Conducting a spend analysis of your company spend is a crucial step in reducing cost in your organization. Determining how much total money spent in the last year, identifying vendors and managing their relationships, and listing out the various categories of products and services purchased are daunting tasks to any procurement team. Attempting to categorize and keep track of this information needs to be done strategically and efficiently. Developing a procurement spend analysis template that works for your team relies on having the proper tools and software at your fingertips.
Step 1: Spend Data Collection
The first step in your team’s spend analysis process should be to gather all the spending data in one place. Export and extract all data from disparate systems such as paper invoices, excel files, purchasing software, etc.
To have a useful data set for analysis, it’s important to have at least 12 to 16 months of rolling data from the previous accounting period.
Create a simple excel file with the following fields for each supplier you do business with and merge all collected data into this single excel file. Not all fields will be required (*) but filling in as much of this data as possible will allow you to develop a better understanding of your company’s spending habits.
- Supplier ID
- * Name
- Address (City, State, Zip, Country)
- Classification (Category – Subcategory)
- * Spend Amount (money you spent with this supplier for the 12-16-month period)
Step 2: Remove Duplicates
Managing misinformation from human error is a large part of the spending analysis process. During the initial collection stage, the team will need to focus on clearing out errors that have occurred while collecting invoices and spend data from vendors. When collecting data, it’s common to occasionally come across duplicated invoice entries. Be sure your team runs a duplication check regularly as data is entered.
Step 3: Supplier Name Normalization
Another common error your team will need to be cautious of is misnaming certain vendors. For example, if you do business with AT&T, invoices could be under ATT, AT&T, AT&T Global, and so on. Your team and those inputting invoices in your system need to establish vendor name normalization. This ensures that vendors whose names could be spelled differently are not counted as various other unique vendors.
This is a critical step to review and implement in your spend analysis process. It allows your team to accurately understand the total money spent with a particular vendor. Essential information and spend data could be misrepresented in your reports if this isn’t regularly addressed and revisited to ensure members are continuing to use the proper system.
Step 4: Vendor Classification or Vendor Categorization
Efficiently classifying your vendors starts with developing a categorization system. Using a guideline consisting of categories and subcategories, breaking these areas of spend down should be specific to your organization and it’s needs. This could be as simple as a few main categories with specialized areas outlined in subcategories, or broken down into a few hundred of each, depending on the size and diversity of spend within your organization.
Below is a small example of how one company may categorize their vendors:
|Oil and Gas
|Transportation & Logistics
|Freight – in/out
|Small parcel shipping
|IT Support and Maintenance
|Printing and Publications
|Office Equipment and Rentals
|Office Furniture and Rentals
Use this table as a reference and insert your company’s relevant category/sub-category information against each supplier name in the Excel file.
Step 5: Data Analysis
Now you’ve gathered your spend data and classified/categorized the information in a single excel file. You can use this to run different pivots to answer future questions like:
- How much total money was spent last year?
- How much money did we spend with Vendor X versus Vendor Y?
- How many vendors are we spending money with within each category of spend?
Having this information on hand allows for faster and more efficient review when reviewing cost optimization plans for the future.
Utilizing Your Procurement Spend Analysis Template
As the procurement industry continues to make groundbreaking developments through technology and atomization, processes need to be streamlined and run efficiently. Companies that aren’t using these basics are not only failing their procurement teams by adding on unnecessary hassle but ultimately hurting the business as a whole by most likely overspending. Developing a strategic plan to track and utilize spend data is beneficial to keep up in the competitive market.
However, these basics can be tedious if not impossible to do manually, especially with a large company that keeps track of hundreds of vendors. ProcurePort’s Spend Analysis Platform allows you to gather and upload disparate data from various systems to create a single source of truth of your entire company spend. Contact a solutions specialist for a free demo to work through your new spend analysis software.