All About Spend Analysis Automation

Spend analysis is vital to the success of every business, and analyzing it provides you with the valuable data needed to inform strategic business decisions. It can help you identify opportunities for cost savings, improve your vendor relationships, increase efficiency, and help you understand exactly where your company is spending money.

Spend analysis can be done manually via spreadsheets or with automated spend analysis software. Manual spend analysis is tedious and time-consuming, especially as the size of your company and its volume of transactions grow. Automated solutions, on the other hand, can help drastically reduce time spent on manual work, while providing higher-quality data and results.

How Does Automated Spend Analysis Work?

Automated spend analysis works by compiling spend data from various sources, such as your ERP system, the general ledger, or purchase orders, and organizing that data into user-friendly spending dashboards. The information in a dashboard can be high-level data, or it might be broken down into more specific classifications such as location, department, expense category, or vendor. Before performing spend analysis, either manually or with automation, you’ll need to identify your data sources and scope, as well as the metrics and KPIs involved.

1. Extraction

Spend analysis begins by extracting raw data from each source and combining it into a centralized database. Given the volume and variety of data formats available, it may be necessary to clean the data before extraction to make it acceptable for use in the software. Data cleansing might include translating international currencies or phrases and converting data formats.

2. Consolidation

The consolidation phase of spend analysis involves a deeper dive into data cleansing to create high-quality datasets. This process ensures that data fields are in the same format, incomplete or erroneous data are identified and corrected, and duplicate entries are removed or excluded. Accurate and complete source data is essential in order to generate valuable spending insights.

3. Aggregation

Data aggregation generally refers to the process of taking a multitude of data values and summarizing them into a singular data point. During the aggregation stage of spend analysis, this could mean combining line items for transactions from the same vendor with different names. If data has been extracted from multiple sources, there may be differences in the vendor name due to typos or bank feed inconsistencies.

4. Transformation

Before any spend data can be analyzed and presented to the user, it needs to be mapped to the appropriate spend categories via classification rules. This process creates a unified taxonomy of hierarchical spending data, enabling the software to examine all relevant data across various classification levels. For example, the software could categorize a particular transaction as one of the following: Indirect Spending, Professional Services, Accounting, or Auditing. The transaction will be included in the analysis of any categories assigned to it.

5. Sharing

The final stage of spend analysis involves analyzing and presenting the data for users and decision-makers to interpret and identify areas for improvement. Usually, automated spend analysis results are presented visually via charts, graphs, or tables, and organized in a secure dashboard. Spend analytics dashboards are often interactive, allowing users to drill down into more specific details, which can streamline decision-making.

Benefits of Automating Spend Analysis

Improved Quality of Analysis Results

Automating spend analysis helps ensure that the results generated are more accurate and error-free than those surfaced by a manual process. Automation software is significantly more effective in gathering and preparing data for analysis than any manual process.

Enhanced Spend Visibility

Spend analysis software helps you identify unnecessary spending, uncover cost saving opportunities, and see where you can get better vendor rates. Automated spend analysis enhances spending transparency, revealing clear patterns and aiding in strategic planning. It can also play a vital role in optimizing tail spend management.

More Informed Spend Forecasting

The ability to see trends in spending data across different departments, locations, or specific categories can help you forecast expected spending and cash flow needs for the future. Automated spend analysis can help you plan much more accurately for months or even years at a time.

Enhanced Reporting Capabilities

Automated spend analysis software lets you customize the results displayed on the dashboard through filtering, sorting, and interactive features. You can view spend data at a high level or instantly break it down to the category or transaction level. It can analyze data in real time, and easily display different kinds of reporting and metrics.

Better Risk Management

Your company can manage and minimize risk by using the customized reporting available in the spend analysis dashboard. These metrics can help you identify potential product or material sourcing inefficiencies and fraudulent or non-compliant spending.

Greater Efficiency

The insights delivered by spend analysis can considerably improve the efficiency of the procurement process and reduce the hassle of manual work for finance teams. Automated spend analysis provides actionable insights by highlighting vendor and product overlap, employee overlap, and areas of redundancy. When combined with accounts payable automation, it can free up your accounting department to focus on more strategic priorities.

More Control Over Company Spend

You can significantly improve internal controls related to company expenses when you’re able to take action on the insights offered by spend analysis. Your company can monitor and control employee spend in real time and reduce your cash burn rate.

The Bottom Line

Aside from saving time and improving the efficiency of your finance team, automated spend analysis can help you significantly reduce costs. By streamlining spend data collection and surfacing it in real time, you can get a more accurate picture of your company’s cash outflow, implement better internal controls, and identify areas where you might be able to spend less.

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