“The price of light is less than the cost of darkness.”
(A. C. Nielsen)
Spend Analysis – Why and How?
Nowadays, the main goal in business is to achieve highest possible profit with minimal investments. As already said in one of our previous posts, Procurement saves your money mainly through reducing costs of goods or services purchased, so the first analysis we’ll write about is the analysis of spend obtained in the procurement process. However, the very price of goods or services is not the only spend we can find in our procurement process – for example, transportation, handling and warehousing costs are costs that surely mustn’t be neglected. Spend analysis gives you insight into financial data and thus helps you perceive opportunities you didn’t even know they existed.
Below, we bring you six steps you need to take in order for your cost analysis to be successfully conducted:
Before even thinking about conducting cost analysis, certain preconditions need to be met. Firstly, it’s important to identify sources you can collect spend data from. In order for analysis to be conducted properly, you’ll have to collect financial documents and data from all departments, business units and facilities in your company related to Procurement in any way. In this part of the process, all financial information is important – the more data sources you can identify, the more detailed and precise your analysis will be.
2. Collecting Data
Once you have identified where costs arise, data needs to be systematized. For conducting analysis, it’s important to have all the information placed in a unique database. This step may seem simple, but in practice this is usually not the case, since data collected is often stored in different formats, different languages or expressed in different currencies. Choose the procurement software that will make your business easier and do most of the work for you. Ensolva is such software – it systematizes all data for you so all information you need is just a click away!
3. Data cleaning
Systematizing data and saving it in a unique database is not enough. In this great amount of data, it’s necessary to identify relevant ones, as well as eliminate possible mistakes. However, you won’t have much work with this step, since Ensolva will do almost everything for you. In fact, it’s Ensolva’s unique specialty to recognize relevant data and conduct spend analysis. Once Ensolva does this step for you, you’ll only have to check errors it could not solve itself and correct them appropriately.
4. Data Classification
It’s pretty common to have same products or services listed on different types of documents, under different names or codes. In order to speed up and simplify the search, Ensolva will classify big data for you. It’s a very good thing that procurement softwares like Ensolva have evolved to a point where they are intelligent enough to identify and group such information, which greatly shortens the time you would otherwise have to invest in this step. All in all, by using quality procurement software like Ensolva, you won’t have to worry about whether all information you requested will be included in the analysis. That way, you’ll be carefree to devote yourself to the interpretation of analysis conducted.
5. Data Categorization
No matter what standards you categorize your data by, it’s necessary to elaborate spend categories well in order to find out exactly where your money is spent. These categories can, in example, be: direct and indirect spend, production materials, office supplies, business travels, marketing activities etc. Each of these categories may have their subcategories, depending on the size and needs of your business. All in all, when you manage to define your spend categories, Ensolva will quickly and efficiently categorize data according to pre-defined criteria.
6. Spend Analysis
After collecting, classifying and categorizing data, you’re ready to start analyzing. If well-performed, analysis can give answers to an infinite number of questions and thus significantly improve your business. You can, in example, find out what your biggest expenditures are, do you manage to negotiate the best prices possible, what department spends most, are all your costs eligible or how much money we managed to save in comparison to past periods. Procurement analysis (as well as spend analysis) gives answers to many questions, which we will discuss in one of our future posts.
Once having the analysis completed successfully and all desired data reached, don’t allow yourself to stop there. Things change continuously and analysis is here to help you track changes – both in the market and in your business. Maintain continuity. By doing so, you’ll be able to compare the current situation with past times and respond timely if unwanted situations arise. Procurement softwares are more advanced than ever and spend analysis has never been easier and more accessible. With Ensolva, take advantage of opportunities you didn’t even know they existed.