Spend analytics: A comprehensive guide to optimize financial practices

What is spend analytics?Spend analytics is the practice of gathering, organizing, processing, and analyzing procurement data.Procurement teams use spend analysis to make smarter data-driven decisions and:Manage supplier relationshipsDecrease the cost of purchasing goods and services, including SaaS solutionsNegotiate beneficial vendor dealsImprove supply chain management practicesExecute strategic sourcingIncrease spend visibilityIn a data-driven business landscape, most companies integrate powerful software into their workflows so they can spend analyses as needed. With built-in spend analytics features, procurement software enables organizations to centralize procurement data, keep accurate records of expenditures, and streamline data processing.

Why is spend analytics necessary?

An organization needs to spend analytics to prevent missing out on the valuable insights data offers. Spend analytics ensures procurement teams stay on top of current and future business needs by analyzing historical data and financial forecasting. Spend analytics can help your company’s financial health. Here’s how.

Risk mitigation

Businesses sometimes have to pivot quickly, tightening budgets and finding alternative supply chain options. This was certainly the case in response to COVID-19. According to McKinsey, the last few years presented businesses with newfound challenges, including:

• Sharp declines in demand due to rapidly changing consumer behavior

• Accelerated supply chain disruptions

• Suppliers and manufacturers facing financial uncertainty

• Changes in commodity pricing due to new consumer spending behavior

Risk mitigation is one way for businesses to navigate economic uncertainty, fluctuations in consumer behavior, and potentially costly changes in supply chain logistics.

Lower costs

Cost savings is a significant reason that procurement teams are vital to a company’s bottom line. A sound procurement system that includes spend analytics enables businesses to use their resources best.

Cost savings are also possible through risk mitigation, streamlining P2P processes, and reducing vendor costs—all enabled by practical spend analysis.

Uncovering savings opportunities

Data alone can’t offer actionable insights. But once paired with spend analysis, it can save businesses money and uncover savings opportunities that weren’t otherwise obvious.

Spend analysis uncovers buying patterns, spend leakage, and maverick spending. It can even facilitate consolidating vendor deals for a greater return on investment. The more savings opportunities a business uncovers, the more it can leverage them to optimize its financial strategy.

Data-driven decision-making

Yet another critical benefit of spend analytics is the ability to make decisions based on historical data. With the right software solution, procurement teams get a real-time overview of the procurement metrics and KPIs that matter.

Which vendor relationships are paying off? Is there an ROI on their category management efforts? Is automation being applied where possible to cut costs further? Questions like these become easier to answer with spend analytics in place.