Written by Marijn Overvest | Reviewed by Sjoed Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Spend Cube Analysis In Modern Procurement

Every dollar spent matters so gaining a crystal-clear view of your organization’s spending habits is the key to informed decision-making and cost optimization. Enter the Spend Cube Analysis—an indispensable tool that unlocks the secrets hidden within an organization’s expenditure. 

In this article, we delve into the power and potential of Spend Cube Analysis in revolutionizing the procurement landscape.

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.

What is Spend Cube Analysis?

Spend Cube Analysis is a smart tool that businesses use to understand their spending and make their purchasing processes work better. This method breaks down spending data into three parts: suppliers, categories, and business units. 

Spend Cube Analysis is like having a magnifying glass for your procurement team. It is designed to give you a crystal-clear view of where your money is going and how it’s being spent. 

Firstly, it helps you pinpoint your key suppliers, understand their spending trends, and craft more advantageous deals. Secondly, it highlights spots where cost-saving opportunities are waiting to be discovered. Lastly, it unveils trends over time, enabling you to efficiently plan your purchases.

Ultimately, the goal of Spend Cube Analysis is to arm procurement professionals with actionable insights. It acts as their compass, guiding them toward optimized spending, reduced costs, and a procurement strategy that fuels greater efficiency and profitability for the entire organization.

Elements of the Spend Cube

Now, let’s dive into the three essential dimensions of the Spend Cube—Categories, Suppliers, and Business Units. In procurement, these dimensions collectively delve into the intricate dynamics of “who purchased what from where”.

1. Categories Dimension (X-axis)

This dimension falls down into the “what” territory by categorizing spending data into specific item categories. These categories span a broad spectrum of goods and services, encompassing everything from office supplies to raw materials. 

Examining spending through item categorization is vital for determining opportunities for cost reduction and efficient budget allocation. It assists organizations in spotting areas where procurement practices can be improved, negotiations can yield better outcomes, or purchasing power can be pooled within specific categories.

2. Suppliers Dimension (Y-axis)

This facet serves as the portal to decode the “source” of procurement transactions. This dimension helps in identifying key suppliers, assessing their performance, and facilitating favorable negotiations. 

People who ask questions like, “Who are our top-performing suppliers? Can we streamline our supplier roster for greater efficiency? Where can we secure better procurement terms?” find their answers here.

3. Business Units Dimension (Z-axis)

This dimension dissects spending data according to different corporate business units or departments within the organization. It unveils how various segments allocate resources and procure goods or services. The findings from this dimension guide resource allocation decisions, bolster cost control initiatives and foster accountability.

Together, these three dimensions paint a panoramic picture of the organization’s procurement landscape. They enable stakeholders to not only discern the “who bought what from where” puzzle but also reveal the “why” and “how” behind those decisions. 

Importance of the Spend Cube Analysis

Imagine your company’s spending habits are a giant puzzle, with pieces scattered all over the place. Without Spend Cube Analysis, you’re basically trying to solve that puzzle in the dark, stumbling over pieces and missing out on the big picture. So why do you need it?

Spend Cube Analysis is a crucial tool for organizations aiming to streamline procurement and cut costs. It analyzes spending data across various dimensions, providing a comprehensive view for informed decision-making.

This analysis helps identify spending inefficiencies and cost-saving opportunities by uncovering patterns and rogue spending instances. It also evaluates supplier performance, aiding in supplier selection and contract negotiation while minimizing risks. Additionally, Spend Cube Analysis assists in demand forecasting and budget planning by tracking spending patterns for more precise financial management.

Types of Spend Analysis

Various types of spend cubes can be generated, each honing in on distinct spending dimensions. These cubes are crafted through diverse forms of spend analysis, including, but not limited to:

1. Contract Spend Analysis

This type verifies contract compliance and enhances contract management by optimizing terms, conditions, and pricing with preferred vendors.

2. Payment Term Spend Analysis

This analysis streamlines the procure-to-pay (P2P) process, reducing waste, fraud, and maverick spending. It delves into payment patterns, purchase order cycle times, and approval bottlenecks, and offers insights into cash flow enhancements and increased savings through early payment discounts.

3. Tail Spend Analysis

Tail spend analysis aims to eliminate unnecessary expenditures by providing comprehensive visibility into all indirect spending, effectively curbing rogue/maverick spending. It also aids in enhancing internal compliance and optimizing the supply chain through vendor consolidation.

4. Vendor Spend Analysis

This analysis specifies the percentage of spending allocated to key suppliers. It supports supplier management and strategic sourcing by assessing supplier performance and compliance. Additionally, it aids in supplier reduction efforts and devising strategic contingencies for vital production materials.

5. Category Spend Analysis

Category spend analysis delves into spending dimensions by category. It plays a pivotal role in enhancing category management, supply chain management, internal spend controls, and contract management. It enables negotiations based on more precise forecasting and risk management.

6. Item Spend Analysis

Item spend analysis dissects expenditures down to the granular line-item level. It unveils redundancies and discrepancies, such as instances where different departments procure similar items from distinct suppliers at vastly different price points. This analysis exposes maverick spending and suboptimal vendor choices.

Steps to Analyze Spend Data

Analyzing spend data, whether in Excel or other tools, is a crucial task. Here are the steps to analyze spend data effectively:

1. Collect and Organize Data

Begin by gathering spending data from various sources and ensure it’s accurate and error-free. Structure the data with key details like suppliers, categories, dates, and amounts. Import this organized data into your chosen analysis tool or software. 

2. Explore Data

Get a sense of your data’s size and structure. Use filters and pivot tables to focus on specific aspects. Create charts and graphs to make complex data more understandable and visually appealing.

Analyze data from different angles by applying filters or pivot table functions. Identify areas where cost savings can be achieved, such as negotiating better terms or optimizing spending.

3. Evaluate Suppliers

Assess supplier performance based on quality, delivery times, pricing, and reliability. This allows you to find top-performing suppliers as well as areas for improvements or if renegotiations are necessary. Data-driven assessments can also help in fostering a great bond with the suppliers.

4. Check Compliance

Ensure spending aligns with contracts, policies, and regulations, and take immediate corrective actions if needed. By doing so, the organization can avoid potential legal and financial consequences and foster sustainability and trust with stakeholders.

5. Budget Comparison

Compare actual spending to budgeted amounts to understand variances. This helps in identifying the root cause of any discrepancy. Plus, budget comparison helps in forecasting and adjusting future budgets which ultimately guides informed decision-making regarding the business finances.

6. Extract Insights

Identify actionable insights and recommendations for cost reduction and process improvement. Create clear and comprehensive reports to communicate findings to stakeholders.

7. Continuous Monitoring

Keep monitoring spending data and update your analysis as new data becomes available to maintain efficiency. This allows your organization to respond well to the constantly changing economic situation and market dynamics. 

Real-life Application of Spend Analysis

In a real-life example, let’s examine the impact of EmpoweringCPO’s spend analysis services on a large manufacturing company. This company faced challenges with a sprawling and disjointed supplier network, resulting in inefficiencies in its spending and procurement processes.

Empowering CPO stepped in and conducted a thorough spend analysis, pinpointing areas that needed improvement. They discovered opportunities for consolidating suppliers, which not only led to volume discounts but also enhanced negotiation leverage. Redundant and underperforming suppliers were also identified and removed, resulting in a more streamlined and cost-effective supplier base.

The outcome of this spend analysis was impressive. The company achieved significant cost savings, reducing its procurement expenditures by 20%. Moreover, they witnessed improvements in operational efficiency, reduced risk, and adopted a more strategic approach to procurement.

This case vividly illustrates the transformative power of spend analysis in revolutionizing an organization’s procurement function. Moving forward, we will delve into how EmpoweringCPO’s distinctive approach to spend analysis can deliver these advantages to your business.

Conclusion

Spend Cube Analysis serves as an organizational compass, shedding light on spending patterns and enhancing decision-making. It dissects spending by suppliers, categories, and time, revealing cost-saving opportunities. In a data-driven world, Spend Cube Analysis unlocks cost optimization, efficiency, and profitability.