Spend analysis - Why it is so important

A lot of purchases are made in a workplace. From travel, office rentals and consultancy services to coffee and pens. It pays to keep track of your purchases. Just ask the municipality that accidentally paid SEK 65 000 for five packs of wet wipes. While such purchasing disasters are thankfully not that common, there are many good reasons to conduct a spend analysis of what your organization spends its money on.

Let's take a look at why it's so important to do spend analysis, how it works, what challenges you might face and how you can make it easier.

Why you should do a spend analysis

Even if your organization is in good financial shape, there is always room for efficiency improvements and savings. When you carry out a spend analysis, you gain knowledge of all your organization's purchasing and supplier patterns. That is, how large the purchase volumes are and how they are distributed in different areas. You will also gain insight into how many suppliers you have and how purchases are distributed between them. With this as a basis, you can see what opportunities you have for improvements and savings. The spend analysis also gives you a useful benchmark against which you can measure future successes and results.

Reviewing purchases can tell you more than just the expenditure. It also provides an insight into supplier contracts, the number of invoices, invoicing intervals, those purchases made without a contract, etc. It is possible to see whether invoices are paid early or late (thus avoiding late payment fees and missed interest income). Any incorrect data can be corrected and the data cleaned up so that all information is up to date and correct. This information can include, for example, the organization number and payment terms. It is also possible to ensure that the supplier is only entered once and does not appear in several different places in the system.

Spend analysis is also a very useful tool for the purchasing department when it comes to communicating with the management (who do not always see all purchases as purchases and easily miss the savings potential that exists). Spend analysis makes it much easier for the purchasing department and lays the foundation for category-based purchasing.

How the spend analysis works

The analysis itself is done by sorting the entire purchasing volume of the business into different purchasing areas. The data you enter usually comes from supplier contracts, but there are also other data sources, such as card suppliers. This creates a purchasing map of all your organization's purchases and suppliers. It shows the total volume of purchases, how it is distributed between different areas, which suppliers you buy from, what you buy from them, in what way and in what quantities. Based on this, you can then break down the data by department, business area, site, division, branch, country, etc.

What's special about spend analysis is that it looks across the whole company, regardless of areas and cost centers, and shows all savings opportunities. Even those that are not so obvious.

The practicalities of data collection depend a little on the type of business you have. For example, how big is your business? And what tools do you have to help you? A classic has long been to enter the values in Excel. With today's digital solutions and systems, you can instead deliver ready-made reports and smooth data export options. They make it much more efficient to collect, sort and present the data. For larger organizations that may be spread out with different financial systems and multiple charts of accounts, this type of analysis can be a daunting task (and another argument why the whole business should work in the same system). At the same time, it is the type of large and complex organizations that have the most to gain from doing a spend analysis, as they usually have little control over their purchases and have greater savings potential.

The challenges of doing a spend analysis and how to solve them

A spend analysis is easy to justify but it can present various challenges once it is implemented. The main ones usually have to do with technology, resources and how to implement the change once you have the results. Sorting purchasing volumes into purchasing categories can be a challenge in itself. And if you're a large company with multiple locations, and each office has its own system, it gets even sweatier. Collecting data such as item numbers, supplier details and charts of accounts takes time and resources. Something that purchasing departments are rarely spoiled with. Once the analysis is complete and it's time to act on the conclusions drawn, the next challenge awaits. That is, getting employees to change their routines so that the savings can be implemented. People are often not so keen on change, even if it is for the better.

It is easier to sell new ways of doing things if you can clearly demonstrate the benefits. Especially if you communicate it in a clear and engaging way. The other challenges can be addressed with the right technology. An ERP system increases transparency in your business and makes it much easier to review, collect and analyse data. So you can free up resources to use the data. You also get that efficiency back at the other end when it comes time to implement the changes. The ERP system makes it so much easier thanks to all the automation options and the fact that everything is under one roof. Which is also gratifying for users who are particularly allergic to change.

For more tips on how to succeed in change management, read our post "How to get everyone on board the change train".

Visma Analytics for an easier spend analysis

If you want to get an easier spend analysis, there are smart tools you can use. For example, Visma Analysis helps you understand the financial performance of your business. It is a solution that contains a large number of functions to analyze and present your business in figures. For example, you can create and monitor your budget and check that your accounting is correct. You can also analyze key figures, create your own reports and present your business finances graphically and clearly.

If you want to get more control over purchases, there is also Visma Source-to-Pay. It is a complete platform that covers the entire purchasing process from procurement to payment; a grateful tool when it is time to produce data for the spend analysis.

In the past, starting a spend analysis may have seemed daunting because it involved so much work. Thanks to today's tools, there is no longer any excuse not to review purchases. Who knows, maybe there's an unnecessarily large wet wipes item hiding in there that can be turned into a coffee break account instead.

At Traventus, we work with all types of businesses, and have long experience of making our customers' everyday lives easier, more efficient and more fun with the solutions we can offer. Want to know how you can save more time? Contact us and we'll tell you more!