What is Spend Analysis: The Complete Guide to Buying?



What is a spending analysis?
Spend analysis collects, sorts, and analyses data about how money is spent or spent on things. The goal is to find out where the business is spending money and if it is doing so in the best way possible.

Spend management, on the other hand, is about collecting, tracking, analyzing, and controlling expenses or spending across business units. With spend management, you can protect the bottom line of the business.

So, spending analysis is just one part of managing how money is spent.

Spend analysis key terms

Analysis of spending and getting things
When you buy goods and services from outside suppliers, there is a lot of information about how much you spend (procurement information). There are different ways to look at the data to understand how the procurement process works. KPIs are usually used by the CPO, or chief procurement officer, to measure how well the procurement process is working.

Spend data management
You need to manage the spending data or information from sourcing or procurement to improve the efficiency of the organization and increase your bottom line. So, you use spend data management, whether you want to lower financial risks, cut costs, or improve relationships with suppliers.

Spend analytics is the process of finding, collecting, cleaning, grouping, and analyzing data from your business's different sourcing and procurement functions.

In this case, spend analytics dashboards are interactive screens that show a wide range of the organization's procurement and sourcing activities. A dashboard shows you the most important information quickly, like a ticker at the bottom of your screen. So, dashboards help you see how many suppliers you have and how much they are worth to your business.

KPIs, or Key Performance Indicators, are numbers that tell you how well your project or activity is doing.

Different ways to look at procurement spending
Spend analysis can help businesses figure out what their expenses are for and make changes to their sourcing plans and other areas that need more control. Companies can use different kinds of spending analysis. Here are a few of them:

1. Analysis of vendor spending
A vendor spending analysis looks at how much money was spent on services or goods that the business needs. So, the main point of this kind of analysis is to look at how much money is spent on vendors and suppliers that help a business run. The results of this analysis could be used to manage suppliers and make relationships with them better.

2. Analysis of tail spending
Tail spend is a term for small or unimportant costs that a business has to pay. Usually, these costs are not part of a contract and don't come up very often. Overall, these costs make up about 20% of all an organization's costs. Even though these direct or indirect costs may not seem like much, they can be controlled by keeping track of them regularly and analyzing them. This could lead to savings.

3. Analysis of item spending
An item spending analysis sorts the costs into groups based on which department uses the item. This kind of analysis looks at each thing on its own. The goal is to figure out how leaks happen and stop them. The results can push organizations to do a better job of sourcing strategically.

4. Analysis of spending by category
Allocating resources is a big concern for procurement teams and the people who run a business. By putting the transactions in order of importance and dividing the spending into segments, business leaders can find the areas that bring the most value to the company. This information helps with the next step, which is to divide up the resources based on how important they are.

5. Analysis of spending based on payment terms
Depending on how the business handles payments and what policies are in place, the payment-term-based spend analysis may suggest a different way to handle things. By looking at how payments are made now, the company might be able to figure out how to improve them.

6. Analysis of spend based on contracts
This analysis is mostly about the business's contracts, how well it works, and how much money it makes. Contract-based spend analysis looks at the agreements to make sure that vendors, suppliers, and other parties follow the terms.

7. Analysis of how Maverick spends
When you buy from suppliers or vendors outside of the current procurement policy, you don't get the discounts or special terms and conditions that you worked out with the suppliers for the business. We call this "maverick spending." An analysis of these costs, which are also called "rogue spend," will show you where you may need to negotiate or renegotiate terms.