Corporate sourcing and procurement organizations should always look for opportunities to introduce efficiencies, reduce costs, as well as negotiate desirable terms with vendors and suppliers. These opportunities are revealed in a number of different ways, such as demand aggregation, improved supplier performance assessment, assurance of regulatory compliance, determination of rebates and refunds, and identification of noncompliant spend. All of these business benefits can accrue as a result of a process for reviewing and analyzing spend data.

However, few companies have the ability to gain a comprehensive perspective of the products and services purchased and their associated providers. This confounds the ability to identify opportunities for improvement, and wasteful and duplicate spending can continue unabated. The difficulty in gaining this enterprisewide perspective is complicated by a number of factors, such as:

• There are often multiple systems used during the procurement process. With data spread across different data silos, it is difficult to consolidate spend data to provide summarizations across providers, products or commodity types.
• Different vendors and providers use variant product and service identifiers and descriptions. The inconsistent naming and identification introduces challenges when analyzing purchases by product or product category.
• Often, transactional data associated with purchasing is missing important characteristics that are used to influence and inform both the strategic and the operational decision-making processes for procurement.

Even when improvements such as negotiated product prices have been identified, ensuring that the negotiated savings can be achieved in practice require additional visibility into purchasing, supplier fulfillment and delivery data. Yet, according to an Aberdeen Group study, the top challenges for spend analysis include “poor data quality,” “too many data sources,” and “lack of standardized processes.” In essence, the biggest challenges to procurement improvements have to do with information, and the benefits of spend analysis can only be achieved when the spend analysis tools have access to the right data.

In this paper, we look at the business drivers and organizational objectives of a spend analysis program, and then consider establishing performance indicators and associated metrics for managing the efficiencies and realizing cost savings. The paper then reviews spend analysis techniques along with the data management procedures necessary to enable the process. Last, we consider some of the most important challenges and associated techniques for driving a successful spend analysis program.