Companies need to wake up to the impact of efficient spend analysis in influencing intelligent business decisions.
What is Spend Analysis?
Spend Analysis is the process by which unstructured expense data or procurement data (from your finance systems such as Oracle or SAP) is structured into a defined taxonomy to not only keep a track of your organization’s expense pattern but also to draw meaningful insights and patterns in the data and build effective sourcing plans.
There are three core areas of spend analysis -Visibility, Analysis, and Process.
By leveraging all three, companies can generate answers to the crucial questions affecting their spending, including:
- Where is the money being spent?
- Which 3rd party providers I am spending the money on and what am I buying?
- How can I optimise the current landscape?
Here are some recent examples of how spend analytics delivered significant benefits to various organisations of a different type, size and complexity:
In a leading UK financial services organisation, spend analytics highlighted a number of software being used for the same purpose by different departments/business units and once this information was reviewed by their CIO, a major software rationalisation programme was launched. Not only it helped save the organisation some money on software license spend, but it also reduced the management overhead of maintaining multiple platforms.
In another organisation, once the CFO reviewed the operating expenses as provided by spend analytics, he realised that for a particular business unit it wasn’t very profitable to run with the current cost model; therefore, the CFO triggered a divestment initiative and sold off the business unit. The money received from the divestment was then pumped to deliver some major digital transformation programs to help the organisation gain a competitive advantage and market share.
A large multinational manufacturing company subsequent to getting output from the spend analytics platform realised that they were blocking significant cash every year to pay for end-user device purchase as part of their 3-year refresh policy. The CPO explored the option of the device as a service (DaaS) and the existing assets were sold to the DaaS provider at book value to free up cash for leveraged activities.
Pots COVID, organisations are looking to restart their operations in a transition to the next normal. They are looking out for the most promising opportunities to improve their efficiency.
Example of Spend Analytics Dashboard
Several organisations are coming up with strategies to restrict unwanted spending by adopting spend analytics software to analyse financial / spend / invoice data.
The analytics platform not only gives you a dashboard but also enables monitoring trends by integrating real-time data feeding.
What are the Ways in which spend analysis data influences business decisions?
I think the answer is very simple if we consider the following scenarios in any organisation and the application to spend analytics to fast track the process:
- Cost Out – As a CFO or another member of the executive management, you see costs rising. Therefore, there is an urgent need to make savings and free up working capital but don’t have the full visibility to quickly understand where the cost-saving opportunities are. Spend analytics can come to your rescue to provide that visibility to identify cost-saving opportunities!
- Shareholder returns optimisation – When investors trust your company with their hard-earned money, they would like to get attractive returns on their investments. Therefore, as an organisation you need to gain confidence to explore opportunities and maximise RoI, but a lack of a single source of truth for your underlying operating expense can be easily overcome by deploying a spend analytics platform that can help you classify your unstructured data into meaningful insights.
- Strategy development – As part of your executive management team, you aim to develop your business, understand the client landscape and provide actionable strategic insights but you are faced with a heterogeneous landscape of ERP/ Finance/ P2P platforms and struggle to bring data under one hierarchy, then once again intelligent spend analytics can be effective to classify your data into a structured taxonomy/hierarchy for decision making.
- Transformation – As a CIO or CTO, you have a task to identify opportunities and enable digital transformation; however, the stumbling block in most cases is that you do not have the visibility of the current state including key suppliers, software products, etc. From experience, I can say confidently that getting an accurate view of your spending can help drive IT and digital transformation initiatives.
- Streamlining your supply – As a head of procurement, one of your biggest challenges would be to streamline your supply base but the first hurdle is poor visibility of interdependencies and costs. To add to your problems, business owners do not feel accountable to terminate or consolidate suppliers. In such a scenario, building a category view to drive category strategies drives significant value to the organisation.
To conclude, it is evident from experience that organisations will have increased demand for a more analytical and automated approach to managing their operational expenses (OPEX).
With the ever-evolving technologies, features such as artificial intelligence (AI) and machine learning (ML) can be used effectively to automate data scrubbing and data classification based on pre-defined taxonomy.
But the key point to note is that the use of data analytics is not a one-time or periodic activity, but more importantly to have the ability to continuously review and analyse transactions in near real-time.
In this way, automation tools can identify patterns of spend behaviour and deliver actionable insight to help guide the leadership team to take timely actions.
With Covid-19 acting as a catalyst for digital transformation, embracing data analytics as a tool to mitigate spend risk will be an important part of organisations’ efforts to strengthen financial positions at a time when market volatility demands it.
Spend analytics will no longer be a nice to have but a must-have capability for all organisations.