The top executive looked at the quarterly report with a confused look on their face. The figures didn't make sense. Even though they were trying hard to minimize costs and were in talks with several suppliers, spending had nonetheless gone up by 8% over the previous year. Departments were buying things from dozens of suppliers, some of whom they had never heard of before. The IT staff paid subscriptions to software. Marketing worked with a number of different agencies. Operations has contacts with vendors that procurement didn't know about. Money was going out in all directions, but no one could say where it was going or why.
Does this sound familiar? Every day in boardrooms across all businesses, this scenario happens. Companies spend millions of dollars every year, but they don't have the basic tools to figure out how they're spending their money. It's like driving a car with a cloudy windshield; you know you're moving.
Spend analytics goes from being a "nice-to-have" reporting tool to a powerful tool for getting the best deals when you buy things.
What is Spend Analytics and How Does It Work?
Spend analytics is the organized way of gathering, cleaning, sorting, and studying spending data in order to lower expenses, boost productivity, and keep an eye on compliance. Think of it as providing your procurement staff X-ray vision into every dollar that comes into your business. This lets them see trends, inefficiencies, and chances that would be hard to find in data systems that aren't connected.
Spend analytics goes beyond typical reporting, which only shows you how much you spent. It answers important strategic questions like "Who are we buying from?" What are we buying? Which departments are spending the most money? Are we receiving good prices? Are staff following the rules for buying things?
Modern spend analytics platforms gather data from many sources, such as ERP systems, purchase orders, invoices, credit card transactions, and supplier contracts. They then use cutting-edge technologies like artificial intelligence and machine learning to automatically sort and analyse this data. It used to take procurement teams weeks or months to put together by hand, but today they can do it in hours or even minutes.
The Business Case: Why Spend Analytics Delivers Exceptional ROI
Companies that use advanced spend analytics get great returns. Hobson & Company discovered that organizations that used full spend analytics systems saved 80% of the time they spent gathering and analysing different expenditure data. They also saw a 10% rise in addressable spend and a 5% decrease in price, even when market costs were going up.
Independent study shows that procurement firms that use spend analytics get up to 63 times their money back, thanks to both immediate savings and improvements in how they work. According to McKinsey study, using data effectively in procurement can boost value-creation efforts by as much as 200%.
The effect on finances is considerable. Companies lose out on savings possibilities because they can't see them clearly, which costs them between $15 and $55 million for every $500 million they spend. Gartner says that fragmented expenditure data can lead to procurement inefficiencies that cost businesses 3% to 11% of their targeted spend each year, a loss that gets worse every year.
For example, think about this: A multinational industrial automation company that spends about €2 billion a year had trouble managing data across more than 10 old ERP systems that didn't have any uniform processes or ways to keep an eye on suppliers. The organization was able to see all of their spending, make accurate 12-month forecasts, and find potential savings of more than 5% using AI-driven dashboards after putting in place a full spend analytics solution.
A Practical Roadmap for Using Spend Analytics
A planned approach to implementing spend analytics that focuses on getting fast wins while growing toward full capabilities is the key to success.
Set clear goals and objectives
Discover what information is needed, including how it will affect how you spend money: how to better improve what you do. Establish goals and track with the right key performance indicators. Determine which areas are the most important: areas with significant spending, various suppliers, expiring contracts, or items that are market dependent regarding price.
Find and combine data sources
Identify any of the company's important data sources. This includes ERP systems, sourcing platforms, accounts payable, credit card purchases, or supplier contracts. Ensure that the data is pulled by including participants in different departments to gather the data. The analysis will be only as good as the quality of the data, and the better the data is assembled, the better the analysis will be.
Make Data Clean and Consistent
In order to derive actionable insights, accurate data is required. Evaluate the data closely to identify and resolve any inconsistencies. Make sure that the formats are consistent, the descriptors are unambiguous, and the information is identical across languages, currencies, and locations. This prepares the data for accurate analysis by minimizing the need for manual modifications later on.
Use AI and automation
Today's spend analytics solutions use AI to automatically categorize your spend data, identify outliers, and provide you with prescriptive insights. AI-driven solutions can reduce the time to group and classify suppliers on average by over 90%. Conversely, machine learning models improve as they process more and more data. Organizations that use AI-powered spend analytics indicate that they are able to gain insights in minutes that would typically take a team of analysts weeks to aggregate.
Look at and come up with new ideas
One of the pieces of recommendations is that you should routinely review and monitor key financial metrics including cost per unit, budget deviations, supplier performance and cash flow. By doing so, you will be able to assess the effectiveness of spending, identify opportunities for improvement, and optimize the data processes so they produce better data
Keep an eye on performance and make chans
In the case of checking and reporting on financial data, review and report regularly on financial data! In order to assess areas where spending can be improved and assess how effectively spending is being address important KPIs such as cost per unit, budget deviation, supplier performance, and cash flow.
How UnivDatos Can Help Transform Your Procurement Function
UnivDatos brings deep expertise in procurement consulting and spend analytics to help organizations transform fragmented spending data into actionable intelligence that drives measurable results. Our comprehensive strategy begins with the collection of various forms of data ERP systems, purchase orders, invoices, contracts with suppliers, and then we will apply several methods of cleansing data rigorously ensuring accuracy and reliability. Using AI based classification, and machine learning algorithms, we can automate the categorization of all spending data using standard taxonomies or custom categorization aligned to your organization. Our consulting offering does not simply provide data, we offer analysis using the data that identifies potential supplier consolidation, category based savings potential, pricing anomalies, compliance deficiencies, and maverick spend patterns that eat away at profitability. We also create intuitive, interactive dashboards that enable stakeholders from category managers to senior executives self-serve analytics to make timely data-supported decisions. With Univdatos as your partner, you will achieve visibility, control, and valuable analysis to reduce procurement costs as a sustainable margin impact of 5-15%, improve efficiency, develop supplier relationships, and transform procurement from a cost centre to a value creating strategic business partner.
Let’s talk and explore how we can support your strategy. Contact UnivDatos today to learn how our Procurement Management & Consulting Services can support your brand goals. Call us at +1 978 733 0253, email [email protected], or fill out our contact form to schedule a consultation.