What is Spend Analysis?

Spend analysis is the process of converting raw accounts payable or payment data into information that can be used to generate savings. Spend analysis works to answer the question “Who buys what from whom?” It produces spend category focused views that power processes including:

  • prioritization of sourcing opportunities
  • gaining leverage in contract negotiations
  • identifying and reducing off-contract spending
  • increasing spend under management
  • improving vendor compliance
  • tracking progress to ensure that savings are realized

Why Spendata?

Spendata is the first true do-it-yourself tool for spend analysis. With Spendata, you get a complete picture of your spending, tools to family vendors and map spend into categories, and reporting tools to give stakeholders in your organization the information they need to make decisions that can save money. Beginners can access step-by-step guidance via a series of succinct videos, and more experienced analysts can consult the value proposals on the website to kickstart savings programs.

Our approach to spend analysis is very different from conventional solutions. In the conventional model, most of the costs are driven by expert data and consulting services. These services are required to build the initial spend “cube” and to perform subsequent updates, refreshes and modifications. The Spendata model puts customers in the driver’s seat by providing them with tools and training to be independent. For a more detailed explanation of how Spendata empowers its customers, read How Can We Offer Spendata for Just $699 a Year?

Spendata is the first true do-it-yourself tool for spend analysis. With Spendata, you get a complete picture of your spending, tools to family vendors and map spend into categories, and reporting tools to give stakeholders in your organization the information they need to make decisions that can save money. Beginners can access step-by-step guidance via a series of succinct videos, and more experienced analysts can consult the value proposals on the website to kickstart savings programs.

Chances are high that your spend analysis solution can't deliver the ad hoc analysis and mapping capabilities of Spendata. It certainly can't deliver them if it's shared with others, because you can't make any changes to Commodity hierarchies or anything else without clearing those changes with your peers -- then paying someone to make the changes to the system, and then waiting weeks or months for the result.

Instead, why not run Spendata right alongside your existing system? Then you have the best of both worlds -- a company-wide version of truth from your existing system, and a powerful private analysis system that's all yours, where you can organize the data the way you need to see it, whenever you want to see it.

Data visualization tools do an excellent job of presenting data. Some also have added interactive capabilities. But, the main purpose of data visualization products is to display data, not to make changes to the data, categorize it or analyze it. Spendata is a highly-specialized tool for analyzing and categorizing data, and then identifying spending patterns and anomalies.

Spendata can be used to explore any data set. It's true that many spend analysis projects begin with indirect spend because these expenditures tend to be less visible than direct spend. Typically, there are many more requestors for indirect spend items, such as office supplies and T&E, and more ways of buying them outside of the central purchasing systems. This makes indirect spend more difficult to control and, therefore, more likely to yield immediate savings opportunities.

There are several reasons why it is impractical to rely on a general data warehouse for spend analysis. The short answer is that it is too difficult. A data warehouse is just that: a repository for structured, raw transactions. While newer systems have become more "business user friendly," the structure of the data is still fixed, restricting the sort of follow-your-nose exploration characteristic of spend analyses. Even without the limitations imposed by the fixed data structure, warehoused data have not been cleansed, consolidated, or classified specifically for spend analysis so different people asking the same question may get different answers. For example, total office supply spending will depend on which vendors and GL codes the user thinks are office supplies. In a data warehouse, there is no easy way to store this type of information -- information that is always accessible in a purpose-built spend analysis system.
A report run directly from your accounting system can't answer the key question: What did I buy? This is because all the data related to purchases are booked to general ledger (GL) accounts, not spend commodities. GL codes are used to assign debits and credits to balance sheet and income statement, not spend analysis. Your accounting system could tell you how much you spent on capital equipment or facilities, for example, but not exactly what was purchased. It gives you clues, but not answers. Also, vendor master files are notorious for having duplicates as a result of spelling errors and various naming conventions e.g., AT&T, A.T.+ T., ATT, AT&T Inc., AT&T Corp., etc. Therefore, not only would this data fail to tell you "what," but you wouldn't get an accurate number for how much you are spending with whom.
In the past, because of its high cost, spend analysis was only done by companies with thousands of employees. The expense of early spend analysis systems could be rationalized because savings opportunities increase as companies become larger and more complex. As an organization spends more with vendors, it gains leverage to negotiate or to optimize spending.

At $699/year, Spendata makes spend analysis economical for any company. Companies can benefit from spend visibility even if they lack the negotiating power of a large enterprise, because organizing spend data to see through complexity and find savings opportunities is always productive.

Spendata offers an ideal opportunity to expand your practice. Like many growing businesses, your clients probably have so much going on that they haven't had the time or resources to take a good hard look at their spending practices. And, because Spendata doesn't require a huge investment to get started, you're pretty much guaranteed to have an immediate payback—and possibly a new source of income.

What Kind of Support is Available to Me?

Motivated individuals with the right tools and guidance can help an organization make substantial improvements to the status quo simply by adding visibility to spend data where there was none before. We are confident that Spendata is the best spend analysis tool for the independent professional. That said, we know that performing any data analysis is not a trivial task. So, in addition to the educational materials and videos included with the product, Spendata users can elect to purchase telephone support, as well as a full range of training and support programs designed to help work around time and resource constraints.

Buyers of Spendata receive all the written and video materials they need to successfully load, cleanse, and classify their data. There are more than 70 how-to videos less than 90 seconds in length with a keyword search facility to help you find what you need quickly. The materials also include a Data Extraction Guide, sample commodity hierarchy, customer Forum, and a knowledge base that draws from scores of successful spend analysis engagements. Experienced analysts and commodity managers can skip the educational portion and simply enjoy the ease, power and independence of the Spendata environment.
You can always post questions on our Spendata Forum, but if you would rather speak directly with someone, Spendata telephone support gives you access to experts who can answer your questions right away.
Spendata users who want to get up and running quickly are candidates for Spendata's Quick Start Training Programs. Analysts who prefer to allocate their time to exploring their data for value opportunities, rather than creating and/or maintaining their own spend analysis program should investigate Spend Analysis:The Works for complete spend analysis services.
For Spendata users who want to learn about the features and functions of Spendata, we offer an introductory training course that uses generic data. This course is ideal for those who are new to spend analysis and are not quite ready to jump in with live data. For those who are ready, our team coaches you on how to get value from your own data through our Quick Start Program. This program offers one-on-one training for data acquistion, data mapping, and savings planning.
Contact us for a discussion. You can utilize one or more of our Quick Start Programs, where we guide you through the spend analysis process while you do the heavy lifting; or you can outsource part or all of the process using Spend Analysis:The Works.

What is the Fastest Way to Get Payback?

Many analysts begin with the top 5 or 10 commodities by spend volume. The thinking is that because these commodities have the most spend associated with them, they have the greatest potential for savings. While this is true in theory, it's also true that, because of their size and importance, these spend categories are the most closely managed.

Another avenue to take is to first look at commodities that have little differentiation and a lot of competition, such as office supplies or printing. These commodities are good candidates for consolidation, which results in higher volumes and bigger discounts. Often, a spend analysis initiative is triggered by an event, such as a merger or acquisition. The starting point in these situations will be the consolidation of the two different commodity structures, which should uncover numerous opportunities for consolidation of vendors and spend.

For many procurement organizations, "spend under management" is measured by the percentage of total spend under contract. Others define spend under management as "the percentage of total enterprise spend that a procurement organization manages or influences." This definition excludes maverick spend or bypass spend from the definition. Others don't consider spend to be under management unless all of the savings have been optimized.

The point is that businesses are putting a great deal of emphasis on improving spend under management. The only way to do that is to define it, calculate what it is today, and measure it as you go forward. This requires a degree of transparency that is easily achieved with a tool like Spendata.
Maverick spend is sometimes defined as off-contract spend, i.e., spending with non-preferred suppliers. A broader definition includes spend that "bypasses" sanctioned purchasing processes. For example, an employee who purchases office supplies with cash or a personal charge card and later expenses it has added to spend that is not under management. There are many reasons for maverick spending, including fraud, but cumbersome buying and approval processes are frequently part of the root cause. Many organizations have reduced maverick spending by improving communication about preferred suppliers and by instituting better controls.
Spend analysis can uncover numerous opportunities to reduce cost, improve processes, and lower risk. Actual savings will depend on many factors including company size and structure, purchasing controls, commodity, vendor, etc. Here are a few examples of the improvements you can expect from improved spend visibility:

  • coordinate various buying groups for higher volumes and better pricing
  • reduce suppliers to cut overhead and negotiate better terms with remaining suppliers.
  • reduce off-contract spending to capture greater supplier discounts
  • monitor supplier compliance with contract terms
  • identify and offload low-value, high-frequency purchases to p-cards
  • place higher percentage of spend under management