‘No, I didn’t spend this! It must be an erroneous debit from the bank!’
2 minutes later: ‘Oh I see, I did spend that, I forgot actually.’
Does this happen to you too? You just suddenly realize you've spent a whole lot of money and you are wondering ‘where did the money go?’ And then you start scanning through your most recent purchases trying to figure out how you spent ‘that much money!’
If we as individuals are that particular about spending money, how much more organizations, shouldn't they care all the more about their spend? How do they track their expenses?
That brings us to the point of Spend Analysis and why it's an important hallmark of a vibrant procurement process.
Simply put, Spend Analysis gives insights into organizations' spend structure and helps them make informed decisions that are based on facts and not mere assumptions. Spend can only be optimized when you are tracking and analyzing it.
Here are 3 key steps of a Spend Analysis:
📍Visibility of spend: To get started with Spend Analysis, first collect all the necessary data that goes into your spend.
This is how you can uncover how much you are actually spending, the vendors involved, and the rate of return of your spend. You can use some Key Performance Indicators to help you capture the total visibility of your spend. Remember that it's the spend you spot that you can analyze or optimize.
📍Analysis of Data: After uncovering data, use this information to find out where your spend is going; what products or services are you buying and which vendors you spend most on. This data is also good to help you identify duplication, source alternative prices, and compare and contrast with others to optimize your spend and improve your supplier management. In analyzing data, procurement teams can manage inventory, budget, plan, and develop a strategic sourcing guideline.
📍Optimize Process with Data: This is the point where you optimize your procurement process with the data you have gotten. So, you can use the fact-based data you've generated to improve your decision-making process. For instance, you can develop a reporting system for each spend, which gives you room to monitor changes in processes and outcomes over time.
Summarily, spend analysis would help you uncover fraudulent or redundant spending, diversify and manage vendors, plan a better organizational budget, get more accurate financial reports, and ultimately your organization will be able to cut costs too.
To learn more about supply chain management and procurement processes, sign up for a course at academy.efemini.com
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