Spend analysis is one of the most versatile analyses in a procurement organization offering several key benefits. In this blog, we are going to throw some light on the most common benefits of spend analysis.
1. Full visibility on procurement spends – In an organization, spend analysis brings transparency into the amount of money it spends purchasing materials and services. It provides a deeper understanding to develop initiatives and make confident spending decisions.
2. Identify savings opportunities – The prime objective of spend management is to identify and exploit savings opportunities and eventually improve the firm’s productivity. Spend analysis helps the sourcing manager to meet the cost reduction goals. It creates opportunities to cut the costs through the use of alternative products, supplier consolidation, and merging of products that were purchased separately into contractible groups.
3. Manage risk – Spend analysis helps to track the vendor’s financial performance and credibility. Since most of the projects are majorly dependent on suppliers, spend analysis helps identify risk beforehand, which empowers decision-makers to configure alternate plans.
4. Reduce maverick spending to ensure compliance – With spend analysis, it becomes easier to trace, collate and document expenditures that improve spend visibility. Spend analysis data will allow the organization to track and identify suppliers who have non-contracted spend as well as spend with non-contracted vendors. This way, it helps in restricting unauthorized spending.
5. Evaluate supplier performance for better relationship management – Having a comprehensive spend analysis gives information on the amount of money an organization spends on purchasing materials and services. It helps to identify the suppliers it spends the most and provides insights as well as knowledge to improve the relationships with them. Once the organization determines which suppliers offer the best value, it can work with them to establish more evolved procurement processes and inventory programs.
6. Benchmark performance – Spend analysis allows an organization to create internal standards across business units in different locations. This leads to an insightful comparison between these business units which can be used for strategic decision-making. Spend analysis also helps to compare an organization’s performance against market developments to make sure that the organization is keeping up with the market benchmarks.
7. Spend Forecasting – The ability to forecast spend is an important benefit of spend analysis. Multiple teams in the organization can use the spend data to forecast future spending. For example, finance and planning can use the spend data to understand recurring vendor spend along with long-term contracts to forecast the next few years’ expenditures.
Furthermore, the benefits of spend analysis can be categorized into 3 different categories. Refer to the below image which illustrates the categorization for benefits of spend analysis.
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