Spend analysis in three easy lessons

Spend analysis is an important sub-discipline of overall spend management and is primarily concerned with collecting, cleansing, classifying and analysing procurement expenditure in order to find opportunities to improve purchasing efficiency and reduce an organisation’s overall spend.

To business people unfamiliar with spend analysis, it can seem a very daunting and confusing world. Even procurement professionals and other staff members with some exposure to spend management are sometimes unsure how spend analysis works.
To help inform and break this topic down a little, we have sponsored a white paper: Spend Analysis in 3 Lessons, by Jason Busch, founder and head of strategy at Azul Partners Inc. Below is a synopsis of the subject matter covered in the paper:

Lesson 1: an introduction to data handling — cleansing, enrichment and classification

Data that comes out of initial spend analysis exercises is often of poor quality, e.g. header and line level detail missing, misspelled, inaccurate, abbreviated, incorrectly coded, or does not subscribe to a specific naming standard. Often the available data at the start of any spend analysis project is extracted from internal systems – and frequently these lack the line-level detail typically found in data extracted from specialised procurement tools and supplier-provided invoice data.

This means that the data you’re working with likely must be cleaned and enriched to be truly useful. If you’re setting up a new data system, or rectifying the mistakes of the past patchy systems, best practice includes regular data refreshing (at least quarterly); getting to line-level detail; providing standard data enrichment options (for company level fields); providing secondary/advanced data enrichment (for supply risk, corporate social responsibility data, supplier diversity, etc.). We also see great benefits derived from having an automated approach to cleansing and classification (machine learning/AI, rules, etc.) with human expertise layered on top of it (if the technology is not sufficient alone to get to the level of accuracy required, which is the case in over 90% of spend analysis efforts).

Lesson 2: the visualisation of spend data and quantitative information

Sharing detailed spend data and quantitative information with relevant people in the organisation is vitally important — but how information is shared can be as important as the type of information that is shared. 

Typically our simple data analysis tools are often lacking in the visualisation options, leaving their output accessible to those who “speak numbers” – and sometimes actually hindering greater collaboration with stakeholders across the company. Ideally, the output of a spend analysis project needs to be digestible and accessible to several different types of users, and visualisation is a key way to achieve this.

Visual, easy-to-use dashboards that allow users to drill down into the data go a long way towards making the data more useful and understandable. Organise your data in layers, starting with a high level summary (or scorecard) format, and then allow users to dig in deeper for more detail or “zoom in” to specific topics or themed metrics.

Lesson 3: spend “as you like it” - contextual information and driving insight to action

Having clean, enriched, accurate data that provides detailed, visual insights is vital, but real change and savings will only occur if the insight leads to action.
It falls on you – as a leader or team member in a spend analysis project – to guide your users through the data. It is perhaps helpful to think of these users as an audience that you’re looking to bring over to your way of thinking. This kind of guidance should see colleagues convinced and motivated to support suggested action and decisions.

A good spend analyst helps users drill into the data and discover the opportunities for themselves, leading to greater levels of support and backing.

This short summary of the subject matter covered in the Simfoni white paper ‘Spend Analysis in 3 Easy Lessons’ is republished with permission.

Written by: Stefan Dent, Managing Director of Simfoni

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