Procurement spend analysis is the practice of scrutinising an organisation’s current and historic expenditure from a procurement perspective. It aids to proactively identify savings opportunities, manage risks and optimize the organization’s buying power.
It is a key success factor for strategic procurement and category management in purchasing. Procurement spend analytics is done by collecting, cleansing, classifying and analysing spend data through either dedicated software or spend cubes. Refer to below image which illustrates the process flow for spend analysis.
Investigating purchase history data using procurement spend analysis can help in answering various questions for an organization’s expenditures like,
- What are we buying?
- For whom we are buying it?
- When did we buy it?
- Why are we buying it?
- Where most of the spend is going?
- How much did we pay?
- How does the data compare from previous years?
Sourcing professionals often use spend analysis to persuade superior performance as it is one of the fundamental foundations of sourcing. It can also be utilized by business owners and top-level management for deciding strategies to augment the organisation’s profit. Business insights gained from spend analysis help improve visibility in corporate spend as well as drive contract compliance, performance improvements and primarily, cost savings.
Refer to the below snapshot, an example of a spend analysis model made on Microsoft Power BI with the help of ValQ. In this model total expenses of a fictitious organisation are categorised into different hierarchies to address all spend related queries and perform detailed spend analysis on the fly.
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