Posted on: January 23, 2020

Why Spend Analysis is Crucial in Accounts Payable

spend analysis

Expenditure is the name of the game in Accounts Payable. Departments often see millions of dollars pass through their doors when paying invoices, which is why savvy departments set up thorough processes like internal audits to confirm that the right money is going to the right vendor.

But not many departments actually run spend analysis to investigate the nature and the efficacy of their expenditure — and they absolutely should.

Spend analysis isn't always a priority...

For many A/P departments, spend analysis is a great idea that's difficult to execute, so more often than not, it simply doesn't happen. As a result, a significant number of companies simply have no idea what their actual spend comes to, how many suppliers they use or what they've spent with each vendor.

That lack of visibility is a sore point for companies, but it's accepted as the status quo for one key reason: spend analysis is traditionally a challenging task to execute efficiently.

It's a time-consuming process because of the sheer breadth of data that needs to be analyzed. Businesses often have multiple databases to take into account — such as p-cards and invoicing — that don't operate within the same system. To summarize that data, companies are forced to resort to the tried-and-true (but painfully manual) option of Excel spreadsheets. On top of that, companies can have up to 10 or 11 ERP systems; at that scale, spend analysis often requires specialized analysts. The whole process can take days of dedicated work.

Even then, it's tempting to simply look at ways to reduce overall expenditure to cut costs, rather than optimizing spend so that each dollar goes further. It's therefore not surprising just how many companies, when asked how much they spent with a certain vendor, don't have an answer.

 

But it should be.

Despite the inherent challenges, spend analysis is crucial. Done properly, it can be a streamlined process that pays enormous dividends, particularly for companies that work with a large supply chain.

It also can provide key insights into company expenditure. For instance, finance departments often assume that 90-92% of spend flows through the A/P department with a verified purchase order attached. Yet in reality, only 50-60% of company spend typically passes through A/P as a purchase order.

Spend analysis is a vital tool that can help you:

  1. Understand where your spend goes and why
  2. Understand how many vendors you use and why
  3. Provide insight into who's spending money and how
  4. Negotiate with vendors for a better rate
  5. Identify duplicate vendors
  6. Prevent rogue purchasing
  7. Claim untouched rebates

Many of these benefits go hand-in-hand. For instance, when you can nail down how much you've bought from a vendor in the past, you can use that data to negotiate a better rate or identify rebates that you qualify for at that threshold. When you identify how much of your spend follows the proper procedures with A/P, you can track down which transactions, suppliers or spenders don't follow the approved route.

Similarly, spend analysis can augment other standard A/P checks and balances. It can turn up errors like duplicated vendors in your VMF, which may have caused duplicate payments. It'll also help you understand your supplier base or even identify fraud.

With the right tool, you can even work to optimize your spend. Insights into your supplier base will help you determine whether you should consolidate vendors, focus spend to receive more rebates, renegotiate rates, set up firmer controls over company expenditure and more.

See where your gaps are. Download our guide to gain insight on best practices to prevent errors in accounts payable

 

And there's a better way to analyze spend.

This host of benefits is possible because all of these insights can be gleaned from one core data set: namely, your transactional and invoicing data. In fact, at a high level, many A/P processes are simply different lenses through which you can analyze that crucial data.

Therefore, the best way to analyze spend — without the hassle of Excel sheets or multiple days of work — is to find a program that amalgamates and runs programs on that core data set. You can then leverage those insights in a variety of ways, including thorough spend analysis.

Technology Insight's DataShark equips you to harness that data. With the FindIt tool, you can simply run a keyword search on a vendor to pull up all your expenditure with that company in seconds. No more wading through multiple platforms: DataShark houses all your transactional data, enabling you to access any analysis you need.

Check out this article for more information on DataShark's supply chain analysis capabilities, from spend analysis to purchase order management. Don't let spend analysis fall by the wayside any longer: incorporate this powerful tool into your A/P department today.

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