Spend Analytics & Optimization: Visibility, KPIs & Control 

Learn how spend analytics, visibility, and reporting KPIs empower procurement teams to optimize costs and improve supplier performance. 

Introduction: From Data to Procurement Insight 

Spend analytics is the process of evaluating and categorizing an organization’s historical spending to gain insights for improving procurement strategy, cutting costs, and increasing efficiency. It provides the foundation for spend optimization within the larger framework of spend management.  

Essentially, spend analytics is the “diagnosis” (finding out where the money is going), and spend optimization is the “treatment” (making changes based on that information). As in medicine, a correct diagnosis is essential to provide the best possible outcomes – but the information must be actionable. To this end, spend analytics turns data into visibility, control, and actionable procurement insights. 

Optimization can take many forms, but the main ones are cost reduction, compliance and accountability, and supplier performance improvement. Others can be in alignment with an organization’s goals such as supplier base consolidation and diversification, or meeting sustainability targets. 

In this article we will review the value chain from analytics through visibility, the generation of specific KPIs, optimization measures, reporting on results and the feedback loop with impact assessments for more refined analytics.  

Table 1 further clarifies the relationship between spend analytics and optimization. 

Feature	Spend Analytics	Spend Optimization
Analogy	Medical diagnostics to determine the patient’s condition	Remedial treatment and preventive care
Primary goal	To gain visibility and understanding of spending patterns	To use insights from analytics to reduce costs, increase efficiency etc.
Core activities	Collecting, cleansing, categorizing and analyzing historical procurement data to reveal trends and anomalies	Implementing strategies such as negotiating contracts, consolidating vendors, and changing procurement
Key outputs	KPIs, reports, insights and recommendations highlighting opportunities for optimization	Cost savings, efficiencies, supplier performance, compliance, sustainability etc.

Table 1: Spend analytics and spend optimization 

What Is Spend Analytics? 

Spend analytics as a concept has been around since the birth of strategic sourcing in the mid-1980s, but as is so often the case, the term has come to be used interchangeably with spend management. But spend analytics specifically refers to the process of collecting, cleansing, classifying and analyzing expenditure data with the aim of reducing costs, improving efficiency, and monitoring controls and compliance. It can also be leveraged in other areas of business such as inventory management, complex sourcing, supplier management, budgeting, planning, and product development. Spend analytics thus provides the actionable intelligence that supports broader spend management initiatives and best practices. 

Spend analytics in procurement relies on a mix of data management, data visualization dashboards, and AI-driven spend analysis tools, all of which are typically integrated into a broader source-to-pay (S2P) platform such as JAGGAER. 

Why Visibility and Control Matter 

Returning to our diagnostics and treatment analogy, corporate finance or the CPO may be suffering the pain of wastage and high costs that cause the company as a whole to underperform. But what they lack is clear insights into the causes of that pain, and without such visibility it is difficult or impossible to manage, control, and eventually eliminate or mitigate that pain. Spend analytics provides the transparency required to treat not just the symptoms of the pain but the underlying causes, such as areas of unmanaged spend, thereby supporting continuous improvement and a reduction in the risk of further problems or complications arising in future. 

Here are some of the areas where spend analytics can provide the visibility and control to improve performance: 

Eliminating Dark or Maverick Spend 

Maverick spend and dark spend are both types of unmanaged spend. Maverick spend refers to any purchase made outside of established procurement policies, such as using non-approved suppliers or bypassing contracted vendors. But dark spend is a more extreme subset of maverick spend, where a company is completely unaware of where its money is going. 

Typical examples of dark spend include travel booked outside approved T&E tools and policies (such as direct airline sites and Airbnb), ad-hoc software subscriptions (such as Canva, Zoom, and ChatGPT Plus), office supplies bought on personal credit cards, and unapproved catering, gifts, and event expenses. These typically only emerge after the event, for example when an expenses claim is submitted (we will deal with travel expenses in a separate article). The motivation is usually speed and convenience, and therefore innocent, but it can be a source of risk, such as tax avoidance or unapproved hospitality, which may amount to real or perceived bribery. From a spend analytics perspective, the data arrives late and unclassified, so it can’t easily be linked to a supplier, category, or budget center. AI spend classifiers may be used to infer it later (e.g., from merchant codes or text recognition), but it’s still retrospective spend visibility, not proactive control. 

Advanced spend analytics platforms can help to reduce the impact of maverick and dark spend by aggregating non-PO transactions and corporate-card data, cross-matching supplier names and merchant codes against approved lists, applying AI anomaly detection to flag irregularities (e.g. duplicate vendors, off-contract rates, out-of-hours purchases), and feeding dashboards that quantify the “visible vs. dark” spend ratio by business unit or category. 

Once visibility is achieved, enforcement becomes more credible and less punitive – because it’s based on evidence. The result is “soft enforcement through data.”

Employees see that the system spots exceptions immediately, which encourages behavioral change. 

Companies can also adjust policies to maximize compliance. In the case of software subscriptions, this could include requiring all such spend to be on corporate cards (which enables real-time tracking) and enforcing pre-subscription approval workflows, integrating requests into P2P before booking. Analytics dashboards can also be set up to send policy-violation notifications to managers when off-channel subscriptions appear. 

Solutions can also be put in place to ensure continuous improvement, for example forecasting tools can flag likely non-compliance hotspots (such as project teams with high last-minute bookings). 

Improving Supplier Negotiations 

The main area where spend analytics becomes a commercial weapon rather than a reporting tool is in supplier negotiations. It arms procurement with facts, benchmarks, and cost drivers that transform supplier negotiations from reactive haggling into strategic decision-making. And it does this in several ways: 

Benchmarking and Price Intelligence 

Spend analytics helps to identify whether current supplier prices are competitive in the market. Internal benchmarking enables category managers and others to compare prices for identical or equivalent items purchased across business units, plants, or regions. For example, the category manager responsible for MRO might discover that safety gloves cost €1.10 per pair in one plant but €0.85 elsewhere, revealing room for harmonization. External benchmarking uses third-party data (such as Beroe, The Smart Cube or supplier intelligence already in JAGGAER One) to compare against market averages or index-linked commodity prices. Consequently, the negotiation starts from a verified market baseline, not a supplier’s quote. 

Evaluating Total Cost of Ownership (TCO) 

Spend analytics helps procurement and sourcing professionals to compare suppliers on the real cost, not just the purchase price. It consolidates direct costs (price, freight, duties) and indirect costs (quality failures, late deliveries, service calls) and allocates these costs per supplier or per contract lifecycle. Other costs such as performance penalties, warranty claims, or non-conformance costs are also included to arrive at a final effective total cost of ownership. 

Volume and Consolidation Analysis 

The aim here is to quantify potential savings from aggregated volume or supplier rationalization. Spend analytics starts by clustering spend by category and supplier to reveal fragmented volumes, then simulates potential savings from volume consolidation or contract bundling, using scenario analysis. This further adds to negotiation leverage, for example a supplier manager might say, “We can commit to an additional $2M annual volume if you move to the lower tier of your pricing schedule and standardize logistics terms.” 

Performance and Risk-Based Negotiation 

Spend analytics can be used to align commercial terms with supplier performance data, integrating supplier KPIs such as on-time delivery, quality, ESG rating, financial stability with contractual obligations and service level agreements. Performance-based scorecards can then be produced that influence renewal decisions and payment terms. Again, this enables fact-based discussions that help to reward strong performers, for example with preferred status or longer terms, while pressuring weaker ones to improve. 

Modelling Alternative Pricing Structures 

You can use spend analytics software to test different cost models (such as fixed vs. index-linked, per-unit vs. subscription, managed service vs. time-and-materials). The software uses historical spend data and price elasticity to model outcomes under various pricing assumptions. Predictive “what-if” scenarios then take account of changing circumstances such as energy surcharges and tariff increases. 

Post-Negotiation Validation 

Finally, organizations use spend analytics to ensure that negotiated savings are realized and not eroded by leakage or scope drift. This is achieved by tracking actual against negotiated prices in the P2P system and flagging deviations (off-contract buys, price creep, or invoice mismatches, for example). 

Top Spend Management KPIs to Track 

There are many spend management KPIs that procurement teams should track using spend analytics software, with each one supporting their cost reduction, compliance, and performance goals. Some metrics will differ according to the sector, geography, and other variables, but here we list some that are common to virtually all large organizations. 

Cost Savings vs Cost Avoidance 

Cost savings are the reduction of current expenditures, while cost avoidance is the prevention of future potential costs. Cost savings are tangible and measurable, like lowering a monthly bill, whereas cost avoidance is a forward-looking, often harder-to-quantify benefit, like investing in technology to avoid future hiring costs. For example, investing in new software to avoid hiring new employees to handle an increased workload from new regulations requires you to make some assumptions and test out various scenarios. 

Supplier Performance Metrics 

Companies should track key supplier performance metrics such as on-time delivery, defect rate, and cost competitiveness to ensure quality and reliability. Other important metrics include lead time variability, order accuracy, compliance rates, and risk management, which provide a more comprehensive view of a supplier’s performance beyond basic cost and delivery. Measuring these KPIs helps identify areas for improvement, enables more strategic supplier relationships, and ensures the supply chain is efficient and resilient.  

Given that supplier performance metrics are multidimensional, it makes sense to track them using procurement analytics dashboards. 

Maverick Spend Reduction 

Metrics to measure maverick and dark spend include spend under management percentage, which compares procurement-managed spend to total spend, and contract utilization rate, which shows how often pre-negotiated contracts are used. Other key metrics include price compliance rate (to measure adherence to contract pricing) and the rate of emergency purchases (as these are often unapproved). 

A full set of maverick spend KPIs is set out in the table below. 

KPI	Description	How it helps track maverick/dark spend
Spend Under Management (SUM)	The percentage of total organizational spend that goes through the approved procurement process.	A high SUM percentage indicates less maverick spending. It is calculated as: (Total Organizational Spend – Maverick Spend) / Total Organizational Spend.
Maverick Buying Rate	The proportion of orders placed without going through the formal procurement process.	A high rate points directly to unapproved purchases. It can be calculated by comparing the number of purchases made through approved channels to the total number of purchases.
Contract Utilization Rate	The percentage of orders that are placed using existing contracts and their terms.	A low rate suggests employees are not using approved contracts, which can be a sign of maverick spending.
Price Compliance Rate	The percentage of orders where the actual price paid matches the price agreed upon in the contract.	A low rate indicates that even when a contract is used, the terms are not being followed, contributing to dark spend.
Rate of Emergency Purchases	The number of purchases classified as emergencies compared to the total number of purchases.	A high rate can signal a lack of proactive procurement, as employees may turn to urgent, unapproved purchases when proper channels are not used or contracts are not being fulfilled.
Rate of Emergency Purchases	The number of purchases classified as emergencies compared to the total number of purchases.	A high rate can signal a lack of proactive procurement, as employees may turn to urgent, unapproved purchases when proper channels are not used or contracts are not being fulfilled.
Purchase Order (PO) Cycle Time	The time it takes from order initiation to order completion.	A long cycle time can indicate inefficient processes that encourage employees to make purchases through unofficial channels to get what they need faster.

Table 2: Maverick spend KPIs 

How to build a spend analytics strategy  

To set up and use spend analytics in practice will require you to build a project team with all the requisite skills, working with internal or external consultants and a technology partner. Here are the main steps in the process: 

Data collection and integration 

Aggregate all spend-related data from internal and external sources. This will include procurement data, ERP and finance systems, P-card and T&E systems, supplier master data, contract repositories, and invoice archives. The data needs to be cleansed and normalized, removing duplicates and other anomalies. The goal is to build a unified data lake or warehouse as the “single version of the truth.” 

Data classification and enrichment 

Use AI/ML or rule-based mapping to group transactions by category, business unit, or region. The data can be enriched with external sources (supplier risk, ESG scores, payment terms, market indices). 

Analysis and visualization 

Design and deploy dashboards showing spend by supplier, category, region, and trend. These will help you to identify anomalies, maverick spend, and consolidation opportunities. The outcome is actionable transparency. You can see where money really goes and where savings are being missed. 

Scenario and opportunity analysis 

Now you are well placed to model and prioritize cost and risk reduction actions using spend analytics software. Run what-if scenarios (such as supplier consolidation and payment-term optimization). Benchmark prices, evaluate total cost of ownership, and forecast impact. The results will provide the facts for data-driven negotiation strategies and sourcing priorities. 

Continuous optimization 

By embedding spend analytics into sourcing and performance management you will provide the basis for continuous optimization. Feed insights into sourcing events and contract renewals and track actual versus forecasted savings, monitor compliance and supplier KPIs. A closed feedback loop where analytics continually informs spend strategy and delivers measurable ROI will put you on the path to full and ongoing spend optimization. 

Conclusion: Turning Data into Action 

The ultimate goal of spend analytics is not merely to provide information and insights, but actionable intelligence to enable measurable impact. The issues are complex and interlocking, so JAGGAER makes it easier and more transparent with visualization tools and intuitive dashboards, enabling your analysts to quickly identify where the best optimization opportunities exist, with drill-down capabilities so they can assess where to focus their attention.  

AI-powered insights and customizable filters enable faster, more precise decision-making, breaking down data silos and driving proactive, data-driven procurement that delivers measurable impact and improves financial performance across the enterprise.