In many companies, spending data is usually distributed across different departments, making it difficult to get a general overview of the business expenditures. Spend analysis is designed to address this problem. Read this page to learn the spend analysis definition and its step-by-step process, and find excellent examples.
🔝 Top-13 Spend Analysis Examples
- Managing Information System
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- Colbertens Services Ltd.'s Procurement Expenditure
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- Effects of Oil Prices Fluctuation on the Domestic Political Economies of Middle East
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- Adidas Company's Position and Performance
- Veto: Health Care Marketing Plan
- The Level of National Health Care Expenditures in the USA
- Personal Finance: Key Financial Priorities
- Management: Moyon Tea Business Plan
🎓 Spend Analysis Process Explained
Spend analysis is a perfect strategic tool for reducing costs and finding good suppliers. The approach transforms raw data into useful information and provides insights into a company’s procurement actions and expenditures. With the spend analysis, procurement activities become visible, thus enabling the organization to discover opportunities for cost reduction and process improvement.
What Is a Spend Analysis?
A spend analysis studies a company’s spending to cut costs and improve operational efficiency. Companies use it to manage procurement and discover high-quality and dependable suppliers. The approach also aids in answering crucial financial questions, improving strategic sourcing, contracting pricing, and reducing payment terms.
Spend Analysis Benefits
There are several spend analysis benefits the company can receive:
- It helps gain visibility. The most apparent advantage of spend analysis is increased visibility into how the organization spends its money. This data assists in developing cost-cutting programs, increasing income, and strengthening relationships with suppliers.
- It controls supply chain risks. Companies that employ spend analysis can reduce wasteful spending and ensure that supply chains run smoothly.
- It creates performance goals. Spend analysis allows businesses to set clear, measurable goals and make strategic decisions.
- It optimizes relationships with suppliers. The approach helps identify suppliers providing the most significant value and allows the business to focus on fostering relationships with them.
- It results in savings. The method enables the business to pinpoint areas for process and cost optimization, which lowers the overall cost of acquiring goods and services.
📊 How to Do a Spend Analysis?
The importance of spend analysis lies in the opportunity for financial growth and business development. The framework includes 6 fundamental steps.
Step 1 – Choose your information sources
Getting a general overview of the spending is crucial. You should determine which company departments, such as procurement, finance, and marketing, make big purchases. This information will help you plan the budget carefully and save money.
Step 2 – Extract the financial data
You can collect spending information and compile it into a single database for better focus. However, gathering data can be difficult because it is frequently in different formats, languages, and currencies. You can use online platforms to convert it into a common format and analyze the information correctly.
Step 3 – Clean the information
Cleaning means identifying errors in a data set and eliminating faulty records and redundant information. Moreover, different departments may describe the same products and suppliers differently, leading to discrepancies in the data. Your task is to correct any errors and standardize all transactions and descriptions. As a result, the company database will be suitable for easy and accurate analysis.
Step 4 – Enrich the records
Data enrichment means enhancing and refining raw spending data. It also aims to standardize spending data for easier reading. Enriching the spend data ensures that all header and line-level names and details are correct and adhere to specific naming standards.
Step 5 – Classify the data
Classification involves categorizing suppliers based on payment terms, purchase data, spend category, or parent corporate entities. Unifying disparate spending data into clearly defined categories makes it easier to handle and control costs across the whole enterprise. This step will provide the visibility necessary to make better sourcing decisions.
Step 6 – Analyze opportunities
Finally, identify the potential for cost savings and other procurement enhancements. The outcomes can be used to investigate various business issues, such as verifying that you have secured the best contract arrangements for each supplier. As a result, you may improve and strengthen the company’s financial areas.
📄 Spend Analysis Example
We have prepared a spend analysis example of a manufacturing company.
A manufacturer has placed orders from hundreds of suppliers. The company’s spend analysis method collects spending data from all sources, checks it for mistakes and consistency, and stores it in a centralized database. Then, the process classifies all purchases and groups suppliers according to their parent firm.
After that, the producer examines purchase order payment periods, prices, and quantities of inventory purchased from competing vendors. Procurement teams at a manufacturing organization may identify a savings opportunity to renegotiate with existing suppliers for a better price or quantity discounts or to select alternative suppliers. As a result, procurement procedures could be improved.