A lack of information used to be the issue for procurement departments. Now that we’re drowning in it, the problem has shifted; how do we organise all this data into some kind of coherent story?
Procurement can only be as effective as the data it understands, and too many organisations are grappling with unclassified data obscured by GL codes and usually spread right across the organisation. It’s unwieldy and, oftentimes, useless. If you want to start making decisions backed by hard data, you need to get organised. You need spend analysis.
What is spend analysis in procurement?
Spend analysis is another tool to help procurement officers make better decisions around suppliers and sourcing. It’s intended to decrease costs, improve efficiency and drive innovation. It achieves this through a process of identifying the relevant data, gathering it, cleansing it, categorising and analysing.
Spend analysis is a deep dive into your procurement information and the spending patterns of your organisation. It provides a more complete understanding of your supply base and the metrics of procurement performance, which is intended to provide actionable insights and uncover targets for innovation.
Spend analysis in procurement is used to:
- Increase visibility into spend on suppliers
- Improve risk management
- Improve strategic sourcing
- Create and nurture positive supplier relationships
- Gain better oversight over the supply chain
Here are some questions a good spend analysis can help procurement departments answer:
- What are we buying and who are we buying it from?
- Who is doing the purchasing?
- When did we purchase it?
- How often do we purchase it?
- How much was it?
- Are we getting what was agreed to?
3 Ways Spend Analysis leads to data-driven decision making
Strategic sourcing
Before spend analysis, data on a single PO would be spread throughout the organisation. Collating it and making sense of it was laborious at best, impossible at worst. Now, procurement officers can see all expenditure related to a single order, including the peripheral costs.
It might be that the product is currently being purchased from an overseas supplier, where it is cheaper. When combined with all the related costs, such as transportation, it becomes apparent that purchasing locally is more cost efficient.
Spend analysis can also help organisations see incumbent suppliers with fresh eyes and determine the true value of sticking with them or going back to market.
Improve compliance, identify maverick spend
A lot of data is funnelled through procurement departments, along with a lot of money. It’s important that we stay compliant with regulatory requirements, which can be quite strict when it comes to public procurement. Spend analysis makes it easier to trace, collate and record expenditures, making it easier to audit processes and ensure we’re staying on the straight and narrow.
This process also helps to identify maverick spend, which has been traditionally difficult to get a handle on when contracts were once only in hardcopy, stored off-site or lost altogether. Outliers and anomalies are easy to track with the right spend analysis software, so unauthorised spend can be nipped in the bud.
Plan ahead and innovate
The right software will allow for category segmentation , which sorts spend into four sections based on the Kraljic Matrix: strategic, leverage, non-critical and bottleneck. From here, procurement departments can focus on the key suppliers and develop a strategic plan for the next three to five years.
This plan should encompass potential savings in each category and – importantly – the ease with which these savings can be realised. In other words, spend analysis can help identify big, easy wins for procurement savings and help with strategy planning.
ProcureTrak is your spend analysis solution.
ProcureTrak is a state-of-the-art, bespoke spend analysis software. It has the capability to cleanse and organise your procurement data right down to line-item level. You’ll gain visibility across a range of dimensions, such as GL codes, time periods, geography and cost centres.
This is a highly-customisable piece of software, able to be tailored precisely to your organisation’s needs. The data you need to make the right decisions is in your hands; you just need to see it clearly. That’s what spend analysis in procurement does, and that’s what ProcureTrak is for. Get in touch today and begin the transformation.
