Unless you have a source of an unlimited supply of money, you need an organized system to manage your expenses. From individuals to a family, everyone manages their expenses to save for a rainy day.
Similarly, a business is required to analyze the expenses it incurs across multiple areas to add to its profits. This assessment is called spend analysis. Spend analysis helps you identify the areas where your business spends money, the vendors you deal with, and important ways to manage your business expenses. Spend analysis also lets you identify important trends as you collect, cleanse, classify, and analyze your procurement data.
While the core of all spending analysis practices is the same, different practices draw your focus to different aspects. Here are some of the most common types of spending analysis implemented by businesses worldwide:
Tail spending refers to the expenses incurred by your organization on purchases that contribute to a considerably low total spending volume despite making up the bulk of your transactions. For example, if a set of purchases make up 80% of your transactions but add to only 20% of your total spend volume, they can be considered tail spend.
Depending on the type of business you run, your tail spend can fall into multiple categories, such as:
Tail spend analysis helps you identify and control such expenses. Implementing modern spend analysis solutions allows you to encourage compliance, identify maverick spending (expenses outside your company’s procurement rules), and reduce non-compliance transactions.Also read: 7 Best Woocommerce Plugins to boost your Store you must know
Most companies deal with multiple suppliers, not all of whom are critical. Supplier spend analysis is the type of spend analysis that focuses on identifying the expenses attributed to the suppliers critical to your business.
This process involves creating a detailed spending profile for each of your vendors with the help of historical consumption data. As you understand the relationships you share with different vendors, you can make attempts to get the best value from the most critical vendors.
Vendor reports play an important role in supplier spending analysis. Most modern spend analysis software solutions automate the creation of these reports to make things easier for users. With vendor reports, you can visualize your spending insights with respect to all the vendors you work with. They also facilitate year-on-year comparisons to make data-driven decisions.
Once you have relevant details about your transactional history and relationship with critical vendors, supplier spend analysis helps you identify and implement opportunities to manage your expenses while undertaking future transactions.
As the name suggests, category spending analysis helps you analyze your business expenses for a specific spending category. Most finance professionals use it to find unnecessary spending leakages.
To ensure effective category spend analysis, it is important to start by understanding the scope of the category you are focusing on. This will help you understand the spend category hierarchies and focus on one category at a time.
Category spend analysis helps you identify your top spend categories, which in turn helps you forecast the right saving opportunities. Modern spend analysis software uses technologies like AI and machine learning to identify the top spend categories for your business by scanning your transactions. This also helps you make better negotiations while dealing with the top spend categories to get more favorable prices from your vendors.
To ensure smooth, secure, and fruitful procurement, companies prepare dedicated contracts and abide by them. Contract spend analysis is nothing but a type of spending analysis that tells you if you are complying with your existing contract terms.
This activity deals with analyzing your business spending based on your vendor contracts to look for spending leakage caused due to non-compliance. Depending on the contracts you share with your vendors, your spend analysis solution would ensure that you have negotiated the best terms and are purchasing from the vendors best suited for your organization.
Item spend analysis involves analyzing your business expenses on an item (SKU) level. Here, you will be required to consider the money you spend in purchasing every single item of your product, attribute it to the vendor it was purchased from, and analyze the department/purpose for which it was purchased.
Such analysis helps you dive deeper into your business expenses, giving you an in-depth look at your procurement procedures. Businesses often divert all their focus on the bigger picture, ignoring the leaks whose source lies in these smaller assessments. The devil lies in the detail, and conducting item spend analysis allows you to make your procurement strategies fail-proof!
It is also important to note that all other spend analysis types boil down to item spend analysis. Conducting such assessments helps you find unwanted leaks, negotiate payment terms with specific vendors, and identify unrealized discounts that can fuel your savings.
As the number of procurement transactions increases, it becomes difficult to track and analyze business expenses manually. Spend key helps you conduct all spend analysis types discussed above using automated tools and features. The spend analysis software is equipped with seamless process automation, artificial intelligence, and machine learning to act as your virtual assessment every step of the way!
Modern spend analysis solutions help you stay ahead of the curve, boost your bottom line, and aid in business growth. From enhancing your cash flow to exploring your negotiating power, Spendkey helps you put your business expenses under scrutiny to make wiser and more sustainable decisions.
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