An important aspect of spending analysis is vendor evaluation.
Spend analysis is a method used by businesses to track how the business spends money, with the ultimate goal of decreasing spending. Information about suppliers, purchases, and orders is organized and analyzed for patterns. Due to the large amount of information involved, most companies use specialized software to perform expense analysis.
Information about vendors, purchases, and orders is organized and analyzed for patterns in a spend analysis.
The process of data collection and analysis is more difficult than it seems at first glance. For spend analysis to be effective, all aspects of a company’s spending patterns must be considered. This information is generally stored in discrete computer systems within each division of the company. Divisions can be separated by distance and language. Collecting all this data and organizing it into a usable format takes a lot of time and money.
Much of the complexity can be removed by using software to facilitate expense analysis. The first expense analysis software was created in the early 2000s. Although still very expensive, the software eliminates the need for human labor and creates an easy-to-access interface to the resulting information.
The software works by extracting data from existing record keeping systems. These can be simple spreadsheets, warehouse data, or other sources. This data is then cleaned, which means the format is standardized, duplicate records are merged, and missing details are found. The software then classifies the data according to industry standards and company-specified standards. Procurement specialists can access the data for reporting and analysis.
An important aspect of spending analysis is vendor evaluation. Spend analysis can show which vendors earn the most money from the company. The company may use this information to negotiate better deals or to renegotiate contracts. Most companies have preferred vendors, vendors that offer the best service or discounted prices for bulk purchases. Analysis may reveal that supplies or services currently purchased from a non-preferred vendor can be purchased from a preferred vendor for less.
The business may also purchase similar supplies or services from various vendors. This is known as fragmented merchandise. Money can be saved by making one large purchase from a single vendor rather than a series of small purchases from multiple vendors.
Expense analysis also helps identify separate expenses. This occurs when purchases are made that are not covered by the contract. Without a contract, the company pays full price instead of the negotiated price specified by a permanent contract with a preferred supplier. This type of expense can cost a business a lot of money over time.