Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Spend Analytics 2024 — 8 Metrics You Can’t Ignore
Key take-aways
- Spend analytics is the process of collecting, classifying, cleaning, and analyzing all spend data through the use of dedicated software or programs.
- Spend analytics optimize procurement performance by integrating sourcing data, enabling managers and professionals to make better decisions.
- Spend analytics involves analyzing procurement data for cost reduction and efficiency.
As a procurement manager, one of your many responsibilities includes checking your company’s spend analytics. It is a part of the procurement process and is always done to make sure that your team is spending its budget on procurement wisely.
For this article, we are going to dive deeper into the world of spend analytics. We are going to study its definition and check how spend analytics can affect the success or failure of a procurement process.
Once you’re done reading this article, you’ll be more familiar with how spend analytics should be used to enhance your own company’s procurement process.
I created a free, downloadable spend analysis template. This includes an editable Excel template and a PowerPoint presentation to help you record and analyze your spending data. I even created a video where I’ll explain how you can use this template.
Defining Spend Analytics
Spend analytics is the science of collecting, analyzing, and processing procurement data. We at Procurement Tactics call it science because spend analytics has a lot of observation and data gathering built around it. Spend analytics also makes use of spend analysis, which is uncovering business buying patterns through an in-depth review of procurement data. It’s the practice of analyzing procurement spending to decrease costs, improve supplier relationships, and increase efficiency.
So to summarize the important terms used in spend analytics:
- Spend data means information dealing with a company’s expenditures on goods and services purchased from external suppliers.
- Spend analytics is the process of collecting, classifying, cleaning, and analyzing all spend data through the use of dedicated software or programs.
- Spend analysis is the practice of analyzing spending data to help decrease spending costs, increase efficiency, and improve supplier relationships.
- Spend data management is the process of collecting, managing, and sorting spend data.
The information might be a lot to take in, but for a procurement manager, all of this information is key to creating a great procurement process. Should you need help learning more about these terms, then you can always check out our Negotiation Course For Procurement Professionals for extra help and hands-on practice!
Procurement Analytics
If you want to learn more about procurement analytics from a broader perspective, we wrote an article about it just for you!
Asking the Right Questions in Spend Analysis
If you notice with spend analytics, the root word for this process is ‘analytics’ or ‘to analyze’. Therefore, one integral part of the equation in spend analytics always has something to do with asking the right questions.
Spend analysis usually takes care of the questions asked for the entire process. To get valuable data from spend analysis, all purchase history data should be taken and checked at all angles according to an organization’s expenditures. This includes considering products, prices, suppliers, quantities, business units, and payment terms.
With the help of the following guiding questions, spend analysis can help a company look back at past performances and help it create an assessment of future performance, as well as different trends for checking. Some of the basic questions used for performing spend analysis include the following:
- What are we buying?
- How much have we bought?
- How much have we paid?
- Who is buying?
- Who are we buying from?
- How often do we buy?
- On what terms did we buy?
- Are we getting the items promised?
- When were the items delivered?
- Where were the items delivered to?
- How does the data compare to previous years?
Why is Spend Analytics Important?
When you get all data available for budgeting and analyzing how much money your company spent on a particular procurement, what you get are ideas that will not just help your company grow but will also help your company save more money for future endeavors.
This is just one of the many benefits that a company can get when it invests time and money on spend analytics. While the programs used for most of the core functionalities of spend analytics costs a bit of time, money, and effort to master, it will be all worth it when your company starts saving thousands of dollars because you and your procurement team are able to purchase materials that are cheaper and relatively higher in quality.
Other benefits of investing in spend analytics include the following:
- Increased visibility on category sourcing patterns
- Gain insights for strategic sourcing
- Better oversight of supply chain processes
- Reduction in supplier risk
- Nurture effective supplier relationships
What Happens During Spend Analytics?
While most of the processes during spend analytics happen inside the procurement software or data, it’s also important to learn about what happens whenever data is processed with the help of spend analytics.
Spend analytics help optimize the procurement performance of any organization through integrating information from any sourcing data. It is then sorted and cleaned for accuracy and categorized to item level. This helps operational managers, procurement professionals, and the business itself because the sorted data can help make better, actionable decisions. Even more so when the company also makes use of spend analytics software that features better data classification.
When spend analytics occurs, the following factors should always be tracked and analyzed:
1. Procurement Data retrieval
2. Validating that the data is complete and accurate
3. Data cleanup
4. Normalizing suppliers
5. Placing the data category into a deep, standardized taxonomy
6. Enriching data with metrics and benchmarks
7. Analyzing the data with an analytics solution that provides good visibility and instant insights
8. Identifying potential savings opportunities, creating options for contract creation or re-negotiation, and process efficiencies.
To receive more value, work hard to get accurate, granular data from your records. With the help of an AI-powered platform, data cleansing and categorization time dramatically decrease while data accuracy increases.
SaaS procurement analytics can also provide analysis solutions that automatically identify common cost-saving strategies, such as vendor consolidation, volume discounts, and purchase price variance.
Conclusion
In the realm of procurement management, scrutinizing spend analytics is a pivotal task for ensuring judicious budget utilization. This article demystifies the concept of spend analytics, delving into its definition and its profound impact on procurement success or failure.
As a procurement manager, gaining familiarity with the strategic application of spend analytics becomes paramount. The article highlights key terms such as spend data, spend analytics, spend analysis, and spend data management, elucidating their significance in crafting a robust procurement process.
Additionally, it emphasizes the critical role of asking the right questions in spend analysis and underscores the importance of this practice in fostering company growth and financial savings. The benefits of investing in spend analytics, including increased visibility, strategic sourcing insights, and effective supply chain oversight, are elucidated.
The article concludes by shedding light on the procedural aspects of spend analytics, from data retrieval and validation to analysis and identifying potential savings opportunities. Overall, mastery of spend analytics emerges as an indispensable tool for informed decision-making and optimization of procurement performance.
Frequentlyasked questions
What is spend analysis?
Spend analysis is the process of using spend data to come up with better procurement and sourcing ideas.
Why is spend analytics important?
With the help of spend analytics, procurement teams can decide on a number of procurement-based decisions, such as sourcing the right supplier, deciding the actual costs, and other important procurement questions.
What role does spend analytics software play in the procurement process?
AI-powered platforms can significantly decrease the time spent on these tasks while improving data accuracy.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
