What is Spend Analysis

Ultimately, spend analysis is about gaining the necessary insights to drive fact-based, smarter and sustainable procurement decisions.

Spend analysis, or spend analytics, is the practice of reviewing historical spend data to gain actionable insights, reduce costs, increase efficiency or improve supplier relationships. The methodology includes the process of collecting, cleansing, classifying (or categorizing) and analyzing the spend in your organization. 

Spend analytics is a basic principle in strategic procurement and should be the foundation for every professional procurement function. It is an important tool for identifying savings opportunities, managing risk, developing procurement strategies and implementing category management. Spend analytics also provides more transparency across the entire business, that may be critical for anchoring and prioritizing activities internally.

As procurement becomes more mature and a strategic business function, spend analysis will play a key role in aligning all the various stakeholders in the organization.

Find out more about the key benefits of spend analysis.

The linkage between total costs, spend and addressable spend

Spend and addressable spend

Spend is a collective term that reflects all internal and external purchases throughout the business. This includes all purchases of goods and services, regardless of whether they are investments or repetitive by nature.

The procurement function should nevertheless prioritize its resources towards the spend that they have the opportunity to influence, both directly and indirectly, i.e. addressable spend. In practice, this often means all external purchases with the exception of taxes and VAT.

The modern «spend cube»

A spend cube represents a visual simplification of the spend along several dimensions. The traditional, and slightly outdated, spend cube contains three dimensions;

  • What do we buy (what categories or products/services)
  • Who buys it (what company, department, cost center, business unit)
  • Who do we buy it from (which suppliers)

Spend analytics is a more modern, all-encompassing and dynamic methodology compared to the traditional spend cube. However, the principles are still the same. It's all about visualizing, analyzing and understanding the spend composition and trends, such as;

  • What are we purchasing?
  • Who is purchasing?
  • Who are we purchasing from?
  • When and how often do we purchase?
  • How much did we spend in total and what prices did we pay?
  • What quantities or volumes have we purchased?
  • What is the spend development?

In terms of spend analysis, there are only two limitations; our own imagination and the available data. Learn more about the most common sources of spend and procurement data.

What is spend analysis?

Spend analytics, procurement analytics and spend management

The procurement terminology can often be somewhat confusing, even for us who work with procurement on a daily basis. We therefore want to provide an overall explanation of spend analytics, procurement analytics and spend management – and how these are related.

Spend analytics

Spend analytics refers to analyzing all internal and external spend and is an example of procurement analytics.

Procurement analytics

Procurement analytics is a more comprehensive term than spend analytics. This is a collective term used for all relevant analyzes throughout the entire procurement process. Typically, this involves obtaining and linking procurement data from multiple sources. Relevant data sources can be many and vary between businesses, but common data sources will often be;

  • Contract information
  • Financial supplier information
  • Supplier assessments (e.g. quality, service and delivery precision)
  • Corporate social responsibility (CSR) and environmental impact
  • Market information (e.g. market indices)

However, the purpose of procurement analytics is still the same. It's about gaining the necessary insights to drive fact-based, smarter and sustainable procurement decisions. There are many different types of procurement analytics, such as;

  • Spend analysis - analysis of internal and external spend in the business
  • Contract analysis - analysis of contracts, contract loyalty and metadata
  • Supplier analysis - analysis of risk and potential across the supplier base
  • Savings analysis - analysis of opportunities, initiatives and realized savings

Spend management

Spend management reflects all the processes and activities to fully manage your spend. This includes the entire procurement process, where procurement analytics constitutes a vital part.

Ignite Procurement

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