Spend Analysis is the Cornerstone on Which Rests the Strategic Sourcing Program’s Success

Organizations require goods and services from suppliers to operate efficiently. To achieve this, the procurement team's first task is to initiate a strategic sourcing program. This program aims to identify potential suppliers, evaluate them based on criteria such as cost, quality, timely supply, track record, and flexibility, and ultimately select those that meet the organization's expectations. The success of the sourcing program heavily relies on the information generated through spend analysis, which utilizes information technology to store, process, and analyze vast amounts of data.

Spend analysis, also known as spend analytics, involves collecting, cleansing, classifying, and analyzing spend data to provide actionable insights. This data-driven approach improves decision-making and enhances the effectiveness of the sourcing process. It serves as a cornerstone for the organization's strategic sourcing program, enabling informed decision-making.

The purpose of spend analysis is to provide the sourcing team with important information in a cost-effective and transparent manner. This information helps the organization find suppliers that meet its requirements at the lowest cost, with minimal risks, and fosters long-term partnerships.

The spend analysis process consists of the following steps:

1. Identification of sources: Gather spend data from various departments like procurement, finance, sales, and marketing, as well as from enterprise resource planning systems and supply chain management systems.

2. Extract and collate data: Extract data from all sources, create a common database, and organize the spend data.

3. Clean the data and ensure accuracy: Ensure that the data used for analysis is error-free, accurate, complete, and up-to-date.

4. Classify/categorize data: Categorize the spend data into meaningful sets, such as product-wise, supplier-wise, value-wise, or category-wise.

5. Analyze spend data: Analyze the data to obtain insights that can improve the procurement process and serve as a baseline for measuring improvements.

Benefits of using spend analysis software include:

1. More informed decisions: Insights from spend analysis empower organizations to make more informed decisions.

2. Higher profitability: Spend analysis helps lower the total cost of ownership for goods and services, leading to increased profitability.

3. Minimizes maverick spending and ensures compliance: Spend analysis helps control spending and ensures compliance with organizational and regulatory standards.

4. Manages risks: Organizations can assess supplier risks by analyzing spend data along with suppliers' credit scores and other relevant information.

5. Empowers supplier-performance benchmarking and management: Organizations can benchmark supplier performance and improve control over suppliers using spend analysis insights.

Spend analysis software transforms spend data into actionable information, aiding key business decisions related to sourcing and procurement. It helps identify and select appropriate supplier partners, enhances sourcing efficiency, and identifies opportunities to increase organizational profitability. Overall, the use of spend analysis software contributes to improved procurement process efficiency, cost-effectiveness, and throughput.