Are you in charge of spend management? Are you a business owner wondering how you can gain more precise data on your spending patterns? Or maybe you are just curious about learning new ways to analyze a company’s spending behavior.
If so, then get ready to learn everything you need to know about spend cube analysis.
What is spend cube analysis?
You might not be aware of it, but spend cube is the cool kid these days, and trust us, there are plenty of reasons why. But let’s begin with the basics spend cube analysis is an action, or rather a set of actions used to visualize and analyze a company's spending across a specific group of categories, dimensions, and time frames.
Okay but why is it called a cube?
Well, that name can be attributed to the way data is organized and presented in a three-dimensional cube. While that might sound complicated, the whole goal of performing a spend cube analysis is quite simple: Discover who bought what from where.
In brief, why does spend cube analysis matter?
Procurement professionals can uncover valuable insights about purchasing behavior, supplier performance, and cost-saving opportunities.
The 3 dimensions
Categories
This answers to the what?
Here, you get details about what materials are you buying from your suppliers. Materials are organized into different categories, it could be office equipment, specific services for a project, or raw materials. This dimension allows organizations to identify where their money is going.
Suppliers
The where?
This gives you the opportunity to assess the suppliers you are buying goods from.
Analyzing spending by supplier allows organizations to evaluate supplier performance and identify opportunities for consolidation or negotiation.
Business units
The who?
It identifies which cost centers or end-users within your organization are making purchases.
While we usually consider only 3 dimensions to carry out the analysis there’s an additional factor that’s necessary to keep in mind.
Time: Think of this as the context part, as it represents the time aspect of spending, which can be broken down into months, quarters, or years
Understanding better the spend cube
How do scientists understand something new? Or better yet, how do kids learn how an object functions? By breaking it down into pieces.
For spend management, the spend cube analysis is something quite similar. It creates a space for businesses to match their categories, their suppliers, and business units to obtain relevant spending insights.
Different types of spend cube analysis
Supplier
Supplier spend analysis is key to smart sourcing and managing suppliers. It helps you pinpoint your top suppliers, assess their performance, and see how much you’re spending with each one. The main advantage of this approach is that it guides you to better decision-making about your supplier network, contributing to have better relationships.
Category
How can you know if you are allocating the right resources to the right places if you are unsure about where exactly your money is going? As the name hints, this type of analysis focuses on spending data by category to create more efficient spending strategies.
Tail spend
This one is very useful when you are in need of removing unnecessary spending by providing complete visibility into all purchasing activities, which allows you to identify and eliminate rogue or maverick spending in indirect expenses. Tail spend analysis not only enhances internal compliance but also optimizes the supply chain by facilitating vendor consolidation.
Payment term
Designed to simplify the procure-to-pay (P2P) process, this approach helps reduce waste, fraud, and unplanned spending by analyzing payment trends, purchase order timelines, and approval delays. It also offers valuable insights into cash flow enhancements and potential savings from early payment discounts.
Direct or indirect
Ever wondered if that purchase was really necessary? Well here’s a good solution as it offers clear visibility into all indirect spending, allowing you to quickly review transaction data and make smart choices about necessary purchases. Plus, it helps boost internal compliance, keeping your organization running without problems by reducing unplanned or rogue spending.
Alright, so hopefully at this point you have a clearer understanding of what the spend cube analysis is, so it’s great time to discover why you should implement it in your spending management practices.
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Benefits of spend cube analysis
Visibility
In all honesty, spend cube analysis brings a lot of benefits to any business, but we believe that visibility is at the top of the list, because how else can you know that something should be improved? Spend cube analysis provides a clear view of spending patterns, showing companies areas of overspending or inefficiencies.
Cost saving
We all love saving money, and for companies, it’s even more important, that’s why spend cube analysis is getting so popular these days. Once it’s done, it definitely helps companies to uncover cost-saving opportunities, that you wouldn’t know otherwise.
Risk management
Organizations can use this analysis to ensure compliance with procurement policies and procedures. Additionally, understanding spending patterns can help identify potential risks, for example, excessive reliance on a single supplier.
Performance
Want to make something better? You first need to have an accurate picture of what’s going on. Clear insights into spending, give businesses the ability to set performance metrics and KPIs to track improvements over time.
Steps to perform spend cube analysis
Collect data
The very first step in any assessment is to gather the data you are aiming to analyze, for spend cube analysis you want to collect data that are as free of errors as possible and diverse. Reflecting a precise picture of your spending behavior.
Explore the data
Using data visualization tools or business intelligence software, create a 3D representation of your spend cube. This visualization will allow you to manipulate and interact with the data, revealing insights and trends that may not be immediately obvious.
Evaluate suppliers
Evaluate supplier performance by looking at quality, delivery times, pricing, and reliability. This helps you identify your best suppliers and spot areas for improvement or potential renegotiations. Using data for these assessments can also strengthen your relationships with suppliers.
Identify actionable insights
As you analyze the data, look for patterns and trends. To make this step simpler, you can ask yourself questions like: Which categories represent the highest spend? Does spending change during certain seasons or holidays? Are there opportunities to consolidate suppliers? Once you have answered these questions, you might want to create a full report so the findings can be shared with your team.
Keep on monitoring
Spend cube analysis is not a one-time exercise. Continuously monitor spending patterns and adjust your strategies as necessary. Remember that nowadays businesses operate in a changing world so flexibility is always a necessity.
Challenges of spend cube analysis
Data quality
While spend cube analysis can provide valuable insights, it’s often difficult to find trustworthy data. Common problems include incomplete, inconsistent, or inaccurate information, which can undermine the reliability of your analysis.
Integration problems
Combining data from various sources that use different formats and systems adds layers of complexity. Something that makes it challenging to consolidate data in a way that represents exactly what’s going on with your spending patterns.
Need for defined models
To ensure accurate relationships between different dimensions, it's essential to have well-defined data models in place. Without these models, your data will become a mess of confusion.
Outdated insights
As we mentioned before, our world is changing, and insights from spend analysis can quickly become outdated. Relying on data that’s a year old or more can severely limit your ability to optimize procurement strategies. Regular updates to your analysis are vital for informed decision-making.
Best practices to spend cube analysis
Ensure data quality
Accurate and clean data is crucial for meaningful analysis. The best way to obtain that? Automate your processes, with a digital solution you can rest assured that you won’t miss important information.
Use visualization but in the right way
Data visualization is powerful, but be mindful not to overwhelm yourself and your stakeholders with too much information. Focus on specific, relevant and actionable insights that can drive decision-making.
Make it a habit
See spend analysis as a routine practice, you and your company will be better prepared for any unexpected situation if you are constantly aware of the behavior behind your spending patterns.
Define your goals
If you know what are you looking for from the beginning, you can reduce the time you spend searching. Look for specific, actionable insights from your analysis. Identify areas for cost savings, supplier consolidation, or renegotiation opportunities.
Final thoughts
So, we have discovered that spend cube analysis is a really valuable method for organizations looking to have a better understanding of spending patterns and improve financial performance. Knowing exactly the destination of their money businesses can uncover insights that drive strategic decision-making, cost savings, and improved supplier relationships.
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