Spend Analytics

The importance of spend analytics in strategic decision making

According to research, the spend analytics market should grow at 17% between the years 2022 and 2027. New technologies such as artificial intelligence (AI) are filling the demand for supplier and market intelligence.

This article will explain the importance of using spend analytics in strategic decision-making for businesses.

What is spend analytics?

Spend analytics identifies, collects, categorises, cleans, and analyses an organisation’s spend data. The goal of doing so is to maximise visibility, find cost-reduction opportunities, and reduce procurement costs, all of which improve efficiency. It is your window to strategic sourcing so that you spend the right amount on the right vendor at the right time.

Spend analytics components

A spend analysis platform uses technologies such as AI to create a single source of truth for the company. It does this by gathering, uploading, and analysing data from disparate systems. Direct spend includes your bills for acquiring the raw material for manufacturing or sourcing products from suppliers. Indirect spend includes things like office supplies, IT spend, transportation and logistics, travel, and administration.

Data gathering

Gather the data from disparate systems and feed it into a spend analysis platform that takes care of duplicity and currency normalisation automatically. It ensures that you have a single source of truth, and the spend data is in the same currency for accurate representation on dashboards.

Data aggregation

This step merges all the files from different sources while keeping the original data references intact. It is important to remove duplicate entries for accurate insights. Data aggregation lets you validate the spend values against accounts payable (AP) and flag any anomalies for correction.

Record cleansing

Remove any duplicate records and ensure that the data is complete. Record cleansing avoids counting the same record multiple times during analysis and builds trust in the system.

Supplier name normalisation

Misspelt names, addresses, and other information can create duplicate entries and give inaccurate spend analytics data. Spend data analytics identifies and corrects such issues that can skew financial analysis results.

Supplier categorisation

For better supplier management, businesses must categorise them according to their needs. This helps in appropriate e-sourcing and business decision-making.

Spend cube generation

This is the final output of the spend analysis exercise. It gives you multiple perspectives on the same data through reports and dashboards.

How does spend analytics help in strategic decision-making?

From vendor consolidation to negotiation and risk management, the benefits of strategic decision-making are many.

Visibility of expenditures and supplier base

Get a 360-degree view of the services and materials you purchase from your suppliers. Identify those that incur a higher cost and modify the procurement practices, if necessary. Greater visibility lets you manage supplier relationships better and adapt in case of any contingencies.

Risk management

Working with a few suppliers for years can put your business at risk. If the supplier decides to step back or suddenly increase the prices, your business can run out of steam. On the other hand, if you decide to switch suppliers, your current ones can cause hindrances. It is best to have multiple suppliers for the same product or service to diversify risk.
Consider looking at the supplier’s credit score and annual revenue data to assess their performance and insulate your business from the risk of failure.

Working capital optimisation

Liquid capital and cash flow are essential for any business. Robust spend analysis helps in optimising the working capital better. Identify the product categories and suppliers and negotiate feasible payment terms to better use the working capital.

Internal benchmarking

Benchmark the internal performance across business units and locations. This helps you in strategic decision-making that relies on data and not intuition. By gathering and organising all the spend data into one system, you can answer questions on categorisation, the average number of suppliers, and the ones that generate maximum cumulative revenue. This exercise helps you set realistic targets for internal and external improvements.

Auditing

The outcome of these helps businesses make cost reductions for a healthier balance sheet. Apart from reducing costs, businesses can identify patterns and meaningful insights into effective procurement strategies. Effective spend analysis helps in the aggregation, classification, and cleansing of business spending.

For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.

How can Infosys BPM help?

The ProcureEdge platform by Infosys BPM enhances your spend visibility across categories, products, and business units using AI-powered spend intelligence. This information helps your business in spend classification and opportunity identification through data ingestion, cleansing, and de-duplication. This results in actionable insights and new opportunities within the business.

Read more about the holistic digital transformation through supplier spend analysis at Infosys BPM.