Spend Management

Spend Analysis: The Basics, Benefits, and Best Practices

Zach Negrin
August 3, 2022

Spend analysis offers visibility into a company’s procurement expenditures and activities. Therefore, it allows you to spot process improvement and cost reduction areas. 

This article will cover every aspect of the spend analysis process. So, if you are a strategic accountant, finance leader, founder of startups, etc., and want a refresher on the most critical aspects of analyzing procurement spend, this guide is for you. 

What is Spend Analysis?

Simply put, spend analysis is the process organizations use to identify, gather, cleanse, group, categorize and analyze their spend data. The goal is to leverage high visibility and transparency to decrease procurement costs and enhance efficiencies. 

Although spend analysis and spend analytics are sometimes used interchangeably, they mean different things. Typically, spend analytics gives you the relevant information you need to perform a spend analysis. 

To put that into perspective, spend analytics gathers all the information you need, and spend analysis refers to what you do with that information. 

How Spend Analysis can Help You Save Money

Spend analysis allows you to use real-time data and analytics, providing you with the accurate and deep understanding you need to gain efficiency and save funds.

Being a single segment of the more extensive spend management field, spend analysis helps visualize your entire data. This way, you are better positioned to make better supplier and sourcing decisions.

In other words, spend analysis highlights redundancies and opportunities for saving money. For instance, suppose separate departments in your company use different project management tools. In that case, selecting one suitable project management tool and making it serve all departments could help your company save money.

What are the other benefits of Spend Analysis?

Research has shown that organizations that have started spend analysis programs enjoy a much lower overall cost of procuring materials and services. But besides helping your company save money, spend analytics can also aid in reducing cycle times and advancing contract compliance. Other ways spend analysis is beneficial to your organization include:

Faster Response from Suppliers

If your business has incorporated spend analysis into its system, it is most likely to have suppliers that offer more efficient order processing. You will find this most apparent in supplier lead times with a difference of virtually two business days in the period it takes a company to receive purchased goods after submitting an order.

Improves Administration

With spend analysis, you can quickly identify whether systems like payable software and accounts receivable offer the best value or function. Maybe the accounts or finance department's software regularly freezes or crashes, delaying invoicing and payments. Spend analysis helps you assess the need to upgrade the software and programs.

Removes Added Strains Placed on Employees

Implementing a robust automation program, especially in accounting and finance, helps your business ensure that its finance processes are accurate, delivered on time, and efficient. This eliminates added strains placed on your employees.

Helps Make Teams Strategic

Does your organization get the most value from its relationships with its vendors? With spend analysis, you can quickly tell. The recommendation is to look at costs, lead time, and quality of supplies or services during the investigation to determine which vendors offer the best value. 

What is the Step-by-Step Process?

Completing spend analytics might be easier than you expect; you can carry out an effective and thorough analysis in just seven steps:

  1. Identify all the sources available for your spend data. It can be from all your plants, business units, and departments. This includes general ledger, eProcurement systems, accounts payable, pCard, etc. 
  2. Gather data and consolidate it into a single central database. 
  3. Cleanse data to a high standard. This involves finding errors and correcting them in descriptions and transactions before standardizing the spend data for easy viewing. 
  4. Link or group your suppliers for improved management.
  5. Categorize your spend appropriately, including marketing, legal, direct and indirect spend, office supplies, travel, etc. Then start to create a category strategy and drive extra savings. 
  6. Analyze your spend data by measuring against some spend analytics key performance indicators. This way, you will have a better feel for your performance. 
  7. Repeat the process by continually updating your data to ensure adherence. 

What are the Different Types of Spend Analysis?

There are many things you can do with the information you collect. But that depends on your specific industry and needs. Whether you are looking at expenditures by item, supplier, category, contract, or otherwise, these most common types of spend analysis are some starting points:

Item or Contract Spend Analysis

Look at expenditures by SKU or specific item while identifying who purchased the item and which supplier supplied the order. Equally, you can use contracts made with suppliers to organize. This way, you can be assured of compliance with the terms and even negotiate better deals. Looking at payment terms when conducting spend analysis is another similar strategy. 

Category Spend Analysis

Another alternative is to take the time to understand precisely what you are paying for. This goes a long way to establishing how funds flow through the firm. For example, know how much a particular category takes up in the budget every quarter; several departments may be purchasing similar products that could perform the same job. 

Supplier Profile Spend Analysis

Consider developing individual profiles for every supplier you use. Recording past transactions and lining items with every vendor will help you make future spending decisions. You might be able to identify deviations from framework agreements and negotiate better deals—without forgetting to enhance supplier relationships effectively. 

What are Spend Analysis Best Practices?

Since each organization, business, or company is unique, no one-size-fits-all solution to spend analysis exists. Therefore, to start a proper spend analysis, you should follow the following seven simple steps/practices;

  • Establish where your expenditures come from
  • Centralize your data
  • Verify your data before keeping it clean
  • Categorize spending to simplify your data
  • Evaluate your spending habits
  • Reduce spending by deploying strategies
  • Forecast 

How to Conduct a Spend Analysis in a Company

Fact-based data is a new insight to conducting a spend analysis in a business. You can easily ensure compliance and enhance decision-making when you have it. You can also expose sections in your company that might not have been on the target list before. 

To help you reduce more spend in more places, Glean AI is ready to offer you the only AP solution that merges smart automation with spend intelligence to drive material savings. We have helped many customers solve their numerous invoice headaches with Glean AI’s Best-in-Class AP Automation. 

Glean AI will help you automatically detect duplicate overcharges and invoices and get instant alerts on billing errors and when the cost of an item has increased.

Ready to dive deeper into the spend analysis’ world? Contact Glean AI today and request a demo to find out more.  

Share article link

Use powerful insights to drive intelligent spending

Request a demo