Every organisation wants it: insight into procurement expenses and, where possible, to cut costs. That’s why most organisations have solutions or software to give them an overview of procurement spending (e.g. in an ERP system of Excel spreadsheet). However, few organisations analyse their data in order to subsequently optimise procurement performance or make savings.
VendorLink’s Spend Analysis offers organisations the possibility to do more with the spend data. In this blog you can read what spend analysis is, what objectives a spend analysis might have, what data you analyse, and what the results of a spend analysis are, and we give a number of practical examples.
What is a spend analysis?
Collecting data relating to procurement expenses can be a hugely time-consuming business. And if you then want to map out the possibilities for saving, the data first has to be cleaned up, structured and analysed.
In a spend analysis, all an organisation’s procurement expenses are brought into the picture and scrutinised. The spend analysis gives you insight into important matters, such as:
Expenses per organisational division
Expenses per procurement category
Expenses per supplier
Spend within contracts
Number of invoices
Suppliers with the biggest procurement turnover (ABC analysis)
Suppliers with a high procurement risk or a major influence on the operating result (Kraljic Matrix)
Affectable and non-affectable procurement conditions
With a spend analysis you have a complete picture of all procurement expenses; you gain insight into possible savings, identify risks, and have the ability to improve compliance. A spend analysis is therefore more than just an overview of your procurement spending.
Spend analysis method
A spend analysis is a continuous process that must be constantly repeated. There are various methods, but in general terms there are four steps:
Collection of data by means of:
an ad hoc file upload;
periodic, automatic linkage;
Cleaning up data: for example, eliminating data duplication
Enhancing and structuring contract data: for example, with data from Contract Management and Vendor Management
Consuming contract data: with reference to reports, the most important information and findings are mapped out
A spend analysis should preferably be carried out periodically to get as complete and objective a picture as possible and in order to be able to make adjustments promptly. This is particularly important for government agencies, because they have to see in good time whether an order has to be tendered throughout Europe. If you only do a spend analysis once, you actually discover too late whether a certain procurement package should have been put out to tender.
Spend Analysis per branch
For each organisation, public or private, it is essential to be able to show what you are purchasing, from whom, and for what amount. But in any case, every organisation and every branch has specific reasons or aims for carrying out a spend analysis.
Spend Analysis for local authorities & education
Local authorities and educational institutions are obliged to show (at least annually) that they are purchasing lawfully. For these organisations it is important to make it clear who their suppliers are, how much is spent, and with which suppliers they have contracts. The spend analysis ensures that government agencies can automatically give answers to these questions.
Spend Analysis for financial services
Financial institutions use the combination of spend management and contract management to enable them to carry out risk management. Financial institutions aim to maximise contract compliance: as far as possible, they have to purchase within contracts in order to protect themselves against legal and economic risks. The contracts have to be watertight and there must, for example, be an exit plan for those contracts that can have a major effect on operational continuity and security.
In VendorLink’s Spend Analysis you can clearly show which suppliers are important and what risks are involved.
Spend Analysis for commercial organisations
The main aim of for-profit organisations with Spend Analysis is to get a clear picture of opportunities for saving. Is procurement being done efficiently? Why is a certain amount being spent on a supplier, and can we make any savings there? Spend Analysis answers these questions and shows how an organisation can cut its procurement spending.
Actions with Spend Analysis
As soon as the spend analysis has been carried out, the next step is to implement the right actions to work towards procurement objectives. 6 important actions that the procurement department can carry out after executing a spend analysis are:
Improving processes: should procurement processes be communicated better? Should the contact management process be accelerated? Spend Analysis gives you an insight into possible opportunities to improve processes, making for more efficient procurement.
Limit Maverick Buying: thanks to Spend Analysis you can discover which department or persons are buying outside of contracts, and you can take action to restrict maverick buying.
Achieving savings: the most obvious action to result from the spend analysis is to make savings. Thanks to the data generated by a spend analysis, you can find previously unsuspected opportunities for saving in procurement categories or contracts.
Negotiating with (new) suppliers: the data from the spend analysis offers you advantages when negotiating a new contract or better price agreements.
Limiting risks: discover which suppliers have a high procurement risk or a major influence on the operating result. The data can be used to limit risks; for example, by working with multiple suppliers in order to spread the risk.
Demonstrating lawfulness: the spend analysis is the solution of choice for government agencies that have to demonstrate that they purchase lawfully.
Spend analysis software
To properly facilitate the spend analysis process, a software solution is essential. Spend Analysis in VendorLink has a wide range of functionalities that will interest any procurement department. As well as making analyses, you can easily create your own dashboards. In this way, purchasing data and KPIs can be presented in a clear way for colleagues and the management.
Want to experience for yourself how our spend management software works? Interested in the benefits for your organisation? If so, register today for a free trial.