Spend Analysis 101: What is Spend Analysis?

Spend analysis is the process of assessing business spend your organization with the goal of identifying savings opportunities and, ultimately, reducing expenses in the long term.

Throughout a spend analysis, your organization identifies, collects, categorizes, and analyzes every purchase it makes. This analysis provides the means to identify areas where the business can save money, negotiate better contracts, and increase efficiency. The process might uncover additional opportunities to eliminate maverick purchasing, enforce contract compliance, and shorten delivery cycles benefits during this process, such as discovering unapproved spending, improving compliance, and shortening delivery cycles.

Simply put, spend analysis involves bringing historical purchase data together in one place to build insights and answer a number of questions including:

• Why are we making these purchases? 
• Are our suppliers charging a fair price? 
• Can we do better? How?

Spend management is critical for every aspect of business because once you know where your money goes, you can make better decisions about where and how it should be spent. These analyses are often the first step in broad, transformative initiatives.

Opportunity Assessment:

 A high-level portfolio spend analysis that covers all categories of spend is performed as part of an initial opportunity assessment to identify the best commodities, or spend categories, on which to focus strategic sourcing efforts. When conducting an opportunity assessment questions you might ask questions like:

• How many vendors are being used for a specific commodity? Too many? Too few?
• Is the organization buying from the right vendor(s)? At the right price?

Observing and comparing recurring spend with all of your suppliers over time empowers your organization to forecast and build a strategic sourcing plan for the future.

Next Steps - Developing a Sourcing Roadmap:

After the data is collected and classified, it is important to then start making decisions based on the information you have gathered. You can map these decisions out in a sourcing roadmap. A good place to start when developing a sourcing roadmap is to outline your target business outcomes. You should keep these in mind throughout each subsequent decision and initiative. Then, you’ve got to evaluate your suppliers by asking questions like:

• Is pricing the same for each transaction?
• Is this item or service critical for business operations?
• Is there room for savings or discounts on these items?

Preparing yourself with organized and accurate data on your suppliers, costs, risks, and other important criteria is extremely crucial in understanding where to focus your sourcing efforts, but additional analysis of your organization’s goals, market conditions, and spending patterns can help you develop a sourcing roadmap that generates the greatest results.