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What is spend analytics?

Introduction

Spend analytics is a practice of examining spend by category, vendor, payer and/or payment type. This can help to identify redundant spend, areas where spend is unreasonably high or insufficient budgets. By reviewing spend data in this way business leaders can be better equiped to make informed decisions about futures pending leading to reduce costs.

The key to reducing costs through spend analysis is not just looking at how much you are spending but also why you are spending that amount and whether it's the best use of funds for your company goals. For example, a company has been using an expensive service for a while, then, they decide to look for a spend reduction and they move from monthly billing to one-time payments.  This would reduce expenses significantly without affecting quality of service.

How spend analysis works is by using spend analytics software in order to mine data from existing systems, extract the required information, and finally display this information in the format desired for analysis. This process could be as simple as producing a spreadsheet or performing more complex intelligent actions that pull information from multiple departments or even across multiple companies. Sometimes spend analytics can be linked to spend forecasting software, which can predict future spend on certain commodities so that businesses can more accurately plan for expenses.

Why reduce spend through spend analytics?

The most obvious reason is certainly to save money which can be reinvested in the business or used to improve profits. Another reason is that spend analytics can help identify areas where costs are unnecessarily high or where budgets are not sufficient. The information from spend analytics can help business leaders making more informed decisions about future spending. Additionally, spend analytics can help businesses to be more efficient and effective in their operations. By understanding how and where money is being spent, businesses can become more streamlined and organized. This can lead to increased profits and a better bottom line.

As spend analytics becomes more prevalent, organizations can begin to use spend data asa way to drive decision making throughout the company. For example, spend data may be used to determine where spend reductions should be made or which products to stock for higher margins. Spend analysis has been around since the beginning of time, but spend analytics can help businesses gain valuable insights into spend patterns that weren't possible in the past. With this information, companies can spend money more effectively to create a competitive advantage. Spend reports are often only useful in the short term, however, when combined with spend forecasting software, it is possible to use spend analytics for longer (future) periods of time.

Make sure you know where the money is being spent and how. You may be wasting funds on unnecessary items or services. By conducting spend analysis, you can identify these areas and make changes that will save your company money in the short and long run.

What data do you need for spend analytics?

Depending on the purpose there are several different types of data that can be used in spend analytics. For basic spend reports, a company might only need a list of spend events. For more complex spend analytics projects, however, it may be necessary to integrate spend data coming from different sources using spendrules or spend analytics connectors to map information (for example, mapping procurement invoice information to ERP source data).

Basic spend analytics

The first step is to create a spend report. This will take the form of spreadsheets or dashboards which present performance metrics and findings in a variety of ways. An important step to find possible cost reductions. The primary and more traditional spend analytics is describing the historical situation and  only aggregates and visualizes data: how much, how often and when. The focus is often on high spend areas.  With the dashboards you can get new insights about:

  • What did we spend and on what?
  • From what sources and at what price?
  • What are some  potential savings?
  • What is the amount of spend that is negotiable?
  • How big is our tail spend?
  • Etc.

Extended spend analytics

Today data analytics has matured. Data science techniques and knowledge can be used to go a stepfurther then only describing spend data. It allows to unlock the full potential of your spend data to gain new insights. This means using algorithms to do complex or extensive calculations. One can think of statistical approaches or even machine learning algorithms to learn from historical patterns in the spend data.

An example of a more extended spend analysis is using spend forecasting.  Forecasting algorithms can provide insightsinto spend patterns that may allow organizations to spend money more effectively. For example, predicting the need for goods and services. Spend forecasting helps companies create actionable plans for future spend categories rather than simply tracking historical spend data.

By coupling spend analytics with pattern recognition, optimization problems and spend forecasting, companies can use their full data potential.

Use Analytics As a Service

The first step is to create a spend report. This will take the form of spreadsheets or dashboards which present performance metrics and findings in a variety of ways. An important step to find possible cost reductions. The primary and more traditional spend analytics is describing the historical situation and  only aggregates and visualizes data: how much, how often and when. The focus is often on high spend areas.  With the dashboards you can get new insights about:

Examples of Extended spend analytics

The first step is to create a spend report. This will take the form of spreadsheets or dashboards which present performance metrics and findings in a variety of ways. An important step to find possible cost reductions. The primary and more traditional spend analytics is describing the historical situation and  only aggregates and visualizes data: how much, how often and when. The focus is often on high spend areas.  With the dashboards you can get new insights about:

  • Identify areas of redundant spend
  • SupplierRationalization
  • Improveand refine product classification
  • Spend forecasting
  • Using price fluctuation to your advantage
  • Finding improvement areas within Purchase processes and invoice processing
  • Improving compliance within purchasing and invoice handling

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