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Spend analysis or spend analytics is the process of collecting, cleansing, classifying and analyzing expenditure data with the purpose of decreasing procurement costs, improving efficiency, and monitoring controls and compliance. It can also be leveraged in other areas of business such as inventory management, contract management, complex sourcing, supplier management, budgeting, planning, and product development.
Spend analysis is often viewed as part of a larger domain known as spend management which incorporates spend analysis, commodity management, industry spend benchmarking, and strategic sourcing. Companies perform a spend analysis for several reasons. The core business driver for most organizations is profitability. In addition to improving compliance and reducing cycle times, performing detailed spend analysis helps companies find new areas of savings that previously went untapped, and hold on to past areas of savings that they have already negotiated.
There are three core areas of spend analysis - visibility, analysis, and process. By leveraging all three, companies can generate answers to the crucial questions affecting their spending, including:
Spend visibility helps chief procurement officers (CPOs), category managers (retail and wholesale) and senior financial officers to gain insight into what their company buys and from whom, and it helps them realize savings promised by past sourcing efforts. It plays an important role in enabling procurement teams to plan and prioritise their work and is a useful tool for a new-in-post procurement leader aiming to make a positive impact on an organisations costs. [1]
A spend cube is a review of spend data presented as a three-dimensional cube. The contents in the cube are the price and volume of items purchased. Dimensions of the cube usually reviewed include: [2] [ better source needed ]
Automated spend analysis software can be a valuable tool for chief procurement officers (CPOs) at large, global, diversified enterprises, and a useful tool for many others. [4]
In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.
Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual obligation to "procure", i.e. to "ensure" that something is done. When a government agency buys goods or services through this practice, it is referred to as government procurement or public procurement.
A performance indicator or key performance indicator (KPI) is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity in which it engages. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.
Purchasing is the procurement process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between organizations.
In the United States, a group purchasing organization (GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members.
Strategic sourcing is the process of developing channels of supply at the lowest total cost, not just the lowest purchase price. It expands upon traditional organisational purchasing activities to embrace all activities within the procurement cycle, from specification to receipt, payment for goods and services to sourcing production lines where the labor market would increase firms' ROI. Strategic sourcing processes aim for continuous improvement and re-evaluation of the purchasing activities of an organisation.
A purchasing cooperative is a type of cooperative arrangement, often among businesses, to agree to aggregate demand to get lower prices from selected suppliers. Retailers' cooperatives are a form of purchasing cooperative. Cooperatives are often used by government agencies to reduce costs of procurement. Purchasing Cooperatives are used frequently by governmental entities, since they are required to follow laws requiring competitive bidding above certain thresholds. In the United States, counties, municipalities, schools, colleges and universities in the majority of states can sign interlocal agreements or cooperative contracts that allow them to legally use contracts that were procured by another governmental entity. The National Association of State Procurement Officials (NASPO) reported increasing use of cooperative purchasing practices in its 2016 survey of state procurement.
Supplier relationship management (SRM) is the systematic, enterprise-wide assessment of suppliers' strengths, performance and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. The focus of supplier relationship management is the development of two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transactional purchasing arrangement. Underpinning disciplines which support effective SRM include supplier information management, compliance, risk management and performance management.
Procurement software refers to a range of business software designed to streamline and automate purchasing processes for businesses and organizations. By managing information flows and transactions between procuring entities, suppliers, and partners, procurement software aims to cut costs, improve efficiency, and boost organizational performance.
Procurement outsourcing is the transfer of specified key procurement activities relating to sourcing and supplier management to a third party — perhaps to reduce overall costs or maybe to tighten the company's focus on its core competencies. Procurement categorisation and vendor management of indirect materials and services are typically the most popular outsourced activity.
Sustainable procurement or green procurement is a process whereby organizations meet their needs for goods, services, works and utilities in a way that achieves value for money on a life-cycle basis while addressing equity principles for sustainable development, therefore benefiting societies and the environment across time and geographies. Procurement is often conducted via a tendering or competitive bidding process. The process is used to ensure the buyer receives goods, services or works for the best possible price, when aspects such as quality, quantity, time, and location are compared. Procurement is considered sustainable when organizations broadens this framework by meeting their needs for goods, services, works, and utilities in a way that achieves value for money and promotes positive outcomes not only for the organization itself but for the economy, environment, and society. This framework is also known as the triple bottom line, which is a business accounting framework. The concept of TBL is narrowly prescribed, and even John Elkington, who coined the term in the 1990s, now advocates its recall. Indeed, procurement practitioners have drawn attention to the fact that buying from smaller firms, locally, is an important aspect of sustainable procurement in the public sector. Ethics, culture, safety, diversity, inclusion, justice, human rights and the environment are additionally listed as important aspects of SPP.
A chief procurement officer (CPO) undertakes an executive role within an enterprise, focusing on sourcing, procurement, and supply management.
A vendor management system (VMS) is an Internet-enabled, often Web-based application that acts as a mechanism for business to manage and procure staffing services – temporary, and, in some cases, permanent placement services – as well as outside contract or contingent labor. Typical features of a VMS application include order distribution, consolidated billing and significant enhancements in reporting capability that outperforms manual systems and processes.
Business process management (BPM) is the discipline in which people use various methods to discover, model, analyze, measure, improve, optimize, and automate business processes. Any combination of methods used to manage a company's business processes is BPM. Processes can be structured and repeatable or unstructured and variable. Though not required, enabling technologies are often used with BPM.
Procure-to-pay is a term used in the software industry to designate a specific subdivision of the procurement process.
Wireless Expense Management (WEM) is an extension of Telecom Expense Management (TEM) services and is the process of managing enterprise's mobile and wireless devices. However, not only auditing invoices are enough to fully manage the device from procurement to retirement. Corporations need to be able to focus on their core business; the larger the business, the more there is to handle on a day-to-day basis. Businesses with a large mobile/cellular/wireless presence also have the expenses associated with them. These companies need professional Telecom Expense Management (TEM) to help them manage their wireless telecom bills accurately and effectively.
A reverse auction is a type of auction in which the traditional roles of buyer and seller are reversed. Thus, there is one buyer and many potential sellers. In an ordinary auction also known as a forward auction, buyers compete to obtain goods or services by offering increasingly higher prices. In contrast, in a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers underbid each other.
Product cost management (PCM) is a set of tools, processes, methods, and culture used by firms who develop and manufacture products to ensure that a product meets its profit target.
Market Dojo is an e-Procurement software company based in Stonehouse, England. The company was established in 2010 by Nick Drewe, Alun Rafique, and Nic Martin. Alun previously worked at Rolls-Royce before meeting Nick Drewe at Vendigital, whilst Nic Martin came from Attensity. All three co-founders studied at Bristol University. The company's competitors include Ariba, Curtis Fitch, and Scan market amongst others.
Category management is an approach to the organisation of purchasing within a business organisation, also often referred to as procurement. Applying category management to purchasing activity benefits organisations by providing an approach to reduce the cost of buying goods and services, reduce risk in the supply chain, increase overall value from the supply base and gain access to more innovation from suppliers. It is a strategic approach which focuses on the vast majority of organisational spend. If applied effectively throughout an entire organisation, the results can be significantly greater than traditional transactional based purchasing negotiations, however the discipline of category management is sorely misunderstood.