Spend analysis operates on a simple principle: a business should know where its money is going, and how effective that money is.
Of course, that's often easier said than done. While it's possible to analyze an entire company's data by hand, it's certainly not easy, efficient or accurate. Companies often sprawl across systems and data sources, with no clear oversight into money flow. That's why a multitude of companies either don't start spend analysis, or try and get bogged down.
That's where technology comes in.
Spend analysis technology is exactly what it sounds like: technology that enables you to analyze your spend and parse out details like how many vendors you use, the channels you're spending the most money in and whether you're getting good rates on your purchases. Typically, this means software that can run analysis programs and generate spend reports on your company's spend data.
Spend analysis helps you answer key questions about your spend. Here's an example: if you work with attorneys, how many do you actually use? You can start breaking that down by digging into your ledger coding for legal expenses and identifying individual vendors. You might realize you are working with 30 different legal firms. From there, you may want to lower costs, so how can you narrow that list down to three or four, and would you get better rates that way? Here's the key: without technology, those questions are laborious and painstaking to answer.
Fundamentally, spend analysis tech has one key benefit: it enhances your spend analysis to get you better insights, faster. That knowledge is power, enabling you to make data-driven decisions. You'll be able to negotiate rates, consolidate vendors, improve the return on your spend and find new opportunities based on solid analysis.
You'll also have greater transparency into your business operations. For instance, you may be shocked at how much of your spend goes outside of desired channels — you may think that 95% goes through your supply chain, but the typical number is closer to 58%.
Software helps you find those numbers accurately, without the headache of Excel sheets, mining data, sorting and aggregating. It also helps you scale operations beyond one person, so that you're looking at data in a consistent, repeatable way through a web portal or central database. It's the opposite of manual or ad hoc. Depending on the software you choose, from full Accounts Payable analysis software to supply chain tools, you'll even be able to build reports that break down your spend into categories you've identified as key to optimizing growth.
Spend analysis can be broken down into two key phases, data aggregation and analysis. To be effective, spend analysis software needs to draw on a healthy database around your historic spend. This can work in two main ways:
Some spend analysis technology combines your company's basic spend data with robust third-party databases. These databases contain information on companies that enable deeper analysis.
For instance, if your company buys a lot of lumber, you may want to assess how many lumber vendors you're using and how much you spend with each one. Rather than searching each line item for lumber, you can pull from that external database to identify which of your vendors supply lumber and significantly speed up the process.
This method enhances spend analysis, but it has its flaws: nowadays, companies can supply a wide variety of products and services, so third-party data may be less reliable.
Internal data is often more valuable for spend analysis technology because of its sheer breadth of analysis potential. Best of all, you already have this data, and it's sorted into categories that already work for your business. Once it's collected into a complete database, analysis software can act as a magnifying lens on different aspects of that data. It's an incredibly rich and underutilized resource; spend analysis technology simply provides you with different levers you can use to zoom in on or investigate your own data.
For many companies, amassing that internal data is a major challenge. Spend may be spread across purchasing solutions, p-cards and multiple ERP or Accounts Payable systems, and it all may be structured differently.
Technology can help there, too. Top-tier A/P analysis technology that's build to leverage internal data starts by pulling all your data into one centralized source of truth: the software's database. All you need to do is upload your data in the right format, and the software program can get to work slicing and dicing that information. Rather than running the spend analysis program on each and every database you have, you can consolidate them within one tool.
The insights that you can glean from spend analysis are incredibly powerful — so don't put off the process because it's too challenging. Find spend analysis technology that's built to deliver the results, reports and discoveries you need, without the tedious manual work or painstaking data collection.
Karl Andersson has devoted his career to helping organizations improve their business processes. For 15 years, he has worked with multitudes of Fortune 500+ companies as the CEO of Technology Insight. Before this, he spent 10 years working in the audit and consulting sectors, which included large international projects in both Europe and Asia. Karl brings a combination of industry expertise and real-world experience. The diversity of his clients has allowed him to understand a variety of industries, and the unique challenges that each of them face.