Different organizations might use different ways for spend analysis based on their own demands and variables. The most common approach to perform spend analysis is as follows:
- Procurement teams must first identify the source of spend.
- Acquire and consolidate the relevant data.
- Eliminate errors by cleaning the gathered data.
- Perform grouping or segmentation of suppliers.
- Categorize and analyze the spend data.
- Study Purchase Price Variance (PPV) across suppliers and regions
- Look at cost as well, if you have the required data
- Analyze variables that impact spend such as logistics, payment terms, where and when you buy, volume discounts etc.
- Repeat the above process whenever spend analysis is being performed. Ideally, this should be a periodic exercise that feeds your overall procurement strategy.