Spend analysis can be said to be a way of drawing up their purchasing map, which is then used as a tool for formulating purchasing strategies, both in general and for specific purchasing categories. Spend analysis is an important basis in the category management work.
Hansjörg Fromm has in the book Supply Chain Management on Demand given a pretty good description, initially he defines it as follows:
Spend analysis is an umbrella term used to capture various strategic activities that are important in shaping the company’s purchasing strategy.
The purpose of a spend analysis is to understand the historical purchasing pattern and see, for example, what the company’s major purchasing categories are, the degree of contract loyalty, what parts of the organization buy from the different suppliers and much more. From there, one can then take a stand for the future and, for example, make predictions about future volumes, set budgets, plan purchasing projects and so on.
Simply put, you can say that a spend analysis is an excerpt from the supplier’s account control, which is then analyzed from the eyes of a buyer rather than an economist.
The following questions should be answered by a spend analysis:
- What do we buy?
- How much do we buy for?
- From which suppliers do we buy?
- How do we buy?
- Who buys
The process for Spend analysis
Spend analysis is a process containing approximately these part steps:
- Collection of data
- Cleaning of data
- Reporting, visualization
The process starts with collection of data, data is collected from all purchases made during a specific time period. It is also possible to gather information regarding internal costs related to the procurement such as transaction costs. For larger enterprises, who uses different data systems, this can be done following a yearly plan set up in advance.
Collected data must then be cleansed. For example, purchases from one supplier can have been made using different names in different systems. Products can have gotten inaccurate naming etc. There are ready-made applications for data cleansing but there is also the possibility to create your own macros in, for example, Excel. Spend analysis should be performed continuously. Data can quickly become outdated and result in wrongful conclusions. Being able to navigate using your purchasing map it is important to keep it updated and to verify that all inforamtion is up-to-date.
Spend analysis and category management
Spend data must then be categorized, is divided into different categories with similar characteristics. The final step is to create clear reports on the data set and visualize what has been reached.
- Volume value, pareto analysis
- Spend tree / category tree / spend structure
- Portfolio analysis type Kraljic, Bensaou, Kamann
- relationship Categorization
Categorized data is then combined with other forms of analysis of the purchasing categories. For example, you can consider product characteristics, suppliers’ key figures, the market situation. The combination of categorized spend data and other input data then forms a spend report that can be visualized and presented. The conclusion of the spend analysis is then used in the work of developing purchasing strategies for the company.
Automation of Spend Analysis
Something that can be experienced as a problem with spend analysis is that it takes time. Large amounts of data can in principle be impossible to categorize manually. If you still want to categorize your data, there are specialized systems for this. If you have large amounts of data, many different data sources (different ERP systems, purchasing systems, purchasing cards etc.) or if you want to update the data regularly, it is a good idea to look at automation of the spend analysis. Then you take the help of a computer program specially designed for this purpose.
Automated spend analysis works in such a way that you import your data into the spend analysis system, in a format intended for this, to automatically categorize the data through a set framework. The regulations are usually created through a combination of manually and system-proposed rules. The rules are based on different clues about the transactions. The most commonly used clues are usually account, supplier name and cost center. Do you have access to a description or description of the product or service from eg. invoice or order line you can do better and more accurate categorizations.
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