend analytics platform consolidates data from several sources into a single view of the company’s expenditure. Information technology, transportation, infrastructure, raw materials, administrative services, recreational activities, office supplies, and more fall under this category.
Procol is a procurement software that can ease a business’s spend management and analytics. It is both responsive and easy to use. Schedule a demo to understand its flexibility for your business and procurement needs.