Written by Marijn Overvest | Reviewed by Sjoerd Goedhart
Fact Checked by Ruud Emonds | Our editorial policy
Supplier Spend Analysis — Everything You Should Know
What is a supplier spend analysis?
- Supplier spend analysis offers a clear picture of where money goes, which helps companies understand their total spending on materials and services.
- The supplier spend analysis process involves defining goals, locating reliable data sources, and using business intelligence tools to assess the data accurately.
- Supplier spend analysis offers valuable benefits, including cost savings, strategic insights, stronger supplier partnerships, improved compliance, and reduced risks to empower businesses in making smarter financial decisions and building more reliable supplier relationships.
What is Supplier Spend Analysis?
Supplier spend analysis is the process of analyzing data to find patterns and clues, identify cost-saving opportunities, and optimize overall performance. It involves gathering information from all supplier invoices, examining spending trends, and finding areas where savings might be made.
Supplier spend analysis is a tool that businesses use to better understand their spending, refine their bargaining tactics, and select suppliers. It is possible to evaluate both direct and indirect spending using this method.
Spending on items and services directly used in the creation of a good or service is referred to as Direct spend. All additional costs that are not directly related to manufacturing, such as marketing, administrative costs, and R&D costs, are categorized as indirect spending.
Supplier Spend Analysis can be carried out in several ways, such as manually entering data, utilizing Excel spreadsheets, or using specialized software. The data’s accuracy and completeness are the most crucial components. When selecting a method for Supplier Spend Analysis, organizations should also take into account their unique requirements.
How Does Supplier Spend Analysis Work?
The first step in the Supplier Spend Analysis process is to specify essential goals, such as discovering opportunities for savings, tracking spending patterns, or identifying suppliers strategically. The next step is to locate all pertinent data sources; spend information may be dispersed across numerous systems used by various departments.
It is frequently required to cleanse and convert the information from these systems into a common format before integrating it. The time-consuming part of spend analysis maybe this. Finally, organizations might use reporting or business intelligence tools to evaluate and visualize the data. The study’s findings give the business the information it needs to make strategic business decisions.
Importance of Supplier Spend Analysis
Improving the source of materials, goods, and services begins with Supplier Spend Analysis. It’s frequently seen as an essential component of a larger expenditure management process that also includes automated procurement and spend control.
Spend analysis can result in lower procurement expenses for goods and services by gathering information that reveals who the organization purchases from and how much it pays. It assists businesses in monitoring important spending measures and offers a reference line for assessing the effectiveness of fresh approaches and spending-cutting initiatives.
Companies might concentrate on areas where they might be able to cut expenses and increase profitability by analyzing spending indicators versus industry benchmarks.
Furthermore, with the help of Supplier Spend Analysis, procurement teams are better equipped to negotiate favorable terms, spot possible hazards in the supply chain, and make decisions that are in line with the objectives of the company. Additionally, Supplier Spend Analysis increases transparency, allowing stakeholders to understand procurement dynamics and work well together.
The insights gained from supplier spend analysis pave the way for wiser spending, stronger supplier connections, and a more robust supply chain in a time when fiscal responsibility and competitive advantage are vital.
Supplier Spend Analysis:Key Steps
Here are the key steps for Supplier Spend Analysis. Each one is important so make sure to internalize each with ample attentiveness.
1. Identify Objectives
When the process’s goal is clear, this analysis is most helpful for businesses. Organizations can identify pertinent data trends by establishing the purpose prior to undertaking the study. Checking the accuracy of spending predictions and maximizing value through supplier management are two examples of potential goals.
2. Data Gathering and Cleansing
Accurate data is the cornerstone of any spend analysis that succeeds. Data must be compiled by organizations from a variety of sources, including purchasing systems, invoices, contracts, and financial records. To remove inconsistencies and guarantee trustworthiness, the data must be cleaned and standardized after it has been collected.
3. Categorization and Segmentation
Spend data can be categorized into useful categories to enable a more thorough study. Organizations can acquire insights into which areas of procurement have the most effects on the budget by grouping spending items into relevant categories.
On the other hand, supplier segmentation divides suppliers into groups based on characteristics including location, kind of good or service, and value to the company.
4. Data Analysis
Using analytical tools, organizations must assess the spend data while keeping their goals in mind. In order to understand performance, they must also compare the data against KPIs, or key performance indicators.
5. Visualization and Insights
Modern spend analysis tools provide graphics that make data more compelling. Procurement experts and stakeholders may quickly identify spending trends, outliers, and areas for improvement with the aid of graphs, charts, and dashboards.
6. Identifying Opportunities
Analyzing supplier spending reveals untapped potential for cost savings. Companies can look for suppliers with better terms, bargain for volume discounts, or look into the possibility of combining purchasing. With the help of these insights, firms may make cost-cutting decisions that are well-informed.
7. Supplier Performance Evaluation
Spend analysis delves into supplier performance beyond cost savings. Businesses can foster relationships with the best-performing suppliers and solve issues with those who aren’t performing as well by evaluating suppliers based on criteria including delivery timeliness, quality, and responsiveness.
8. Repeat regularly
You should undertake routine spend analysis because your spend data is constantly changing. By routinely performing a complete spend analysis, you may maximize every chance for cost savings and enhance your procurement process.
Supplier Spend Analysis Benefits
Supplier Spend Analysis has a lot of impactful benefits and here are some of them listed below.
1. Cost Savings
Cost reduction is the immediate benefit of spend analysis. Organizations can considerably improve their bottom line by discovering inefficiencies and negotiating better terms with suppliers.
2. Strategic Decision-Making
Procurement Teams can make strategic decisions thanks to data-driven insights. Making educated decisions results in improved results, whether it’s choosing the best suppliers, streamlining the procurement process, or changing purchasing tactics.
3. Supplier Collaboration
Spend analysis promotes communication between important suppliers. Organizations may collaborate to develop win-win solutions and spur innovation when they have a deeper understanding of their supplier relationships.
4. Enhanced Compliance
Spend analysis helps to ensure compliance with rules and policies regarding procurement. Organizations can identify outliers and take corrective action by reviewing spending data.
5. Reduced Risk
You can detect areas of possible risk by comprehending your company’s expenditure practices. Once mechanisms are in place to reduce those risks, this knowledge can be exploited.
Software Toolsfor Supplier Spend Analysis
We can’t just write you an article about Supplier Spend Analysis without giving you some accessible tools to get the job done. So here are some software tools to help you along your journey of Supplier Spend Analysis.
1. Kissflow
Kissflow is a cloud-based procurement software tool that helps businesses manage their procurement process from requisition to payment. It includes supplier management, contract management, and spending analysis.
2. SAP Ariba
SAP Ariba is a cloud-based spend analysis software that helps businesses gain visibility into their spending habits and make data-driven decisions to reduce costs and improve efficiency. It offers a suite of e-procurement tools and analytics solutions that help streamline procurement processes, manage suppliers, and optimize spending.
3. GEP Smart
GEP Smart is a spend management platform that helps organizations identify cost-saving opportunities and make informed procurement decisions. It offers a range of features that make it easy to analyze spending patterns and optimize procurement strategies from end to end.
4. Coupa
Coupa is a cloud-based procurement software that helps organizations manage their procurement processes, automate workflows, and improve spend management. The software offers a range of features to help users streamline procurement workflows and improve supplier relationships.
Conclusion
Supplier spend analysis can be an invaluable tool for businesses to gain a deeper understanding of their purchasing habits.
In order to better manage resources, build stronger connections with suppliers, or even find possible cost-saving opportunities, decision-makers might benefit from looking at trends and patterns.
In the end, supplier spend analysis is a crucial component of any company’s cost-management plan and shouldn’t be disregarded by anyone in charge of procurement services.
Frequentlyasked questions
What is Supplier Spend Analysis
The practice of determining how much a company spends on supplies of goods and services is known as supplier spend analysis.
Why is it important?
Improving the source of materials, goods, and services begins with Supplier Spend Analysis. It’s frequently seen as an essential component of a larger expenditure management process.
How does it work?
Beginning the Supplier Spend Analysis process is to first specify essential goals, such as discovering opportunities for savings, tracking spending patterns, or identifying suppliers strategically.
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.
