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Spend Analysis: A Beginner's Guide

What is Spend Analysis?

Spend analysis is a method used to reduce the cost of a product or service. It is a vital part of procurement because it helps reduce a project's overall cost.

The goal of spend analysis in procurement is to identify where costs are becoming unnecessary and plug the gaps where required. An enterprise can execute it by looking at allocating resources more efficiently, eliminating waste, and improving process efficiency.

Spend Analysis in Procurement

Procurement is an essential business process, and it can be significantly improved with spend analysis. Spend analysis in procurement can help identify where money is being wasted and where it could be used more productively.

By understanding the various costs associated with a purchase, businesses can make smarter decisions about how much to spend on a product or service. It allows for better allocation of resources and improved profitability overall.

With the help of spend analysis, businesses can ensure that they are getting the best value for their money when making a purchase. It saves both time and resource in the long run.

Spend Analysis Guide

Spend analysis is a process that procurement teams utilize to identify and understand the costs associated with a particular procurement opportunity. It helps the procurement function in an enterprise to make better decisions on whether or not to pursue a particular procurement.

When procurement professionals conduct spend analysis, they try to determine the best option for the company — by reviewing all the possible options and selecting the one that will result in the least amount of risk and the best cost efficiency.

Ultimately, procurement professionals want to find a product or service that offers the best value for their company's money. Several factors can be used to calculate cost and risk — such as price, quality, delivery time and customer service.

The financial aspect of spend analysis looks at the cost of goods and services involved in procurement. Financial spend analysis can help determine the feasibility of a particular procurement. For example, it can help determine how much money the procurement will cost and how long it will take to complete. It can also help decide which vendors are available to supply the goods or services involved in the procurement.

However, from a management perspective, there are several other factors such as meeting compliance requirements that ultimately helps in determining the procurement aspects essential to the organization. Therefore, it's strategically important for companies to identify any compliance requirement that must be met during the procurement process.

The Spend Analysis Process

When you are looking to invest in a new product or service, it is essential to understand the spend analysis strategy. This process helps you determine how much money you will need to spend to receive the product’s or service's benefits.

The first step in the spend analysis process is to identify the goals. You need to know what you want from the product or service before figuring out how much money you will need to spend. Once you have identified your goals, you need to determine what resources you will need to achieve them. It includes everything from money to time to knowledge.

After you have identified your resources, you need to figure out how much money you will need to spend to reach your goals. This is where the cost of the product or service comes into play. It helps to know out how much it will cost the enterprise to get the desired results.

The final step in the spend analysis process is to make sure that the cost of the product or service is appropriate for your goals and resources. It involves determining whether the price is worth it for what you are getting in return.

Spend Analysis Strategy

There is no one right way to approach spending analysis. However, a few key steps will help you get started. You can either focus on the short term or the long term. You can also focus on budgeting or saving.

Whatever approach you choose, make sure that you stick to it. If you change your spend analysis strategy mid-way through the process, it will be challenging to track the progress and adjust the goals accordingly.

Here’s an overview of each approach:

1. Short-term Spend Analysis

It focuses on how much money an enterprise can spend in a specific period. It is helpful if the organization wants to find ways to save money or increase the budget for a particular purpose.

2. Long-term Spend Analysis

It focuses on how much money an enterprise will spend over a year or longer. It is helpful if the procurement organization wants to plan for future expenses or save for a more extended period.

3. Budgeting

It focuses on tracking an enterprise's actual expenses each month with the aim of finding ways to save money.

The crucial Next Step

Ultimately, an enterprise needs to determine what it wants to achieve with the spend analysis. What does it hope to learn from the data? What are the priorities for the project? Once the goals are determined, the procurement organization can begin to develop a strategy for collecting and analyzing the data. And this data needs to be processed in a manner that it promotes understanding and clear visibility of purchase patterns and trends.


The ideal approach is to use a unified procurement and supply chain software, which keeps track of everything in detail — helping enterprises to better understand spending patterns and decide where and how to best spend the money with the use of data.