Spend
Andrew Sorgi - Senior Product Manager

How to Conduct a Spend Analysis in Seven Steps

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We understand – spend management can seem like a daunting task. Where do you start? How deep do you really have to go? What data should or shouldn’t be the focus? JAGGAER understands the traditional roadblocks to spend management. But, we also recognize how important it is to gain insight into operational ineffectiveness to improve your sourcing success. A spend analysis allows you to do just that.

Seven Steps to Success

Thankfully, a full spend analysis can be much easier than you might expect. In just seven steps, you can conduct an analysis that’s thorough and effective. We’ve outlined these seven steps here to help you get started.

 

 

Step One: Identify your Information Sources

Identify all the sources available for your spend data, from all of your departments, plants and business units. This includes accounts payable, general ledger, pCard, eProcurement systems, etc.

Make sure to look beyond just your purchasing team and make sure that you’re incorporating sources from across the organization to account for any siloed data. When you’re just getting started, you might be surprised by how many different places data can live. Be detailed in your data audit.

Step Two: Gather Data in a Central Location

Gather and consolidate all your spend data into one central database. This can be difficult if your data is in different formats, different languages, ​​and different currencies. However, there are programs available specifically designed to accomplish this. If you’re already using a single platform for much of your spend data, this step will be much easier. If not, focus first on collecting everything and then work to convert it into a common format. 

Step Three: Cleanse to a High Standard

The next step is to clean your data, which includes finding and correcting errors in descriptions and transactions and standardizing the spend data for easy viewing. It’s important to be thorough at this stage. The cleaner your data is, the more accurate your results will be and the more effectively you can use them to make decisions. Many hands make light work, so don’t be afraid to spread the workload among a few team members, but you must establish clear guidelines and standards to have consistency throughout your whole database.

Step Four: Group by Supplier

Next, group, or link, your suppliers for better supplier management. You might have multiple suppliers that all share a parent company, so you’ll want to aggregate those for increased purchasing power. For example, you should group purchases made from IBM, IBM Corp., or Cognos together since they’re the same supplier. This step will give you a more accurate picture of your actual number of suppliers and how much business you’re conducting with each one.

Step Five: Categorize

Categorize your spend.  There are some standard category classification systems like UNSPSC and ECLASS that you can choose to follow, but you can also use your own company-specific categories. Either way, you need to be able to determine where you’re spending money. Office supplies, marketing, travel, legal, and direct and indirect spend should all be categorized appropriately so that you can begin to develop a category strategy and drive additional savings. Once you have this spend management visibility, you can start to make decisions that will impact the bottom line. 

Step Six: Analyze

 

Analyze your spend data. This step is where you want to measure against some spend analysis key performance indicators to get a better feel for how you’re performing. You should be tracking savings, cost reduction, and more, but many organizations will want to emphasize the supplier performance side.

Ensure that you have negotiated the best contract deals now that you’ve identified all of your spend per supplier. Ensure that all of your buyers purchase from preferred suppliers and reduce the number of suppliers per category.

Step Seven: Repeat

Repeat. Performing a spend analysis once is a great start to identifying savings. However, you need to continually update your data to ensure that everyone is adhering to contract terms, that buyers are purchasing from preferred suppliers, and that you are identifying savings opportunities. 

Keep detailed notes as you perform each analysis. Then, when you’re ready to start on your next round, you’ll have a better sense of what went well, what worked and what didn’t. Practice makes perfect, so make sure that you’re learning more spend analysis best practices as you go.

 

You Get Out What You Put In

Spend analysis is no small task, especially in today’s economic climate. But when done correctly, it’s well worth the effort. With a thorough spend analysis, you’ll get data insights you were missing before, allowing you to drive increased profitability and identify critical suppliers or partners. The more you do it, the easier it becomes, and eventually, it will become a standard process.

10 Tips to Get the Most from Your Spend Analysis Solution

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For more on running a successful spend analysis, download our white paper, 10 Tips to Get the Most From your Spend Analysis Solution.

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