Why Conduct a Spend Analysis of Your Company Spend?

Are you able to easily answer the following questions as an Organization?

Spend Analysis Software

ProcurePort Spend Analysis Software

  1. How much total money did we spend last year in running our business?
  2. Who are the Vendors that we did business with last year?
  3. How much money did we spend with Each Vendor and during what time period?
  4. What are the different categories of products and services that we currently purchase?
  5. How many vendors are we spending money with within each Category of spend?

You have to be able to answer all of the above questions to reap the benefits of a Spend Analysis Process.

What are the Benefits of Conducting a Spend Analysis of Your Company Spend?

The answer is simple. Be able to answer all of the questions above so that your Company can make Strategic Decisions in your Procurement Process, driving Procurement Process Efficiency and ultimately Cost Optimization / Cost Savings.

The 5 Easy Steps Of A Spend Analysis Process
Step 1: Spend Data Collection

The very first step is to gather all your spend data in one place (using Invoice Amounts). If you have disparate systems holding your spend data such as paper invoices, excel files, purchasing software etc., export and extract all the data from these systems.

NOTE: At least have 12-16 months of rolling data from the previous accounting period in order to get a good data set for analysis

Create a simple excel file with the following fields for each supplier you do business with (ones marked with * are required) and merge all collected data into this single excel file.

Supplier ID
*Name
Address (City, State, Zip, Country)
Classification (Category – Sub Category)
*Spend Amount (money you spent with this supplier for the 12-16 months period)

NOTE: If you have paper invoices, you should have someone enter those manually into excel.

Step 2: Remove Duplicates

During the data collection process, you may have inadvertently duplicated certain invoice entries. It is a good practice to run a duplicate check in excel to ensure that you are not double counting any invoice.

Step 3: Supplier Name Normalization (CRITICAL STEP)

We are all humans, and humans make mistakes. During the day to day process, it is possible that the person entering the name of the Supplier into your accounting or procurement system may type it incorrectly.

eg: ATT or AT&T or AT&T Global

These are essentially the same vendor but with different name variations. It is extremely critical that all of them be named exactly the same (AT&T) and according to the true official name of that Company. This ensures that vendors whose names are spelled differently are not counted as unique vendors.

This is a very critical step in the spend analysis process as it allows you to accurately understand the total money you are spending with a particular vendor.

Step 4: Vendor Classification or Vendor Categorization (CRITICAL STEP)

Vendor classification begins with adopting a taxonomy. It is basically a guideline consisting of categories and sub-categories as shown in the example below. This is a small example and you can have a taxonomy table broken down into a few to a few hundred categories/sub-categories depending on the size and diversity of spend within your organization.

Utilities Oil and gas
Water/sewer
Other utilities
Transportation and Logistics Freight – in/out
Small parcel shipping
Postage
Other transportation
Contract Services Accounting/audit services
Legal services
Consulting services
IT support and maintenance
Administration Office supplies
Printing and publications
Office equipment and rentals
Office furniture and rentals

Use the taxonomy table as a reference and then insert the Category/Sub-Category against each supplier name in the Excel file.

Step 5: Data Analysis

Reap the rewards. Once you have all your spend data classified/categorized in a single excel file, you can then run different pivots to answer the questions that you asked in the first step.

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