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

Step 1: Specify Objectives

Begin by setting clear, measurable goals for your spend analysis, whether that’s validating budget forecasts, uncovering hidden cost savings, or improving supplier relationships.

Defining these objectives up front ensures that you collect the right data and focus your analytical efforts on questions that drive tangible business value.

Revisiting and refining your goals as you progress can help keep the project aligned with evolving stakeholder needs.

Step 2: Locate Data Sources

Gather all relevant procurement data from disparate systems (ERP modules, invoicing platforms, contract repositories, and financial ledgers) to create a comprehensive view of your organizational spend.

Don’t overlook less-obvious sources like expense reports or purchasing-card records, as they can contain critical outlier transactions.

Document each data source’s structure and ownership to streamline ongoing data access and governance.

Step 3: Data Cleansing & Conversion

Once collected, standardize your raw data by correcting errors, removing duplicates, and harmonizing formats (dates, currencies, supplier names).

Use automated scripts or cleansing tools to enforce consistent naming conventions and validate that every transaction maps correctly to the intended supplier and category.

This rigorous cleanup underpins the reliability of all downstream insights.

Step 4: Integration

Integrate your cleaned data into a single repository or data warehouse, then apply categorization and segmentation rules, such as grouping by spend category, geographic region, supplier tier, or business unit.

This structured taxonomy enables you to slice and dice the data for targeted investigations (e.g., comparing regional versus global spend).

Maintain a clear data hierarchy to support both high-level summaries and detailed drill-downs.

Step 5: Analysis & Visualization

Leverage analytics platforms to benchmark actual spend against your KPIs (such as budget variance, maverick spend, or contract compliance rates) and identify patterns or anomalies.

Create interactive dashboards, charts, and heatmaps that highlight top suppliers, cost drivers, and areas of overspend at a glance.

Well-designed visualizations accelerate stakeholder understanding and help pinpoint where deeper investigation is needed.

Step 6: Strategic Insights

Translate your visualized findings into actionable recommendations: negotiate volume discounts with high-spend suppliers, consolidate spend under preferred contracts, or address performance gaps with under-delivering vendors.

Evaluate supplier performance on metrics like on-time delivery, quality rates, and responsiveness to drive continuous improvement. Finally, establish a regular cadence, monthly or quarterly, for repeat analyses to capture new opportunities and monitor progress over time.

Supplier Spend Analysis Example: ACME Electronics

In this example, we follow how ACME Electronics executes the supplier spend analysis process through six defined steps. The company’s goal is to gain full visibility into its expenditures, identify cost-saving opportunities, and improve contract compliance, all while continuously strengthening supplier relationships. The overview below shows exactly how each step was applied in practice.

Step 1: Specify Objectives

ACME first defined two concrete goals: to reduce indirect spend by 8 % within one year and to increase contract-price compliance to at least 92 %. These objectives guided the entire analysis and enabled progress tracking against clear metrics.

Step 2: Locate Data Sources

The team gathered data from four key systems—SAP S/4HANA for purchase orders, SAP Ariba for invoicing, a SharePoint contract repository, and Oracle Financials, as well as corporate credit-card reports. This approach ensured a comprehensive dataset covering all relevant transactions.

Step 3: Data Cleansing & Conversion

Using OpenRefine, ACME cleaned the collected data by merging duplicate supplier names, standardizing date and currency formats, and removing incomplete records lacking contract references. This rigorous cleanup ensured that subsequent insights were built on accurate, consistent data.

Step 4: Integration

The cleansed data was loaded into a Snowflake data warehouse, where ETL processes enriched each transaction with UNSPSC classification codes. A three-tier taxonomy was defined: direct vs. indirect, subcategory, and geographic region, enabling detailed segmentation and drill-down analysis.

Step 5: Analysis & Visualization

In Power BI, interactive reports were created to display the top 20 suppliers by spend, contract-compliance rates, and the percentage of maverick spend. Heat maps and KPI cards highlighted focus areas and tracked progress against ACME’s targets.

Step 6: Strategic Insights

Based on these insights, ACME consolidated office-supply purchases with three preferred vendors (securing a 12 % volume discount), initiated contract-extension negotiations with its primary IT supplier, and instituted quarterly “Spend Review” meetings to uncover new savings opportunities. At the same time, supplier performance on quality and delivery timeliness was evaluated to reward top performers and strengthen strategic partnerships.

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 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 Tools for 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.

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.