Spend analysis is one of the most important cost-cutting methods used by procurement teams. It can help organizations in identifying the areas in which the company overspends, or in which cost or spend can be reduced. A spend analysis can identify things such as maverick spending, contracts not being fulfilled, turnaround times not meeting expectations, overpayments, compliance issues, costs incurred from late fees or penalties, and so much more.
Procurement teams can use a variety of methods to analyze data and identify areas of opportunity for reducing costs. For instance, doing a should-cost analysis can help procurement understand detailed cost drivers, give a clear view on expected price points and guide future supplier negotiation strategies and broader operations improvement opportunities.
Procurement teams can use the data from spend analysis to formulate strategies such as identifying more cost-efficient suppliers, consolidating orders and suppliers, negotiating volume discounts, eliminating duplicate orders, controlling overbuying by enforcing controlled procurement practices, etc.