Understanding Spend Analysis

Spend Analysis is a powerful business tool that businesses can use to get real cost savings from their supply chains and improve customer service. Spend Analysis is a statistical approach to identifying areas of inefficiency that are costing businesses money. Spend Analysis is the first step in implementing strategic change and is often implemented as a part of a larger strategic initiative. In other cases, it may be required in response to economic, operational or customer requirements. If you have operations in Sweden, please read about ‘Spendanalys” here.

Spend Analysis is a simple process that involves gathering, classifying, cleansing and analyzing spend data with an objective of reducing overall spending costs, enhancing productivity, enhancing competitiveness, and monitoring compliance and regulatory requirements. In order to perform a Spend Analysis, spend data is collected and analyzed to identify areas of opportunity as well as areas that may require attention to streamline operations, re-design or reduce costs and improve service quality. Analysts then develop a Spend Analysis report that identifies specific problem areas where improvements can be made. Typical areas included in a Spend Analysis report include supplier channel activities, supplier risk, direct marketing spend, financial spend and other direct and indirect marketing spend. Other areas may be identified that have a bearing on profitability, service and support, brand spend, sales and service and general spend.

A key benefit of Spend Analysis is that it provides a cost effective way of managing direct and indirect manufacturing spend. It is important to note that the methodology by which Spend Analysis is performed has no relationship with the actual sourcing of materials, supplies, components or labor. Rather, Spend Analysis identifies and characterizes areas that require attention to streamline operations, increase efficiency and/or reduce costs. Once identified, the next step is to determine if those areas are suitable for cost savings, depending on the existing mix of resources, existing technologies and legacy architectures.

One of the primary tools for assessing and comparing manufacturing outlay opportunities is the Product Cost Management platform (PCPM), which has gained significant market share over the past decade. The primary benefit of using the PCM methodology is that it can provide a direct measure of a company’s product costs. In addition, the PCM tool can also provide inputs for quality control, waste elimination, warranty, support, customization and many other aspects of an organization’s supply chain. The advent of web based PCM tools has significantly increased the ability of businesses to effectively perform their own in-house product cost management and supply chain analysis. Using online tools to perform Spend Analysis reports is a time and cost efficient means of conducting this necessary analysis.

After spending Analysis, organizations can use several key performance indicators (KPIs) to gauge progress towards their business objectives. Key performance indicators, which are typically referred to as metrics, provide an accurate picture of the value provided by each marketing activity. Examples of common metrics used in the pay framework include: KPI landing page rank, KPI direct response, KPI conversion, KPI click through, and KPI open rate.

Companies that rely on traditional metrics may not be meeting their strategic objectives because they are often unable to meet the requirements of today’s marketplace. By utilizing online tools such as Spend Analysis reports and related web based widgets, businesses can quickly determine where their money is being spent and identify areas that require additional focus and investment. By allowing key performance indicators to be input in the spend data, companies gain full visibility of all aspects of their supply chain. By combining the important aspects of Spend Analysis, proper management and measurement of key performance indicators and timely and accurate information regarding all of the data points, companies can quickly and efficiently increase KPI’s and return on investment.