Meaning
Practice of collecting and classifying expenditure data provides the foundation for making strategic procurement decisions. Analysts use spend analytics to identify where money is being spent and with which suppliers the highest volumes occur. This visibility is necessary for finding cost saving opportunities and managing supplier risk across the enterprise.
Data Extraction
Categorizing raw transaction data into a standard taxonomy like unspsc allows for meaningful comparison between different business units. During spend analytics, algorithms or human experts assign each line item to a specific commodity group based on the description in the invoice. This process reveals the total amount spent on items like travel or hardware.
Cost Visibility
Uncovering patterns in purchasing behavior helps procurement teams consolidate their requirements to negotiate better volume discounts. The results of spend analytics show whether a company is using too many vendors for the same type of service. Armed with this information, a buyer can run a competitive tender to select a primary partner and reduce administrative overhead.
Strategic Sourcing
Tracking savings over time confirms whether the procurement department is meeting its financial targets. Continuous spend analytics monitors the impact of new contracts and flags instances where departments are still using expensive non contract options. This ongoing feedback loop allows for the adjustment of sourcing strategies to respond to changing market conditions or internal needs.