The concept of spend analysis has been around for decades, although awareness of it has been limited. With procurement evolving into a strategic function, more businesses are realizing the benefits of spend analysis in maximizing value and savings from their indirect spend.
What is the process of spend analysis?
Spend analysis is conducted by analyzing and aggregating the total amount of goods and services purchased across organizational divisions to identify new opportunities to:
- Reduce costs
- Inform decision making
- Consolidate suppliers
- And create a stronger spend management strategy
It requires complete visibility into your organization’s spend and insights into its spend behavior. And with manual or outdated legacy systems, you’ll find yourself struggling with:
- Disparate data sources
- Missing or inaccurate data
- And duplicate records
Organizations that have their sights set on analyzing indirect spend to inform their growth strategies and achieve profitability goals require visibility into transactional activities, and the reporting capabilities that spend analytics software offers.
What are the benefits of spend analytics software?
To take the right steps in driving a more strategic approach to spending, you’ll need adequate spend visibility and historical data to make informed decisions. Deploying software to manage and analyze business spend not only ensures data accuracy and deeper insights but simplifies the process significantly. Here’s what you can expect from investing in the right spend analytics software with business intelligence and reporting power.
Here are some of the top benefits of spend analysis you can expect for your business operations and bottom line once you gain this business intelligence.
1. Uncover saving opportunities
How well your company performs is contingent on the decisions you make. And decisions around indirect procurement directly impact your organization’s daily operations and how well employees are supported within their departments and roles.
You need to meet your organization’s procurement needs, while being cost conscious but cutting spend blindly to free up budgets isn't a wise decision. In order to assess where costs need to be reduced, you need complete oversight to understand how your business spends.
Spend analytics software provides insights into spend segregated by user and supplier, with the visibility necessary to reduce discretionary or non-essential expenditure. You can get ahead by leveraging this valuable cache of data and redirecting where it makes sense.
Spend analytics software sifts through large volumes of your organization's procurement data to help you identify, quantify, and prioritize saving opportunities. With advanced business intelligence and reporting tools, you’re able to act more preemptively, identify when and where to assign budget, and improve forecasting. Significant benefits of spend analysis that allow you to easily identify cost saving and risk reduction opportunities.
2. Manage risk
Rogue or maverick purchasing is more prevalent than one would expect; it can account for up to 20% of an organization’s total spend. If undetected or unmanaged, it completely disregards a company’s structures and procedures, which puts the business at a disadvantage in supplier negotiations and undermines contract agreements, and pre-negotiated price concessions.
Inevitably, your organization's projected savings may not be realized. Over time, this gap will increase and can become a real drawback. For this reason, deploying spend analytics software can be instrumental in highlighting areas of concern. It provides the data necessary to identify spend leakage, and can pinpoint which department or project requires more scrutiny, budget, or approval threshold control.
This spend transparency gives you transactional insight into:
- How much employees are spending
- The frequency of their purchases
- The suppliers they are spending with
- And their spend in relation to budgets, based on financial periods or a financial year
You can empower your team to make informed decisions, with access to real-time budgets at decision points, giving authorized approvers insight into available and committed spend to mitigate the risk of overspending.
This guidance and oversight at employee level can go a long way in driving accountability and ultimately, more responsible spending behavior that extends to subverting any fraudulent, out of policy, or unauthorized spending activity.
3. Rationalize your supplier base
Visibility is critical to analyzing spend by supplier, and imperative to effective supplier base rationalization. To make informed decisions about which suppliers your business should be transacting with, you’ll need to understand:
- Which suppliers your business is purchasing from
- How much you’re spending with them
- And the costs associated with these processes
Spend analytics software can streamline supplier consolidation efforts, review price comparisons and identify where the vetting and onboarding of a new supplier could be beneficial. You can identify top-performing suppliers you should be channeling more spend to, as well as those who are redundant or who have been unreliable in delivery, quality, or inflexible in negotiating terms.
Further to this, you can understand how your business is faring regarding supplier diversity. Spend analytics software should enable effective tracking and reporting on supplier diversity programs. Having visibility of where your organization stands in terms of this proactive business strategy will shed light on potential improvements that could be made and highlight where it makes sense to replace existing suppliers.
Spend analytics software and its reporting capabilities offer the hard data evidence to streamline and inform effective CSR initiatives and supplier diversity programs. To secure more strategic and long-lasting relationships with the right suppliers, you’ll need to level up your business intelligence and reporting capabilities to glean valuable insights from your transactional spending data.
The benefits of spend analysis extend beyond the savings that can be captured from access to lower prices and more favorable terms. Transacting with a consolidated supplier base can drive down overheads and administration, reducing processing costs and the burden on the accounts payable function. This leads to efficiency and time saving gains that ultimately drive bottom line growth. Embedded spend analytics in best-in-class software solutions can provide further actionable insights into these cycle times and costs.
4. Leverage your spend
Cost reduction is at the core of procurement efficiency goals and spend management strategies. To improve future procurement performance and achieve your company’s strategic objectives, you’ll need to empower your team to not only make better informed decisions but arm them with this valuable data to drive their strategies forward.
A fragmented purchasing profile can impact your bargaining power. When employees purchase the same goods from different suppliers, at different times, your company is at a distinct disadvantage, diminishing the volumes to negotiate price concessions, bulk discounts, and early settlement dates.
By consolidating purchase orders with a single top performing supplier, your business could qualify for quantity discounts and reduced shipping rates. These purchases in turn facilitate contract renegotiations and more favorable payment terms and pricing, all of which would not be possible without access to purchasing trends and patterns, order frequency, and historical spend data retrieved from spend analytics software.
Relying on spend analytics software can give you a game-changing advantage—report on historic supplier spending and leverage the transactional data to increase your purchasing power.
5. Enhance data quality
Data is the new oil, so the saying goes. Opportunities await that could power your enterprise for years to come, but data in its raw form does not mean much without a refinement process, and that's where the benefits of spend analysis shine—turning data into opportunity.
Data accuracy and enrichment is vital to effective spend analysis and using advanced spend management software, powered by embedded analytics tools such as Microsoft Power BI, can enable deeper data insight and integrity.
Many businesses miss out on the opportunities hidden in the data without the tools to extract business intelligence. Spend analytics software transforms data into powerful visualizations and actionable insights that enable astute decision making.
Unlock the benefits of spend analysis with Fraxion
Visibility is the overarching enabler of all of these outcomes that you can expect to achieve from deploying spend analytics software.
With greater transparency and actionable spend intelligence, you’re well equipped to drive a business culture of data-driven decision making, that’s always informed and strategic in its approach to spending.
We’re helping diverse organizations worldwide to track and analyze spend, identify saving opportunities, and proactively manage their spend. Find out how you can achieve complete visibility and optimize your spend with Fraxion – spend management software with embedded Microsoft Power BI-enabled spend analytics, business intelligence and reporting tools. Request a custom demo to see the solution in action.