Spend analysis is the process of collecting, cleansing, classifying and analyzing expenditure data with the purpose of reducing procurement costs, improving efficiency and monitoring compliance. It can also be leveraged in other areas of business such as inventory management, budgeting and planning, and product development.
Spend analysis is the initial step in the strategic eSourcing process
A thorough spend analysis across your entire organizations spend can answer critical questions that are at the heart of efficient procurement
- What am I really spending?
- With whom am I spending it?
- Where can I aggregate purchases and consolidate suppliers?
- Where are my cost savings opportunities?
ProcurePort provides spend analysis services and our spend analysis process consists of a 6 step approach:
6 Step Spend Analysis Process
1) Data Gathering: The first step in any analysis process is to identify and collect all the data that needs to be analyzed. Typically in an organization looking to achieve cost savings as well as implement best practice sourcing, the data required is the Accounts Payable (AP) Data, P-Card, Travel Expenses, etc. It is best to have this data available in EXCEL/CSV/XML Format so that it is easy to manipulate and feed into the spend analysis engine.
2) Data Aggregation: Once all the data has been made available in an EXCEL/CSV/XML format (from various divisions/departments/sources), the next step is to merge all the data files from various sources into one single file while keeping the original data references intact.
3) Remove Duplicate Records: In disparate systems, there are occasions where duplicate data entries exist between multiple systems. Removal of duplicate records ensures that the spend is not counted multiple times during analysis
4) Vendor Name Normalization: One of the biggest challenges in spend analysis is the cleanliness of the data to be analyzed. Misspelt supplier/vendor names create unnecessary unique entries that skew the final analysis results. Mapping vendor names against standard vendor name database is very crucial.
5) Vendor Categorization: The step of utmost importance in the entire process is the proper categorization of the vendors into a structured taxonomy. A generally available taxonomy is UNSPSC, however a custom taxonomy is more suitable in achieving the specific goals desired by the organization. Improper categorization can lead to a failure of the analysis process thereby affecting the decision making process of defining the final eSourcing strategies.
6) Spend Cube Generation: The spend cube is the final output of a spend
analysis process.The spend cube allows stakeholders to look at all the
analyzed data from various angles. Supplier density in specific
categories, Spend volumes across categories, addressable vs.
non-addressable spend, etc. are some of the key value outputs
derived from the spend cube.
Learn how ProcurePort’s Spend Analysis Service and Spend Analysis Software can help your business with your Spend Management. Contact us today to get an estimate on your spend analysis/Spend Visibility project.
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