Spend Analysis Basics: 6-Step Guide To Elementary

Check out how to take the initial steps on your way to better decision-making, greater savings, and even more!

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Basic Spend Analysis:
From Sources & Benchmarks To Initial Action

Qualified Spend Analysis is conventionally known as a critical element of spend management providing a solid foundation for Strategic Sourcing and making a fairly big deal for the company’s commercial success as a whole. But, surprisingly, far not every business knows exactly what they spend, with which vendors, and on which products or services. Actually, insufficient visibility is almost always about sticking to maverick spend synonymous with a “corporate epidemic”, many CPOs and procurement experts admit. After all, how can you analyze and manage what you don’t measure, right? That said, below is the introductory guide to Spend Analysis, with all basic definitions and initial steps needed to curb maverick spend and cut costs substantially.

Data Sources

Gaining enhanced visibility into corporate spend is the first thing to be done here. So, when it comes to identifying the original groundwork that would be maximum relevant — do you know where to get on with it?

  • PO (purchase orders)
  • Data from the general ledger
  • Info shared by suppliers
  • ERP tools and software frameworks
  • Alternative internal systems

Benchmark Parameters

When running qualified Spend Analysis, we must only rely on benchmark parameters of top relevance (i.e., Key Performance Metrics). To properly track the data and measure its overall impact on business operation, Nectain would recommend taking the following set of KPIs as the primary parameters for benchmarking spend under management by:

  • Commodity (service) or Category
  • Procurement Function (human resources engaged)
  • Number of Suppliers (by commodity or category)
  • Number of Transactions (by commodity or category)
  • Avg. Value (purchase order)
  • Aggregate Disbursement by Supplier
  • Compliance (key figures, quotes or reports)
  • Payment (terms and conditions)
  • Pricing and Price Fluctuations
  • Transaction Distribution (number of transactions by currency)
  • Spending Distribution of Key Customers

Spend Analysis In 6 Steps

Of course, there can be no standard model or “one size fits all” approach to Spend Analysis, since every system-wide corporate visibility or spend management project in procurement vary in scale and complexity, specific needs and individual circumstances. On its basic level, however, the same spend analysis could be carried out through the following elementary steps:

Stage One: Locating Sources

The first step of basic spend analysis involves checking the range of spend data (i.e., we should determine, restrict and piece vendor cost spent by groups, materials, etc). From here, there would be a nice opportunity to have a look at the latest E-Budgeting module by Nectain — you may want to commit the real power of software innovation to the task ahead. If not, getting back to spend data would be appropriate to make everything split by origin (for example, to be segmented by manufacturing facilities, functional departments, business branches, and so on), or according to the relevant areas of global business performance (for instance, procurement, marketing, finance).

Stage Two: Extracting Data

Once the extensive range of spend data has been reasonably narrowed down and refined, it’s possible to capture exactly what you need. Meaning a huge bulk of raw data made up with different currencies, languages, or formats should be finally consolidated and put into the central database that would be serving as a single source of truth.

Stage Three: Research & Cleansing

This stage is mainly about running an all-round checkup in order to remove inaccuracies, fix errors, repair or eliminate corrupt files, get rid of discrepancies or typographical errors in transactions and contracts, identify possibly missing codes. That way, once a proper cleansing is completed, every shred of your newly-acquired information must stand free from irrelevance and incompleteness, thus being sufficiently clean so that we can go further.

Stage Four: Essential Improvement

Given that a well-refined, improved and sufficiently enriched information can only become viable when the raw data is properly optimized and standardized, you will have to have it all additionally reworked. To enjoy a maximum clear vision and easy viewing, make sure spend data has the header names and line-level details entirely accurate to make a 100% match with the principal naming standard, downright code or specific field coded.

Stage Five: Classification & Categorization

The process of classification and categorization that would contribute better supplier management is all about grouping relevant purchases together — to see all key suppliers falling into the right category. Make sure to keep only meaningful classes and categories assigned to be harmonized after all. Remember, enhanced visibility can instantly drive better decision-making and curb maverick spend, in line with mitigating strategic risks in its own way.

Stage Six: Spend Analysis

Our best possible cost-saving solution can only be fully complete when the actual outcomes based on data-driven project estimates had been properly analyzed and calculated after all. So, running a finishing stage of spend analysis would be, understandably, the last thing to do for ensuring perfect terms & conditions for each deal with every supplier. Upon checking all buyers for dealing only with sanctioned or pre-approved suppliers, the company can benefit from the optimal count of sourcing agents, for example, by category and, therefore, getting even better rates settled for a long-continued retention. That’s it.

 

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