Spend Analysis is a powerful tool that enables managers to obtain objective information about spend patterns and spending priorities to guide investment decisions. Spend Analysis is a branch of management science that studies the economic concepts of expenditure, allocation. It focuses on identifying opportunities for expansion in efficiency and reducing cost. It is used to analyze the relationship between spending, financing and performance.
Spend Analysis is a crucial part of any organization’s strategic planning. Spending Analysis is usually conducted during the planning and development stages of an organization. During this stage spend is often not well understood and organizations are not able to establish targets and budgets for spending. Spend Analysis is the procedure of classifying, cleaning, analyzing and comparing expenditure data with the aim of reducing operating cost, enhancing efficiency, and monitoring compliance and regulations.
The primary role of the spend analysis is to identify opportunities for expansion in efficiency and reduce costs. Analysis of spend data allows timely identification of opportunities for change and facilitates action. Spend Analysis is based on the idea that businesses have two kinds of users those who buy and those who provide the service. Analysis helps businesses determine which of these two kinds of users are most lucrative. It provides insight into the current spend structure, suggests ways to strengthen it, and gives guidance on how to use the available resources effectively.
Spend Analysis is a process that is integrated with other disciplines to derive the information that is needed from the data. The analysis can be done at each stage of the organization or at the level of the business unit. When done at the organizational level, the analysis is usually done in conjunction with the functional analysis. The process may also be done at the financial department and / or at the customer service and production departments. In addition, it may also be done at the human resources and productivity departments.
Data sources for spend analysis usually comprise line items such as purchase orders, sales receipts, purchase histories, inventory and targeted sales and product orders. Other types of data sources are: supplier (type of business or individual) surveys, statements of accounts from customers, corporate activities performed in one geographical location, balance of payments transactions, government contracts, property taxes, payrolls, user files, regulatory filings, internal operating procedures, human resources information, tax information, insurance information and insurance-related documents. A thorough spend analysis should include all data sources that have been collected in an effort to understand the organization’s spending.
There are many benefits derived from the process. First, the spend analysis will allow a company to focus on its unique spend structure in the best possible way. By doing this, companies can increase productivity, cut costs, and enhance their competitive advantage. Second, spend analysis is a valuable tool in efficiency initiatives, especially in the areas of reduction of cost and error, improvement in control, identification of opportunities for change and identification of issues that require improvement. Finally, spend analysis provides managers with information necessary to make strategic decisions. This allows managers to make informed choices regarding investment, financing and reallocation.