Types of spend analysis and how to utilise them
Efficient cash flow management is an essential aspect of any successful business strategy. It is important to track spending and evaluate business expenses to remain consistently profitable. For this reason, enterprises must have a system in place to conduct regular spend analysis to ensure efficient use of resources, discover ways to reduce procurement costs, and improve relationships with suppliers.
Let’s review these spend analysis benefits to discover how your organisation can streamline the procurement process. The first step when gathering spend data for analysis is classifying business expenses into established levels based on your organisation’s specific business needs. Let’s take a look at some of the most common types of spend analysis.
Tail spend analysis
This looks at small or infrequent business expenses that may haven’t been processed through the formal procurement process and hence may not have been initially filed by the finance department. Tail spend could include expenses incurred on travel, printing, packaging, office products, signage, and more.
Vendor or procurement analysis
This relates to resources directed towards managing and maintaining supply chains. Thorough vendor analysis can help organisations better manage suppliers by ensuring that they get the best possible deals and bargains when making purchases.
Category spend analysis
This ensures that expenses on similar products or services are grouped together. This categorisation helps to streamline the procurement process by identifying inefficiencies and inconsistencies as well as prioritising the budget.
Item spend analysis
This approach categorises each purchase with the employee or the department that requisitioned it and the vendor that supplied it. Item spend analysis helps to safeguard data accuracy and prevent unnecessary spending.
Accurately tracking, classifying, and analysing enterprise spend can be a tricky and somewhat tedious task. Having a modern spend analysis solution in place is important to help optimise your organisation's procurement processes. Modern software solutions can contribute to consolidating and analysing spend data extremely efficiently, enabling businesses to reduce costs by identifying and eliminating unnecessary expenses. We listed some of the primary spend analysis benefits accrued by businesses that adopt modern procurement solutions.
Conducting spend analysis promotes transparency across the organisation and involves sharing details and insights about the enterprise's financial health with decision makers in various departments. These decision makers can then formulate strategies and solutions to optimise spending and save money.
With a clear picture on the inflow and outflow of money, decision makers can make informed decisions about where expenses need to be managed and which aspects of the business could use more funds.
Prevention of maverick spending
Maverick spending or rogue spending occurs when businesses make purchases from vendors that are not preferred or approved or purchases that violate the organisation’s established procurement policies. Maverick spending could hurt the company financially as it’s outside the purview of negotiated vendor contracts and the associated savings opportunities. Spend analysis solutions can swiftly identify such maverick spends and reduce them to a minimum.
Clear vendor insights
With a modern spend analysis solution in place, businesses can easily compare vendor prices and logistics costs. This provides insights into which goods and raw materials can be sourced locally and what goods would be more economical to purchase from overseas.
Ensuring consistent availability of supplies
Spend analytics ensures that essential supplies and materials are available from the organisation’s established vendor base, leading to a strong spend analysis in supply chain management that requires minimal alterations. Strategic sourcing and procurement optimisation practices help to identify reliable vendors that can consistently supply business-critical goods and services.
Spend analysis solutions can streamline and modernise your organisation’s procurement processes, ensure supply chain integrity, and eliminate unnecessary purchases. This can minimise financial leakage, substantially reduce expenses, and ensure consistent profits in the long term.
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How can Infosys BPM help?
With a contemporary suite of spend analytics services, Infosys BPM is ideally suited to help your business optimise its procurement ecosystem. Reach out to know more about how you can optimise your business spends.