Reconsidering spend analysis as a strategic value-add
Spend analysis is an often-overlooked tool that CFOs can leverage to drive strategic value.
Emerging digital CFOs are currently engaged in a strategic game that balances offensive and defensive tactics. On the one hand, technology and data is enabling finance leaders to take a decisive role in identifying growth and opportunities. At the same time, they also need to keep their defensive plays tight.
One of the often-neglected defensive plays in annual budget planning is taking a deeper dive on spend analysis, which is possibly overlooked in favour of viewing the budget as the ‘flag on the hill’.
And yet… it enables CFOs to make data-driven decisions, align resources with strategic priorities, and proactively manage risks, ensuring that budgets reflect real-time needs and opportunities for value creation.
Is it time for CFOs to reconsider spend analysis as a strategic value-add?
What is spend analysis?
At a high level, spend analysis is the process of collecting and analysing the organisation’s expenditure data with the aim of maximising the value of your procurement efforts, improving efficiency and even managing risk.
The primary benefit of spend analysis is that it allows you to pinpoint areas where the company may be overspending or where there are opportunities to negotiate better terms (or volume discounts) with suppliers. It also provides a holistic view of the cost drivers in different departments, which can help CFOs allocate budgets more effectively and in areas of strategic importance.
Finally, it can help identify potential risks in your supply chain. For example, over-reliance on a single supplier may require caution in a volatile operating environment.
In short, spend analysis helps to diversify the supplier base where it’s needed.
Why is spend analysis often neglected?
One of the biggest arguments we hear from Finance teams who aren’t already doing spend analysis is that it seems like it’s incredibly complicated and time-consuming. This couldn’t be further from the truth. With the right tools and systems in place, it can actually be as simple (or as complex) as you want it to be.
You don’t need highly granular categorisation and sub-categorisation of your expenses to start experiencing the benefits. Having 10 categories to analyse regularly will deliver benefits, as opposed to undertaking no spend analysis at all.
Our advice is always to start simple, with fewer categories. The key is making sure you’re categorising your data correctly from the outset, which will allow you to scale your efforts by getting more granular as you start to see results.
We sometimes think of it in terms of the 80/20 rule. When you have an integrated planning tool set up, fuelled by accurate data, the technology will take care of the lion’s share of the grunt work for you. Your team members then add a strategic lens to the decision-making process.
Humans optimise the process
Technology can, however, only take you so far. You still need the skills and experience of your team to make spend analytics a truly strategic endeavour. Let’s consider some examples of why this is important.
Say you have a particular widget that can be supplied by five different external partners, and as part of your integrated planning process the team models various scenarios based on sourcing from each supplier. They might take into consideration factors such as cost and ability to supply the widget to you in the required quantities, within the required lead time.
Your planning tool will be able to recommend a supplier based on various parameters, however this does not necessarily mean it’s the correct supplier for your current purposes. You may also need to consider factors such as strategic relationships – for example, will I save $X by moving to this supplier, but in the process harm my relationship with the incumbent, who is a critical supplier for another widget?
Similarly, the finance team is also required to manage relationships and decision-making within the business. For example, your system might identify Tool A as the preferred choice for the new CRM or HCM, but should you make that decision without collaboration with the Marketing or HR departments as part of the process?
As it stands, only humans can add this highly strategic filter. It’s a great example of the principles of keiretsu in action.
Rethinking spend analysis
Spend analysis can be a powerful tool in the digital CFO’s arsenal, and for many organisations it represents relatively low hanging fruit. While most organisations already do some sort of spend analysis, few take it to a regular tender process due to the associated administrative load. However, by blending technology with human insight, you can turn procurement from a transactional function into a competitive edge by identifying hidden savings and unlocking strategic value.
It’s time to rethink spend analysis and unleash its full potential for a stronger, more agile business.
We are enablers of change and transformation in Supply Chain, Information Management, Financial Planning & Analytics, Management Consulting, Project Management, and Managed Application Services. Contact us to find out more about how we work with your teams or call 1300 841 048.
