Spend Analysis Best Practices
Why are spend analysis best practices important for businesses across all sectors?
Spend analysis is rapidly becoming a must-have tool for today’s procurement leaders and other industry specialists. Though there are several reasons for this, it is gaining popularity mainly because its proven to be an exceptional way to carry out a multifaceted review of an organization. It also helps in identifying opportunities for cost reduction, operational changes, and enhanced contractual negotiation to improve the organizations’ profitability. Spend analysis is therefore fast emerging as an essential business tool for procurement officials and managers in organizations operating across multiple industries. Most organizations today rely on spend analysis best practices to reduce purchasing spend, unaware of the fact that accurate spend analysis eventually depends on the reliability and quality of the underlying supplier and product data across all relevant systems within the firm. When done correctly, spend analysis assists organizations in identifying essential opportunities to leverage buying power, improve operational performance, reduce procurement costs, and improve relationships with stakeholders. Several leading organizations who have adopted spend analysis best practices are reaping big rewards in the form of savings. However, the full benefits of spend analysis can only be realized by studying and tracking the spending patterns on an ongoing basis. In this whitepaper, we help you identify the five spend analysis best practices, adopting which may help your firm to achieve maximum benefits in the long run.
Creating an effective procurement strategy is essential for business to gain traction over competitors in the industry. Request for a FREE proposal to discover how you can conceptualize the spend analysis best practices and stay ahead from the competition.
Here we outline the five spend analysis best practices that will transform your business objectives:
Audit existing spend data management capabilities: It is essential to conduct a review of the spend management infrastructure and competencies of your organization. This helps in analysing the quality and completeness of spend data in addition to identifying the data elements required to generate a detailed spend record. Organizations may also consider hiring consultants to conduct a baseline spend analysis during the initial audit. This way, they can also identify the areas that require immediate improvements.
Cleanse, group, and categorize the spend data: The extracted data must be cleansed to avoid any duplications and errors before being categorized. It is important to adopt an industry standard classification scheme or an internal taxonomy for grouping and classifying the spend data. The higher-level classification of spend at a category level forms the first step in categorizing spend data.
Employ vital business intelligence to enhance spend data: Use external sources that offer information on raw material, packaging, logistics, and economic activity to improve the quality of spend data. The most basic form of enhancement includes assessing the parent-child relationship, to ensure full spend leverage and aid the balance of trade decisions. Moreover, the use of external market intelligence and supplier information helps in developing optimal product sourcing and inventory strategies that can be executed in the real world.
Increase the frequency of spend analysis: Supply market dynamics are constantly in flux owing to the dynamic business environment and sales fluctuations. Many such factors make it obligatory for organizations to make supply trade-offs between the primary and secondary suppliers regularly. In many cases, it also induces them to identify new sources of supply.
Create a repeatable process through automation: Lastly, organizations must focus on implementing a repeatable process. They may either opt for a licensed data cleansing and classification software or engage with service providers that help them leverage the use of such solutions to deliver a turnkey spend data management service.
Developing a competitive procurement strategy is crucial for companies to stay ahead in the market space. Connect with our experts by requesting service on our procurement platform to gain the latest insights into the importance of spend analysis best practices.
Spend analysis solution for a leading construction industry client.
Challenge: The client, a leading player in the construction industry, wanted to identify the sources for maverick spend and assess the key areas of spend. They also wanted to gain insights to save money and make better-informed decisions.
Benefits offered: With the help of SpendEdge’s spend analysis best practices solution, the construction equipment manufacturer was able to reduce maverick spend, improve savings, and scale operational efficiency.
SpendEdge shares your passion for driving sourcing and procurement excellence. We act as a global strategic partner for leading Fortune 500 firms and other leading companies across industries. Our strength lies in delivering robust, real-time procurement market intelligence solutions that helps sourcing and procurement professionals make informed decisions. Our innovative procurement solutions also help enterprises transform structural capabilities, improve execution efficiency, and fast-track time to savings.