A spend analysis will enable you to ascertain what your institution is procuring. You will be able to understand who within your institution is spending:
How much
On what
With whom
Over how many annual transactions
Spend analysis delivers several benefits:
It improves management information
It allows the identification of expenditure patterns as well as suppliers and prices for basic high-volume, low-cost items such as fuel, catering and stationery
It helps institutions to prioritise procurement tasks to maximise opportunities for savings and efficiencies
Spend analysis can be analysed in terms of ‘categories’ – a collection of related supplies and services such as IT and sub-categories which, in this IT example, would include: laptops, mobile devices, software, consumables and printers.
Spend analysis helps identify the top suppliers together with areas of procurement that are: weak, inefficient, costly and which do not conform to the agreed use of contracts.
A spend analysis involves looking at:
The number and range of suppliers used
The number of transactions conducted
Spend for individual categories and sub-categories
Procurement methods used to source the contracts awarded
Essentially telling you who, is spending how much, on what, with whom, and how often.
Once spend analysis is complete, a plan for each category of spend can be developed before selecting the appropriate sourcing and procurement model, such as obtaining three quotes, or sourcing through a framework. Analysing expenditure by type, value and procurement method leads to a clearer understanding of how to reduce prices and transaction costs most effectively. This information can be refined and developed on an ongoing basis to obtain the best possible quality management information. A spend analysis becomes a useful tool for managing suppliers through reviewing their performance against data provided in-house or by consortia or external benchmarks.
Key reports you will be able to obtain from your spend analysis include:
Top suppliers by spend
This report should be run on at least an annual basis. The suppliers at the top of this list should be added to your contracts register to record if a contract is in place, what efficiencies have been achieved with this contract and when that contract is up for renewal. The key considerations for this area are achieving value for money (VFM) and whether you have a compliant contract in place based on your institution's terms and conditions.
Your top suppliers by number of transactions
This report should be run when tackling process efficiencies within your institution. The suppliers that head up this list should be targeted for invoice consolidation, procurement card payment and e-invoicing.
Your top suppliers by commodity code
This report is important for identifying spend fragmentation so that opportunities to pull spend together and reduce the number of suppliers used by your institution can be realised. This is also an important report for identifying contract compliance as it is the amount spent on ‘similar’ supplies and/or services being bought that also triggers compliance with the Procurement Act as well as the amount spent on an individual contract with an individual supplier.
For a more detailed dive into this area, there is a Guide to Spend Analysis and a Spend Analysis Template in the Plan section of the Procurement Toolkit.
If you do not feel you have the right expertise in-house, ask an external specialist to conduct the initial spend analysis for you, such as Crescent Consultancy. This service, which involves taking data from your finance system and re-presenting it in a format that allows it to be manipulated and analysed.
School / MAT members - the information on this page aligns with the following ISBL Professional Standards: 3.1, 3.2, 3.3, 3.4