Do you know how much, and how often, you spend with a specific supplier?

Most distributors lack comprehensive real-time insights into what they purchase. Accurately presenting spend analysis data is vital to improve negotiations and strengthen trading relationships.

What is Spend Analysis?

Spend analysis is the process of collecting, cleansing, classifying, and analyzing all available spending data that results in a better understanding of how money is spent in the procurement of products. It is the fundamental foundation of sourcing.

Spend analysis attempts to answer:

• What products are being purchased?
• Who are they being purchased from?
• How often are they being purchased?
• When are they being purchased?
• How much did the item cost?
• What amount of rebate did the purchase earn?
• How does the data compare to previous years?

Sources of Spend Analysis Data

Distributors are typically reliant on after-the-fact reports submitted manually by suppliers. This often results in missing or inaccurate data, or the opportunity to take advantage of rebate plateaus.

The best source of purchasing data is EDI invoice data. This not only provides more accuracy, but with solutions like OneAnalytics and OneRebate, it also gives distributors real-time insight into purchasing information and rebate tracking.

Spend Categories

A spend category is the logical grouping of similar items. For example, “power tools” may be considered a spend category.

Once spend categories are set up, line items on invoices that flow through EDI are assigned to appropriate spend categories. Preferably, this task is automated with the help of product information management (PIM) software such as OnePDX and OnePIM.

Once invoice data has been collected, cleansed, and categorized at the line-item level, procurement data is sliced and diced based on a number of key performance indicators (KPIs). Some of the most common metrics include:

• Spend by category
• Number of transactions by category
• Average purchase order value
• Payment terms and conditions
• Rate of payment
• Number and dollar value of claims or returns
• Average delivery time by category

Using Spend Analysis

Successful, long-term negotiations and relationships must be strategic. Too often, we hear horror stories of distributors entering less-than-favourable supplier contracts because they don’t realize how much they’re buying, or they enter negotiations with a “hunch” rather that data-backed reasoning.

Using accurate spend analysis data, distributors can re-establish their leverage with suppliers. 

Spend analysis is most effective when comparing suppliers with competing suppliers within the same category. This is information suppliers don’t have, giving distributors a clear advantage by helping them understand their options during negotiations.

Spend analysis should be a vital aspect of the negotiation of supplier contracts and the maintenance of positive trading relationships. With an accurate, automated, and real-time spend analysis process in place, distributors can ensure they have the best preferred suppliers for each category with optimized terms and rebate programs.