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 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 The traditional, and slightly outdated, spend cube contains three dimensions;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?
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 refers to analyzing all internal and external spend and is an example of 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;
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 reflects all the processes and activities to fully manage your spend. This includes the entire procurement process, where procurement analytics constitutes a vital part.
The Most Common Sources of Spend and Procurement Data
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For the vast majority of companies, both private and public ones, external spend is a significant part of total costs. Nevertheless, most companies do not have sufficient overview or control of their spend. One reason for this