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Spend Analysis 101:

The best spend analysis guide for 2022.

English
 

 Introduction

 The Basics Of Spend Analysis

 Spend Analysis In Procurement

 How To Do Spend Analysis

 Types Of Spend Analysis

 Spend Analysis Dashboards

 Best Practices In Spend Analysis

 Why Spend Analysis Projects Fail

 Spend Analysis Tools

 Spend Analysis Software

 Spend Analysis Reports

 OLAP

 Spend Cube

 Machine Learning Spend Classification

 Procurement Big Data

 About The Authors

 What's After Spend Analysis 101?

DOWNLOAD GUIDE

Updated: Oct 31, 2022

Spend analysis is the practice of analyzing procurement spend to decrease costs, increase efficiency, or
improve supplier relationships.

In this guide, you’ll find everything you need to know about spend analysis and procurement spend
analytics including the basics as well as some hot topics, filled with plenty of examples, infographics, and
best practices.

This guide is for people of all skill levels who want a refresher on the most important aspects of
analyzing procurement spend.

It doesn’t matter whether you’re a CPO or CFO, Head of Global Purchasing, or Category Manager, this
guide is filled with helpful information.

All the key topics are organized into easy-to-follow chapters. You can skip ahead to the most relevant
areas or download the whole guide for future reference as a PDF.
Welcome to Spend Analysis 101!

The basics of spend analysis

Key terms and definitions 

Here are some basic definitions and key concepts to get started.

Spend data (also known as procurement spend data) is information dealing with a company’s
expenditures on goods and services purchased from external suppliers.

Spend data management is the process of collecting, sorting, and managing that spend data.

Spend analytics is the process of collecting, cleansing, classifying, and analyzing spend data through
either dedicated software or one-off spend cubes.

Spend analysis is the practice of analyzing spend data to decrease costs, increase efficiency, or improve
supplier relationships.

FYI: Spend analytics and spend analysis are sometimes used interchangeably, but they are not the same
thing. Without spend analytics, you won’t have the relevant information you need to do spend analysis.

You can think about it like this: spend analytics gets you the information you need, and spend analysis is
what you do with it.

Let's dig a little deeper into the differences.

What is spend analysis and why is it important?

Spend analytics vs. spend analysis

Spend analytics is the art behind spend data management. It begins with the collecting and cleansing of
data. Then, there are the important steps of classifying and consolidating the data, so it’s grouped and
named in understandable ways. After that, the data can be merged with external data, and be ready for
the analysis stage.

With spend analysis, you examine a specific part of the spend data to identify and extract valuable
information that gives you strategic insights. It’s one of the key methods procurement organizations use
to proactively identify savings opportunities, manage risks, and optimize their organization’s buying
power.

Spend analysis is often regarded as the fundamental foundation of sourcing. It is a tool that sourcing
executives can utilize to engineer superior performance. The insights from spend analysis can improve
visibility into corporate spend, as well as drive performance improvement, contract compliance, and
most importantly, cost savings.

Analyzing procurement spend provides a baseline to measure improvements and provides a reliable
reference for deciding strategies to realize short- and long-term savings.
As procurement moves to a more strategic function in the company, spend analysis is its fundamental
strategic technique which establishes a parallel process that guides senior leaders and budget holders in
maximizing value for the organization’s dollar.

Asking the right questions

To extract valuable information out of spend analysis involves pulling together purchase history data to
look at all angles of an organization’s expenditures. This includes considering products, prices,
quantities, suppliers, business units, and payment terms.

 
By following these guiding questions, spend analysis can help you look back at past performance and
help you perform an assessment of future performance as well as trends. These are the basic questions
we are asking when performing spend analysis:

o What are we buying?

o How much have we paid?

o How much have we bought?

o Who are we buying from?

o Who is buying?

o On what terms did we buy?

o How often do we buy?

o When did we buy it?

o Are we getting what had been promised?

o Where were the items delivered to (geographical location)?

o How does the data compare to previous years?

Where does spend data originate? 

Any spend visibility project starts with the identification of relevant spend data sources.

So where do you start?

Here are some of the most common sources of procurement spend data.

 enterprise resource planning (ERP) tools

 general ledger information (i.e., an organization’s financial data) 

 purchase orders
  data shared by suppliers

 risk reviews

 credit ratings

 transaction data

 other internal systems and external sources

Extracting data from multiple sources is a very complex and technical procedure...a topic we can't go
into too much detail on in a 101 course.

If you want to dig even deeper into how we do it at Sievo, you can watch this on-demand webinar on
smart data extraction!

Direct vs. indirect procurement spend

Spend data can be lumped into two big categories: direct and indirect. 

The difference between direct and indirect spend often causes confusion. Let’s review definitions and
examples for both key areas of procurement.

Direct spend in procurement refers to goods and services that are directly related to making products.
Examples may include raw materials, components, hardware, and services related to manufacturing
processes.

Indirect spend in procurement is the sourcing of goods and services not directly related to the
manufacturing of products. Indirect procurement enables businesses to maintain and develop their
operations.

Examples of indirect spend categories include:

 marketing services (media buying, agency fees)

 professional services (consultancies, advisors)

 travel and lodging

 MRO (maintenance, repair, and operations)

 information technology (hardware, software)

 HR-related services (recruitment, training)

 transportation and fleet management

 utilities (gas, electricity, water)

In manufacturing industries, direct material spend covers most of the total spend – sometimes it may
account for up to 80% of the total spend. But what is the difference between direct spend and direct
material spend? 

Spend categories in procurement

Both direct and indirect procurement spend can be grouped into categories, enabling analysis and
management of similar goods or services.

A spend category is the logical grouping of similar expenditure items or services that have been clearly
defined on an organizational level. For example, “information technology” may be considered a spend
category covering both IT software and hardware.

The spend taxonomy is the way a procurement organization classifies spend into hierarchies. One way
to view spend categories is like a tree with many branches for different levels or sub-categories of
spend.
The number of levels in a spend taxonomy depends on the procurement organization’s needs, ranging
from three to six levels of categories and sub-categories.

When designing a taxonomy it needs to be thoroughly communicated and aligned internally with key
stakeholders such as Finance and local/global Category Managers. A clear definition and understanding
of each subcategory in the taxonomy helps in classifying your data accurately.

Accuracy is important because you eventually want to see what you are spending on, how much you are
spending, to whom, and what the scope for cost savings is. Therefore, it is important to be cautious
when creating subcategories that are vague or ambiguous such as a subcategory called ‘Miscellaneous
items’, or subcategories that are not MECE (Mutually exclusive, collectively exhaustive).

There are also standard taxonomies such as the UNSPSC (United Nations Standard Products and Services
Code) which is a common coding system to describe goods and services. It may be used to categorize
procurement spend, but these are often not ideal for strategic sourcing.
Nonetheless, standard taxonomies can be used as a starting point to create an organization-specific
spend taxonomy. To see a full list of the specific codes, visit this page on the United Nations Global
Marketplace website. The generic procurement categories from the UNSPSC are:

o Raw Materials, Chemicals, Paper, Fuel

o Industrial Equipment & Tools

o Components & Supplies

o Construction, Transportation & Facility Equipment & Supplies

o Medical, Laboratory & Test Equipment & Supplies & Pharmaceuticals

o Food, Cleaning & Service Industry Equipment & Supplies

o Business, Communication & Technology Equipment & Supplies

o Defense, Security & Safety Equipment & Supplies

o Personal, Domestic & Consumer Equipment & Supplies

o Services

Spend analysis in procurement

KPIs and metrics

Procurement data can be sliced and diced based on a number of key performance indicators (KPIs), or
metrics, relevant to the procurement organization. They exist to measure the effectiveness and
performance of procurement management. In addition, proper KPIs help you also to identify savings
opportunities, manage supplier risk, and streamline procurement activities across business units.

Typical important KPIs among businesses fall into these five groups:

1. Cost savings

2. Spend under management

3. Supplier performance

4. Operational KPIs

5. Employee related KPIs

Read the complete list of Procurement KPIs

 
Tip: By visualizing KPIs in a dashboard you can analyze and keep track of your performance in real-time.
A dashboard can also help you identify improvement opportunities.

Learn how Sustainability Goals can become KPIs for your procurement organization

Spend visibility

Spend analysis is often viewed as part of a larger domain known as spend management. Visibility in the
spend management area refers to the ability of an organization to have a comprehensive view of the

metrics that drive improved cost savings, process efficiency, and supply-chain performance.

Having spend visibility allows for analyzing past spend which can be utilized for planning future
direction.

Spend visibility goes beyond tracking spending, as it gives both a detailed and holistic picture of how
money is moving through your company. By cleansing, categorizing, and analyzing expenditure
information, consistent spend visibility lets you clearly see information on suppliers, spend, and
compliance.

Say you’re a CEO of a mid-size company, with about 300 employees. Let’s say you’ve run out of paper
and pens. What would you do if you knew that the allocated budget for office supplies was close to
maxed out?

To answer that, you need to determine what portion of your budget for office supplies has already been
spent, and if more can be spent without exceeding the budget. This in essence is what visibility into
spend it.

Without spend visibility — in this case, a real-time count of how much of your budget has already been
spent — most companies would have ordered the office supplies anyway. They would only find out later
that they exceeded the budget for office supplies after finance publishes a quarterly report.

Spend visibility is the cornerstone of superior procurement performance. It provides a view into the core
components of spend categories. Organizations with clearer spend visibility into their sourcing activities
can utilize their reports and insights to drive better performance and make more informed business
decisions. 

Spend analysis benefits

Spend analysis offers procurement organizations several key benefits. Let’s break them down to give
more detail into each of the benefits.
 
Achieve full visibility into all corporate spend

The key benefit that spend analysis can provide to an organization is better visibility and actionable
spend intelligence. Spend analysis offers an organization greater transparency into the amount of
money it spends purchasing materials and services.

It allows the procurement organization to have a look into the core of their expenses and purchases. As
the data needed for spend analysis is often extracted from multiple systems across an organization, a lot
of removal of duplication, cleansing, and classification may be needed before analysis can be
performed. 

Data accuracy and consistency can only be achieved if organizations take full advantage of spend
analysis. Spend analysis not only gives them a more effective way to collect, store, and manage the
enormous amount of data they have but also provides a deeper understanding that can be used to
develop initiatives and make confident spending decisions.

Identify savings opportunities and realize incremental savings

As a sourcing manager, one reason why you want to conduct a spend analysis is to meet your cost
reduction goals. When all the numbers have been crunched, the resulting metrics will show the
spending patterns and the potential savings in several categories.

Depending on the reports conducted, purchasing managers may then be able to cut costs using
alternative products, supplier consolidation, and merging products that were purchased separately into
groups that can be negotiated on and contracted together.

Price reductions can be achieved through contract buying, improved contract compliance, and
reductions in maverick spending. Organizations can also achieve additional savings on indirect items
ranging from office supplies to temporary staffing, contractors, and consulting services.

Streamline and centralize procurement process and other administrative efficiencies

Spend analysis has been proven to contribute to driving cost-effectiveness and process efficiency in a lot
of organizations. Every process from financial reporting to budget preparation will vastly improve with
detailed information organized around multiple dimensions.

A more productive and efficient procurement function conducting spend analysis will build deeper
relationships with fewer key suppliers and need fewer employees for unnecessary delegated tasks.

There will be a significant reduction in cycle time for creating reports and ad-hoc analyses, therefore
reducing labor costs, or freeing up time for more productive work.

Manage risk and maverick spending to ensure compliance

When your spend data is enriched with suppliers’ credit scores and other revenue information, you can
better assess the overall supply chain failure risk of your organization. Good spend analysis data will also
allow you to track and identify suppliers who have non-contracted spend, as well as spend with non-
contracted vendors.

You can identify the categories of spend where there may be too many suppliers with no contract in
place. The risk in the contract is reflected in the pricing, and that can be from a lack of orders being
made or alternatively not being able to scale up fast enough to deliver the volume of goods and services
required.

The reduced contract risk to the vendor often translates into lower costs. Contract compliance
information can drive savings while enriching spend data with supplier risk information helps the
organization in utilizing spend data to avoid supply chain disruptions.

Evaluate supplier performance for better relationship management

The starting point for superior procurement performance and supplier relationships is information.
Spend analysis provides data and insights into the potential value of improved supplier relationships.
Once the organization determines which suppliers offer the best value, it can work with them to
establish more evolved procurement processes and inventory programs.

Procurement professionals can peer into the performance of their suppliers to encourage proactive
supplier development. At the same time, they can root out non-performing suppliers and help boost
contract compliance by monitoring pricing on a continuous basis. 

Scorecards help evaluate suppliers and vendors by capturing metrics that evaluate performance. With
comprehensive spend analysis, more information is available on the amount of money an organization
spends and with which suppliers it spends the most.

This information is useful in contract negotiations and can be used to maximize the money the
organization spends on procurement. When successfully implemented, this reduces the number of
unnecessary suppliers, creating greater value and establishing a more efficient and leaner procurement
process.

Benchmark internally

Spend analysis gives you the opportunity to benchmark your performance internally across business
units in different locations. This paves the way for meaningful comparisons that can be used for strategic
decision-making.

Collecting and organizing spend data together in one place enables you to answer a wider range of
questions such as the average number of vendors or spend by category, and which vendors are
generating the highest cumulative revenues. Understanding this is crucial to set targets for
improvements that are realistic and achievable.

 
Leverage spend data across business units

Data extracted and analyzed in spend analysis systems plays a major role in the strategic planning of the
procurement function. However, other internal business units can also leverage spend analysis to
achieve their business objectives.

For example, the finance department can leverage spend analysis in the same way as procurement: to
gain a better understanding of corporate spend. Finance professionals can leverage spend analysis
systems to analyze data from purchasing card, invoice, requisition, or invoice sources as a means of
generating more accurate accounting reports.

Work collaboratively with other organizations

Each individual organization should develop its own blueprint to deliver savings and efficiencies.
However, working with a group can help generate a more powerful strategic plan. A group of
organizations can decide to make purchases of commonly procured goods and services together to
achieve savings and/or better contract terms.

A collaborative spend analysis project provides the group with the visibility to plan the most effective
time to carry out a joint competitive solicitation for those commonly procured goods and services.
Having a firm understanding of which members of the group are buying those goods or services can
already go a long way towards delivering savings and efficiencies for all involved.

Having all spend data in the same, consolidated format makes it easier to get everything in one place.
This generally has the effect of making your collaborative efforts more strategic. When you can easily
identify common suppliers, you can more quickly see savings opportunities. Collaborative spend analysis
provides the basis for more proactive and strategic discussions with other members of the buying group.

Savings are still a #1 priority for CPOs.

This guide explains the 5 major approaches to cost savings in procurement. 23 different savings methods
are explained, from Hard Savings to Cost Avoidance. In addition, you'll learn how best to identify,
measure, and communicate those savings to your organization.

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How to do Spend Analysis

This brief chapter will provide you with an overview of the steps of spend analysis. While spend analysis
projects vary in shape and size, they typically include six key steps from spend identification to analysis.

Spend Analysis in Six Steps

1. Identify Data Sources

To start a spend analysis, the first step is to get an overview of what spend will be covered. Doing this
allows you to restrict those purchases to just a few key sources.

You can segment your spend into different groups and from there determine all the spend data sources
available from your departments, plants, and business units. Start by identifying the areas of your
business that make significant purchases, such as procurement, finance, and marketing.

2. Data Extraction
Once you have narrowed the scope down, you can now capture your spend data and consolidate all of it
into one central database. Data is usually in different formats, different languages, and different
currencies, so collecting it into one single source might be challenging. There are, however, software
programs available to make this step easier.

3. Data Cleansing 

Cleansing is about detecting inaccuracies and removing corrupt records and redundancies from a set of
data. This includes finding and eliminating errors and discrepancies in descriptions and transactions to
ensure accuracy. Through data cleansing, you can identify which contacts in your database are
incomplete or irrelevant. Typos are removed and missing codes are validated and corrected for up-to-
date information.

4. Data Enrichment

Data enrichment refers to the process of enhancing, refining, and improving raw spend data. It also
includes standardizing the spend data for easy viewing. Enriching the spend data makes sure that all the
header and line-level names and details are accurate and to a specific naming standard. Data is often
missing specific fields, and misspellings and abbreviations are common — as are incorrectly coded fields.

5. Classification

Classification typically involves grouping several suppliers of the same parent company or organization.
For example, Microsoft purchases like Microsoft 365, Azure, and Surface should all be grouped together.
At the same time, you can also categorize the data into meaningful groups (like marketing, office
supplies, software) to identify how and where the business is spending its money.

Unifying heterogeneous spend data into clearly defined categories makes spend easier to address and
manage across the whole organization. Classification is about harmonizing all purchasing transactions to
a single taxonomy, enabling procurement to gain visibility of the global spending to make better
sourcing decisions.

6. Analysis of Data

The last step is to identify opportunities for savings and other procurement improvements. Analysis can
be geared towards investigating all sorts of business problems, such as ensuring that you have
negotiated the best contract deals per supplier, or confirming buyers are purchasing from preferred
suppliers.

With this, you can identify opportunities for reducing the number of suppliers per category and
negotiating better rates. The best probable method for cost savings can only be realized after the
confirmed estimates have been calculated properly. 
Want to see how multiple data sources can coalesce into a single source of truth of your Procurement
data? Watch this 2-minute demo video:

Types of Spend Analysis

There are countless opportunities and insights to discover in your spend data. This chapter will cover six
of the most fundamental procurement analytics exercises you can use.

Tail Spend Analysis

Tail spend is defined as the amount of money that an organization spends on purchases that make up
approximately 80% of transactions but only 20% of total spend volume. Tail spend is easy to ignore but
at a big cost. It is the place where procurement organizations may be leaving money on the table and
utilizing their resources inefficiently.

Tail spend is generally considered low-value purchasing, as it makes up only a small portion of spend
(usually 10-20% of each spend category). However, it is a significantly important area of any
organization’s spend management.

With companies making millions of purchases every year, purchases that are too small or too infrequent
can go overlooked. Procurement teams invest heavily in their core spend areas, but the tail-end remains
a largely untapped opportunity for most companies.

There is little understanding of how much money is involved in tail spend, and even less knowledge of
how to manage it. This can lead to potentially losing millions of dollars annually.

Doing an in-depth spend analysis on tail spend helps encourage compliance and identify maverick
spend, which refers to non-compliant transactions. The most common way of doing this is carrying out a
simple spend analysis, and then ranking the suppliers based on annual spend. The smaller suppliers that
add up to around 20% of total spend are defined as the tail.

 
The figure above illustrates the simplest approach to analyzing a company’s tail spend, which is
calculating the ratios of spend to suppliers at various points along the purchasing range. Here, the Y-Axis
represents spend per supplier ("Total Spend by Supplier") and the X-Axis represents the total supplier
base ("Supplier"), with suppliers ranked in descending order of size from left to right.

So, to the furthest left will be the suppliers where you buy the most goods and services from. On the
farthest right will be the suppliers where you spend the least. The rule suggests that about 80% of your
spend will be in the top 20% of suppliers. Everything else is "tail spend".

Tail-end spend management has been growing recognition and increasing importance within
procurement. Putting a significant effort into it may not only yield potential savings but also reduce costs
and get more spend under management.

A recent CPO survey conducted by the Hackett Group found that most respondents believe tail spend
management can lead to 7+% savings. When there is enough visibility into the tail spend, it is easier to
identify areas that need to be sourced strategically.

Organizations that are successfully managing tail spend often start by segmenting the tail spend away
from strategic sourcing managers, and allocating dedicated resources with the right incentives, tools,
and capabilities to manage the tail.

Supplier Spend Analysis

Supplier spend analysis is the task of identifying the amount of spend coming from critical vendors. It
involves creating a detailed spend profile for each vendor using historical consumption data. Knowing
this can help focus efforts on getting the best value from these preferred vendors and consolidating the
relationships.

Different types of vendor reports visualize spend insights in several ways: by vendor, by category, and by
geography, for instance. Vendor reports enable year-on-year comparison and analysis for data-driven
decisions. Spend can be optimized by identifying and implementing opportunities for consolidation.

There are usually many low-value transactions with multiple vendors across many business units. The
total number of one-off and small value vendors is usually big. Knowing this can help in streamlining and
leveraging spend by identifying contract leakages and maverick spending. The aim is to reduce the
number of vendors in each category.

Every dollar spent is important and savings opportunities can be missed through off-contract purchases.
Vendor spend analysis will facilitate the identification of purchasing trends and buying patterns, as well
as monitoring utilization and spend consolidation of key strategic suppliers.

 
 

Category Spend Analysis

Category spend analysis allows you to explore spend in a defined spend category hierarchy. This is useful
in identifying spend leakage issues.

The first step in doing a category spend analysis is understanding the scope and breadth of the category.
Are you buying similar goods and services from too many different vendors? This analysis is built on
hierarchies, and the spend transactions are categorized into the most appropriate category.

Allocating spend consistently into categories makes the data easier to navigate, interpret, and
understand. When organizations can focus on prioritizing their top spend categories, it helps them
identify and forecast savings opportunities.
Prioritization will allow better negotiations for key spend categories to ensure more favorable contracts
and pricing. By drilling into their spend data, procurement professionals are also gaining a deeper
understanding of their spend categories.

When you have a high-level overview of spend by category, it is easier to identify categories that help in
delivering savings and to realize which projects bring strategic importance to the organization. With this,
you can easily figure out which action to take based on what gives the most impact on staff or
operations, and what the risks associated are. 

Access to detailed information on spend by category gives you the data to determine priorities and
allocate resources to deliver the highest return on investment for the level of effort required.

 
 

Item Spend Analysis

Item spend analysis refers to analyzing expenditure at an item/ SKU level. It takes into account every
individual purchase, classifying each one of them to identify what department it was for and what
supplier was used.

This analysis gives the ability to know whether a specific item is being purchased from various suppliers,
or in several locations and at different item prices. Doing this analysis can highlight the different
opportunities for purchasing in the business and potentially identify spend leakage issues, such as
purchasing from non-preferred vendors and maverick spend. 

 
 

Payment Term Spend Analysis

Payment term spend analysis provides excellent insights for companies to analyze payment practices
and terms within their purchase-to-pay (P2P) processes. It explores the opportunities of leveraging all
possible discounts or interest from the invoice payment process while increasing working capital.

Suppliers may reward early payment of invoices with discounts, but early payment of invoices may also
mean lost interest in working capital. Payment term spend analysis utilizes data and gives a
comprehensive view that enables you to identify unrealized discounts through late payments of invoices
or opportunities to negotiate better payment terms to capture unrealized interest. It also covers the
review of payment patterns to identify practices and activities that are not done properly.

 
 

Contract Spend Analysis

Finally, contract spend analysis tells companies if they are complying with their existing negotiated
contract terms. It analyzes spend with vendors by contract to identify spend leakage through non-
compliant contracts. It ensures that the best contract deals per supplier have been negotiated and that
all the buyers are purchasing from preferred suppliers.

Spend Analysis Dashboards

A dashboard in the software context is referred to as a user interface or view that captures and presents
a holistic view of information about a series of predefined topics.
A spend analytics dashboard is a dashboard that visualizes sets of spend data into charts for the purpose
of analysis. These sets of data are selected based on predefined parameters, business targets, or KPIs.

The benefit of a dashboard is an instant high-level picture of spend data. Spend analytics dashboards are
also referred to as charts or reports in some contexts.

In this chapter, we will cover 9 basic types of spend analysis dashboards used in Sievo. If you'd like to
see a broad overview of all that Sievo can offer, check out this two-minute demo video to see it in
action. 

Spend overview dashboard

Example of Sievo's Spend Overview Dashboard

A Spend Overview Dashboard provides an overview of your spend performance by comparing data of
one selected period to the previous one. In the example above, this view is filtered by year-to-date and
presents the data by three key aspects: category, organization, and supplier.

It shows multiple charts that visualize different sets of spend data. You can see in this example the
distribution of spend by categories (raw materials, indirect, packaging, and undefined), distribution by
organization (Americas and EMEA) as well as the distribution of spend by top 10 suppliers.

With a dashboard like this, you can track the top suppliers by region, spend changes by category,
purchase process developments, as well as supplier count developments.

A proper spend analytics dashboard should be interactive, meaning you can select and filter data
directly on the charts. Depending on what your responsibilities are, you can use a spend analytics
dashboard to gain insights to questions or goals in mind with just one click.

Let’s say you are interested in your spend performance in Americas. You simply select Americas in the
organization chart and the view automatically filters the data by Americas. Now you see a more defined
view of the dashboard covering charts that visualize spend data that was classified to the specific
organization level. 
Below, you can see an example of the same Spend Performance Dashboard filtered by the Americas
region with one click. 

Example of Sievo’s Spend Overview Dashboard after filtering by organization Americas

Supplier Performance Dashboard

Example of Sievo’s Supplier 360° Dashboard

A Supplier Performance Dashboard visualizes all relevant data of a specified supplier, giving you a 360-
degree perspective. In this example, you can see relevant analytics on the top supplier by spend
ranking. 

This provides transparency to what you are purchasing from a specific supplier as well as the relevant
payment terms across business units. By having an overview of supplier spend data, you are also able to
compare a supplier against its peers, gaining insights into performance opportunities.
A Supplier Performance Dashboard is useful in, for example, strategizing supplier meetings to re-
negotiating payment terms or ensuring compliance for better payment terms across all your business
units.

Category Performance Dashboard

Example of Sievo’s Category 360° Dashboard

The Category Performance Dashboard is similar to the Supplier Performance Dashboard, but instead of a
specified supplier, it shows all relevant data of a selected category. With the Category Performance
Dashboard, you can analyze the spend distribution throughout your categories, keep track of purchase
order development, material price development, and see which suppliers your business units are
sourcing from.

The Category Performance Dashboard is especially useful in providing category management insights.
You can identify price opportunities or find materials sourced from a single supplier which may result in
a business risk such as a single point of failure. On top of that, you can track how much was purchased
with or without a PO and assess purchase price development by drilling down to the lowest category
level.

Supplier Base Performance Dashboard

Example of Sievo’s Supplier Tail Dashboard

A Supplier Base Performance Dashboard gives you the ability to analyze data from the whole supplier
base. You can keep track of your top suppliers and identify tail-spend suppliers, giving you transparency
on consolidation opportunities and helping you tackle the tail spend to mitigate risks or create savings.

The Supplier Base Performance Dashboard is great for when you want to do a tail spend analysis but can
also be used for internal benchmarking purposes. You do this by looking at how fragmented or
consolidated your supplier base is in different business units in a single category.

Sourcing Performance Dashboard 

Example of Sievo’s Sourcing Geography Dashboard

 
With a Sourcing Performance Dashboard you can immediately see from which regions your business
units are sourcing. You can also gain transparency into which materials are sourced internationally vs
domestically and evaluate potential regional risks. All this helps you assess and anticipate the impact of
trade or geopolitical turmoil.

A Sourcing Performance Dashboard is useful in managing regional risks as well as identifying where
certain goods or services are coming from. You can for example identify savings in logistics costs from
imported goods by switching to suppliers that are geographically closer.

Process Performance Dashboard

Example of Sievo’s Process Optimization Dashboard

A Process Performance Dashboard shows the areas of possible improvement on small POs/invoices. This
refers to the costs involved in processing transactions. By finding suppliers with small value
POs/invoices, you can potentially gain savings.

It also allows you to see any category differences in terms of the quantity and amount of invoices/POs
expected. When filtering by a specific category, discrepancies between business units or suppliers can
be identified and assessed for strategic process optimization.

A Process Performance Dashboard is useful when you want to analyze invoice and PO counts
development, do an internal benchmark on average invoice/PO values between different business units
as well as find suppliers with small value POs/invoices. These performance insights help you identify
opportunities in streamlining your purchase process.

Price Performance Dashboard

Example of Sievo’s Price Opportunities Dashboard

A Price Performance Dashboard helps you analyze price discrepancies between different suppliers.
When filtering by a specified region, category, and supplier, you can determine price opportunities. A
Price Performance Dashboard allows you to identify such price opportunities globally as well as
regionally, helping you to discover the price range of your specified category.

The price opportunities presented in a Price Performance Dashboard are useful when you are
negotiating for cheaper prices or want to find the cheapest suppliers in a category.

Currency Performance Dashboard

Example of Sievo’s Currency Portfolio Dashboard

A Currency Performance Dashboard gives a proper overview of spend distribution in different currencies
and helps you recognize which categories or suppliers are purchased using different currencies. You gain
transparency on risks associated with different currency purchases such as foreign exchange risks. 
A Currency Performance Dashboard is useful when you filter by a specified category or supplier, as this
helps you to determine materials or suppliers that could get more expensive when the purchasing
currency would strengthen in relation to the local currency.

Custom Dashboards

This chapter has reviewed just some of the basic spend analytics dashboards. The ready-made charts in
the above-mentioned dashboards can give you a great overview with only one click. But what if you
cannot find one matching your goal in mind?

What you will need is a Custom Dashboard, where you can mix and match any dimension, measure, and
chart type for any report you need and slice and dice with any data point you want. This is especially
useful for your presentations.

The image below shows how Sievo's Self Service Dashboard allows you to build reports to meet your
specific needs.  

Example of Sievo’s Self Service Dashboard

Best Practices in Spend Analysis

Now that we’ve covered all the basics, here are some strategies common among organizations with the
most successful spend data management programs.

These best practices in spend analysis come from our close to 2 decades of experience helping
enterprise companies transform their spend data into actionable insights.
1. Classify spend data at a detailed level

Categorizing at the item level proves to be the most effective way to do spend analysis. This not only
provides visibility but also enables more details of all the attributes, enough to do estimates and
comparisons. Aim for at least 95% accuracy.

Higher-level classification has its own benefits, but item-level proves to be more effective as it gives a
precise view of spending with each supplier and for each commodity.

2. Adopt a common classification schema in the company

Organizations should adopt a common internal taxonomy or industry-standard classification schema. For
example, UNSPSC provides a universally accepted metadata layer for organizing and controlling spend
data.

This standardization is key to driving accurate organization and correlation of spend data and to
enabling actionable analyses. Often broader than internally developed classification codes, these
standards allow organizations the ability to map all spend data to a single schema.

3. Pursue a permanent solution versus one-time efforts

Using traditional, labor-intensive procedures and systems is not recommended due to the volume and
complexity of spend data within an organization. External services usually provide a temporary solution,
which requires the organizations to engage with the consultants on a continuous basis to keep data up-
to-date.

Outsourcing also limits the transfer of the process knowledge and expertise to the organization, leading
to dependence upon consultants in the future. Adopting a more sustainable and standard procedure can
help organizations get monthly refreshes of their spend data, and a more efficient operation of
examining the spend categories.

4. Have an automated approach to cleansing and classification

Automated spend analytics solutions capture data classification rules and attributes for a wide range of
spend categories. Because of their self-learning abilities, these solutions can present what the sourcing
experts know into the system. But there will be a need for commodity managers to classify exceptions
from time to time.

Establishing automated extraction routines to aggregate and refresh data on a regular basis allows
accurate and repeatable spend analyses. Automation also increases the frequency of analysis, which is
critical as the business environment is dynamic, with prices changing and contracts expiring all the time.

5. Access all spend-data sources within and outside the organization

There are times when your vendors, suppliers, or other affiliates have better data than you.
Organizations that access spend data from all relevant sources can gather a more comprehensive and
accurate idea of their total spending.

6. Continuously improve and expand the scope of spend data management program
Spend data management is an ever-changing process. Organizations should constantly look for ways to
expand the uses and scope of spend, and their data cleansing and classification capabilities. Conducting
reviews will help identify immediate areas for improvement and illustrate the positive impact that a
particular initiative has on the performance of the organization.

7. Collaborate with IT and other key stakeholders, like finance, in the whole process

To achieve full potential savings, a collaborative partnership between procurement and other business
units must be created, and everyone should be held accountable for results. Leveraging spend data
requires cooperation within the entire procurement organization.

When procurement and finance work together, they can create systems that reliably capture and deliver
real cash savings to management. This in turn creates a positive feedback loop for improving
performance.

8. Define category strategies and measure impact

Develop category plans aligned to the business objectives and key stakeholders with a strategic
approach to maximize value, reduce risk, and effectively manage the supply of goods and services.

These plans should influence sourcing strategies and initiatives. A careful review of these strategies will
assess and confirm their business impact and determine if a revision or repetition is required.

9. Take actions based on data insights to deliver savings opportunities/ savings program management

The data provided by the procurement teams can prove valuable as it generates insights about what the
organization buys and how it makes purchases. These insights and ideas must be implemented into
actual strategies that will drive savings to the bottom line. Act on these strategies and make sure that
they will be translated into savings opportunities.

Why Spend Analysis Projects Fail

Many organizations tackle the problem of spend visibility, but these projects often fail in delivering the
value that was expected initially, despite the significant need that the organization had for effective
spend analytics. Here are some reasons why spend analysis projects fail.
Poor quality data/ dirty data

The most common reason why most spend analysis projects fail is because of the poor quality of data.
There are times when suppliers have better data than the systems the organizations can provide. Many
organizations spend 80% of their time cleaning up data.

Common examples of dirty and inconsistent data include basic hygiene issues like empty data fields and
wrong spellings which can interfere with analysis. An effective spend data classification and analysis
requires detailed information but often has unstructured data within different business systems.

The information is often rife with errors and discrepancies in different departments or missing critical
data fields, such as supplier name, product attributes, or account codes. Part/item descriptions for the
same category might vary significantly, words can be abbreviated, and supplier names may be
misspelled.

Complex and labor-intensive cleansing and classification process

For most large organizations, classifying their billions of dollars of spend is not easy. The problem is not
just in the volume of spend, but the immense sets of spend-related data, which could take years to
properly classify.

However big the challenge of classification, this granularity is necessary to generate value.

Human work hours alone are not sustainable, as it would be impossible to keep up with constantly
incoming data while repeating the same long processes. Other methods like classifying spend data only
at the highest-level commodity class provide insufficient insights and often give inaccurate analysis.

No solution will give you 100% classified data all the time. The key thing is to build in appropriate checks
and balances so most errors can be caught and corrected immediately. Making sure that this is done
consistently will maintain trust in the data and in the classification process and enable the data to be
used consistently for ongoing decisions.

Leaders without a data-driven mindset

The leadership team also has a role to play in why some spend analytics projects fail. Failure may be due
to a lack of agility and continuous involvement or sponsorship by executives in the analytics process.
Many business leaders trust the familiar way of doing things and may resist adopting a more data-driven
approach. 

The top management may not be the people who literally put spend analysis insights into strategic
practice. The management team doesn’t necessarily need to be directly involved in the spend analysis
project, but there must be periodic short feedback loops.

The solution is to adopt a more lightweight approach. Letting them know of project progress will ensure
they see immediate, accumulative results. Getting them in the loop drives better engagement and
management buy-in.

Unrealistic expectations, unclear goals, and misplaced priorities

Part of the reason that many spend analytics projects fail is that organizations rush to accumulate and
analyze as much data as possible all at once and without much of a plan. This usually leads to huge costs
and an overwhelmed team.

Starting big isn’t always the way to go. Beginning the spend analysis process with new robust software
can feel like there are more opportunities than there are resources to exploit them.

Start small. It is not only much more fruitful and lower cost, but also minimizes risk. Some of the most
valuable business insights have been derived from surprisingly small data sets. Starting small also leads
to a clearer path to smarter business decisions and priorities ensuring data analytics success.

Spend analytics is not a one-time project for you to set up and reap the benefits right away. It needs a
plan and must be transparent with immediate, disciplined, and regular feedback loops.

 
Wrong tools or having too many tools to choose from

Spend analysis is a project that should start with the right tools. It is always about understanding what
your organization needs and getting the proper solutions that will address the current situation.

Attempts to do spend analysis incorrectly and without the proper solution will put the validity of analysis
in jeopardy. Organizations should compare their options and weigh the pros and cons of each solution
before deciding.

Most spend analysis initiatives fail to deliver additional results after 12 to 18 months because they have
insufficient or ineffective systems in place. Challenges are daunting and many solutions fail to address all
of them. An organization should ensure that the solution selected addresses all issues and challenges
that are relevant to its own situation.

Lack of skills and user competence

A deep product and domain knowledge are needed for correcting spend data classification errors. This
expertise varies across the company, resulting in different and unpredictable results.

Many organizations put data cleansing and classification duties in the hands of IT professionals who may
not have a complete understanding of the parts and services that require review. There may be a lack of
ability among existing staff to access, organize, and analyze spend data for sustainable use. 

For example, when you do a classification deep dive in some categories, where the knowledge is limited
to a few people, the right expert needs to be associated with the right spend items. If the initial data is
mapped out poorly, repeated efforts may be required before the reports will be useful.

Very often category teams are the ones with the right information, but they are usually not involved.
When this happens, the sourcing analysts might have already missed out on valuable opportunities.

Fear of losing relevance or control of data

Data silos inhibit productivity and waste resources. They can happen for many different reasons,
including cultural, structural, and technological factors. Fears over losing relevance or control are at
their core cultural barriers to effectively spend data analysis.

When you’ve had control of something for a long period of time, it is often hard to let go. Data owners
like the IT team may feel like they have no choice but to share data sets with other departments. More
so when external expertise is brought in to support the data analytics project.

Silos are conquered when technology is contained in a place that lets the owners have access to the
relevant data. We are big believers in the democratization of data, something we’ve dedicated a whole
chapter to in one of our eBooks, Procurement Loves Data.

Too many data sources/ disparate systems

Multiple disparate systems drive complexity and confusion. Spend data is often sprinkled throughout
different systems across the organization, including accounts payable, general ledger, ERPs, and many
others. These employ different classification schemes, making it difficult to extract and analyze.

When there are too many or incompatible data sources, organizations cannot efficiently leverage their
spend analytics efforts in sourcing activities. To reap the full benefits of spend analysis, spend data must
be migrated to one centralized repository in a standardized fashion.

Limited analytics solutions

Using basic spreadsheet applications as primary analysis tools limits the possibilities that analyses can
offer. In-house BI systems are not spend analysis solutions. Some organizations have powerful data
warehouse solutions and a well-equipped IT team who can build their own spend analysis tools by
acquiring report builders, but even the most powerful of these types of solutions have limited flexibility.
This often results in preformatted reports that don’t meet the analysis needs of the procurement
organization.

So, if an organization wants more return on investment and real value from spend analysis, they need to
consider a solution that is built on proper technical foundations and capabilities for the needs of
procurement.

Spend analysis as a one-time effort

Spend analysis should be a continuous process. It is time-consuming but an evolving part of your long-
term procurement transformation. Doing it just once yields only a one-time benefit. Repeated analysis is
often required to identify changes in an organization’s spend and monitor progressive spend against
contracts to ensure that real value is delivered.

Spend Analysis Tools

There are many tools available for analyzing procurement spend ranging from simple Excel Spreadsheets
to advanced analytics software.

Here you can find the pros and cons of each alternative.

Spend Analysis in Excel

Microsoft Excel, though it’s been on the market for over 30 years, is still an excellent tool for making
powerful dashboards that can provide analysis and deliver insights in a timely manner.

A lot of people use Excel to analyze spend data but fail to do so in the most effective and efficient way.
The spend data that is categorized by the supplier or by name is usually found as raw data.
When this data is in an Excel spreadsheet, it provides a company with an overview of its spend structure
and helps it understand which part of supply chain needs to be prioritized.

While doing spend analysis on Excel is doable, most organizations will still encounter issues. For
example, Excel is not scalable for spend data in the hundreds and thousands of rows.

Challenges like over-generalized classification, data inconsistencies and data formatting issues, same
supplier different names, and regional settings causing inconsistency will cause a normal analyst to do
more data cleaning work than actual data analysis.

Even if you’ve been able to do all this properly, it can take hours or even days of work, and you will then
need to update and classify new data each month, which will not be scalable. There are solutions in the
market that have developed technology for just this and provide their service as a cloud solution.

Spend analysis processes run on Excel and Access-based tools don’t benefit from the repeatable process
that spend analysis automation enables. Manual processes lack timeliness and speed of data updates
and refreshes, as well as present the risk of limited reporting and analysis capabilities.

Without the ‘slice-and-dice’ ability of many spend analysis systems (the ability to cut spend data in a
myriad of ways for efficient analysis), the reporting process of the spend analysis function is limited.

Pros and Cons of using Excel in Spend Analysis

Pros Cons

Spreadsheets are within procurement’s comfort Spreadsheets are time-consuming and users spend a
zone. They’re inexpensive and work with templates significant amount of time collecting spend data.
and formulas to aggregate data.
 They become exponentially difficult to manage when
Spreadsheets are good for documenting and
multiple compliance sets and multiple locations are
reporting very simple stand-alone requirements.
involved.

Spreadsheets are not designed to record an audit

It is easy to create data collection tools and simple
trail of accountability and struggle to assign owners
to create charts.
to processes.

They do not deliver automated workflow-driven

No need to extract data from external systems, all
processes and require manual intervention to
data is right at your fingertips.
deliver reports that are more prone to error.

This is not a secure process due to people using

Using Excel, reporting is usually easier and more
email to send updates and creating different
hassle-free.
versions of the spreadsheet.

Spend Analysis with BI Tools

Business Intelligence (BI) tools are a type of application software used to collect, structure, and visualize
large amounts of data. While BI is broadly used for many business purposes, they are a little less flexible
than analytics software. 

Using business intelligence (BI) tools for spend analysis enables companies to have a better
understanding of their costs, which makes it easier to align expenditures with revenue.

Let's look at three good choices for BI tools: Microsoft Power BI, Tableau, and QlikView.

Microsoft Power BI

Power BI is a suite of business analytics tools used to analyze data and share insights. It is a cloud-based
data analysis platform that can be used for reporting and data analysis from a wide range of data
sources.
Power BI dashboards provide a 360-degree view for business users providing them the ability to see all
of the most important metrics in real-time, and usually on different kinds of devices. Users can examine
the data behind the dashboards with just one click. The intuitive tools help make finding answers easier.
The pre-built dashboards and hundreds of connections to known business applications make doing
analysis simple and quick.

Power BI, with all its portals and applications, can unify all of your organization’s data. With better data
management and access, companies can get the visibility and insight they need to improve procurement
performance.

These are some areas of spend that can be addressed:

 Materials (volumes and prices included) that the procurement organization purchased during
this period and if there are any changes within a specific period of time

 The number of vendors whom the company has purchased from during a particular year and the
amount of money spent per vendor in a given time

 The number of transactions done in several stages of the procurement cycle

 The number of requisitions, contracts, and purchase orders processed across the organization
by the buyer and the average value of each transaction

Image source: doc.Microsoft.com

Tableau

Tableau is an industry-leading business intelligence tool that focuses on data visualization, dashboards,
and data discovery. As a leader in the Gartner Magic Quadrant for the past nine years, it is an interactive
tool that provides a side-by-side analysis of spend data with tons of visualization possibilities.
It is very simple for non-technical people to easily create customized dashboards that provide insights
that can be used for company strategies. With its easy user-friendly interface, drill-down capabilities,
and intuitive way of working with data, it transforms the way people use data to solve problems. It also
comes with real-time data analytics capabilities and cloud support.

Tableau provides information easily on relevant questions like who the most profitable customers are,
what they buy, and how much is spent in different categories. You can look at sales by region, segment,
category, and year with just a few clicks and hover over data to see the details instantly. Having easily
understandable dashboards paves the way to more data-driven decisions. 

Also, Tableau Public offers free user-generated templates to visualize your data, like the one shown
below.

Image Source: Pulic.Tableau.com 

QlikView

QlikView is a Business Intelligence (BI) tool that enables a user to create reports and dashboards for any
use case. It is commonly used by business users who consider the power of modeling the data as well as
data preparation before doing the analysis and visualizations/dashboards as a key differentiator.

On top of that, Qlik and its patented associative technology allow a user to unearth relationships within
the various data sources. It also encapsulates the data into compressed memory for faster analytics vs.
other providers who mainly rely on direct connections to data sources. 
Because it offers guided and collaborative analytics, even non-professional users without IT skills can
build and deploy analytics apps easily and quickly. This results in a faster response to changing business
requirements and driving more insights across the organization.

A flexible platform, the QlikView consolidates data from multiple sources to provide centralized data for
high-level reporting. The intuitive click-through dashboards makes it easy for users to understand
hidden trends and gather insights from them.

With QlikView, possibilities are endless for making ad hoc queries because it does not require tedious
defined structures and hierarchies. Effective and accurate decisions are made faster with the right and
easily accessible information available.

Image Source: Qlik.com  

Pros and Cons of BI Tools in Spend Analysis

Pros Cons

Data visualization is easier, quicker, and nicer Data security is questionable

   
 People can make different conclusions from
The ability to manage big data in real-time
the same data
 
 

There might be a need for multiple BI

People can go ‘hands-on’ with the data
applications
 
 

More expensive than lightweight tools like

More possibilities for customization
Excel
 
 

Many solutions are available that can let you operate at

a scale that is right for your organization  
 

The platforms usually give content developers and line-

of-business analysts a more rapid approach to defining,
executing, and saving queries

Spend Analysis Software

Spend analysis software provides a consolidated view of procurement spend including data from
invoices, purchase orders, and other business financial records.

Spend data may be collected from a number of different sources such as enterprise resource planning
systems (ERPs), purchase-to-pay suites, or even shared excel reports.

Compared to the other spend analysis tools mentioned (Excel and BI), spend analysis software is the
most robust tool for performing this type of analysis. 
Spend Analysis Software Types

Spend analysis software is either bought from a specialized software vendor or created specifically for
the needs of a procurement organization.

 In-house solution – a custom software solution that is created for the procurement
organization, either on top of an existing business intelligence solution or as a dedicated piece of
software. Maintenance and upgrades are dependent on the organization’s information
technology resources.

 Licensed software – Software that is sold as a commodity, where a single-use license allows for
the installation of the software for a set amount of machines. Depending on the updated
agreement, larger updates might require a new purchase of a license. Most of the time licenses
are sold as a lump-sum purchase.

 Software as a service (SaaS) –  Software that is sold as a subscription and is delivered flexibly.
Often the software is hosted in a separate location, allowing for centralized management by the
provider. Updates are carried out as part of the software subscription agreement.

Enterprise vs. small business solutions

Spend analysis software comes in many forms, shapes, and sizes ranging from self-service solutions for
small businesses to configurable dashboards for large enterprise organizations.
  Small Business software – is designed for smaller operations with less data. These can be
provided as self-service software, add-ons to ERP packages, or on-premise solutions with limited
need for configurations or custom data processing steps.

 Enterprise systems – are designed to handle a large amount of data and provide deep and
bespoke insights from the organization's different source systems. Enterprise-level software
deployed with larger software deployment projects is increasingly sold and maintained on the
cloud under a Software-as-a-service (SaaS) model.

Where is spend analysis software data hosted?

There are a number of options for hosting spend analysis data ranging in complexity and resources of
the team conducting spend analysis.

 On-premise – Software installed inside a private user network and operated on a server location
managed by the procurement organization. Updates are performed on a case-by-case basis,
depending on the software license agreement scope. On-premise installations also include local
installations of software.

 Private cloud – software is accessed via a thin client or a web browser, while all the essential
elements are hosted in a private cloud server maintained by the spend analysis software vendor.
A cloud server is a centralized system that can be scaled according to load and demand to
provide centralized software deployments.

 Public cloud – Similar to private cloud hosting, but data is hosted on public cloud services, such
as Amazon Web Services (AWS) or Microsoft Azure.

How to compare spend analysis software

With dozens of different types of spend analysis software to choose from, it may be challenging to
compare different alternatives. Popular ways to evaluate alternatives include:

o Seeking expert advice from procurement consultancies or management consultancies.

o Reviewing customer reference cases or interviewing existing customers of different

software vendors.

o Investigating independent analyst benchmarks or reports, such as the Spend Matters

SolutionMap for Spend and Procurement Analytics.

o Conducting a spend analysis request for proposal (RFP) with a detailed list of questions

for a shortlist of possible software solution providers.

o Developing a proof-of-concept (POC) where one or more vendor is given a set of spend

data to analyze with a limited scope and time period. In cases where spend classification
speed or quality is an issue, POC can help identify suitable alternatives.
Master the 7 steps of the RFP process

This free guide is based on our research into the most well-structured RFPs we've received, containing
hundreds of different types of questions. We created this comprehensive guide for establishing a best-
in-class RFP for Spend Analytics based on our practical learnings.

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Spend Analysis Reports

Now that we have covered all the basics, including what spend analysis is and how to do it, it's time to
look at the outputs: spend analysis reports. 

To get a good idea of how spend data visualization looks in action, here are numerous examples.

Pivot Table 

Pivot tables are a convenient way to build intelligent, flexible summary tables. Unlike basic tables which
only have rows and columns, pivot tables quickly summarize the information (e.g., totals, averages,
count, etc.). In the example below, a simple pivot table of supplier count by product category provides a
good overview of where raw materials are being purchased. 
 

Bar chart

The most basic graphical report is a bar chart, which shows relative amounts of a numerical value
visually. As a reporting metric, the small ticks are added on top of the bars to compare the spend to the
previous year. This example shows the user spend by category compared to last year. 
 

A stacked bar chart adds together multiple values, as in the example below. A stacked bar chart helps
the user quickly see the relationship between spend development with PO and without PO. 
 

Line Graph

Line graphs are also simple but effective spend analysis reports. They are usually effective in
representing change over time. For instance, the line graph below can tell the user at a glance that June
has the highest invoice-to-due average. 
 

Pareto Chart

In spend analysis, Pareto charts are very useful in opportunity identification because they visually show
the 80/20 rule: 80% of the spend is accounted for by the top 20% of suppliers (in the example below, it's
closer to 3%!). Keeping an eye on this supplier Pareto chart can tell procurement how heavily they rely
on their key suppliers. 
 

Sankey Diagram

A Sankey diagram is an at-a-glance representation of categorical breakdowns. The thickness of the lines
changes as categories merge. Starting on the left at the thinnest level, the subcategories converge and
form a larger category. In the example below, you can see the split of payment terms between the two
organizational regions. 

*By the way, in your spend analysis software, you can also view and zoom in on each thin line to see
what's going on.  
 

Map report

A map report is a chart type that shows spend on a geographical map. Map reports are usually
interactive, so clicking on a particular country or geography will open a specific chart into which the user
can further drill.

Map reports show hotpots and can be used to determine any type of country or region-based factors.
 

Treemap report

Treemapping is a method of visualizing hierarchical data with proportionally sized squares. For spend
analysis, this plot shows relative spending by the size of a block.

Treemaps can be very sophisticated and interactive. They are also very powerful for visualizing the
relative spend across a single dimension such as commodity, suppliers, etc.

 
 

Waterfall Chart

Finally, the waterfall chart is used to show the cumulative effects of positive and negative values. This
type of chart is commonly referred to as a "bridge" in finance. 

In Seivo, we've created a special chart for finance and procurement use called the SavingsBridge™.

 
 

Congratulations!

You've reached the end of essentials from Spend Analysis 101! 

If you feel like learning more, below are some condensed articles on more advanced topics to get you
started down your future Spend Analysis learnings. 

Be sure to check our resources tab for other in-depth guides, eBooks, and reports.

 
 

OLAP

OLAP (Online Analytical Processing), is the traditional approach used when resources are scarce, as it
provides the ability to do a multidimensional analysis of data and to make the complicated calculations
into consideration. As the foundation for many kinds of business applications, OLAP enables end-users
to perform ad-hoc analysis of data in multiple dimensions, thereby providing the insight and
understanding they need for better decision-making.

The OLAP engine is the core feature of Spend Analysis modules. It is the enabling technology that
provides answers to the most analytical questions in spend analysis and enables users to easily extract
and view data from different points of view. The OLAP capabilities of your spend analysis vendor can be
categorized based on whether the product is endowed with its own OLAP engine or it relies on third-
party analytical services- and therefore it only acts as a presentation layer on top of the third-party OLAP
engine.

Providing a multidimensional conceptual view of data is one powerful key feature of OLAP. Covering full
support for multiple hierarchies, allows users to analyze database information from multiple database
systems at one time. Every data attribute is considered a separate dimension in this multidimensional
database. This includes the product, time range, or even the sales location. The information can be
compared in many different ways. Moreover, attributes such as time periods can be broken down into
sub-attributes.

 
Spend Cube

The spend cube is a unique way of taking a look at spend data, where the data is projected as a
multidimensional cube.  The three dimensions of the spend cube are suppliers, corporate business units,
and category of items. The dimensions could include subcategories of the different units across the
organization, from suppliers, categories, and cost centers.

The spend cube is typically the final output of a spend analysis process. It allows you to look at all of the
analyzed data from a variety of angles. A spend cube is usually needed if a company is not managing the
full percentage of expenditures across all business units. 

The 3 axes represent Category (What you are buying), Cost Center (Who you are buying it for), and
Supplier (Who are you buying it from).  These are the three legs of the stool – if any one leg is not there,
the entire model falls apart.

Each axis of this cube contributes critical information. Category analysis tells what specific types of
goods and services you buy. Cost center analysis reveals which functions (or end-users) within your
organization drive the demand. Supplier analysis tells you which suppliers you’re buying from. One
benefit is knowing if expenditures are scattered or cumulative, or if suppliers have simultaneous
contracts with different units in the organization.

Once you’ve got this data together, you can set your strategies. You can slice and dice data to analyze it
from many different directions.  This ensures that you have just one sourcing strategy and not hundreds.
Getting this data on hand lets you decide which high-spending end-users to align with, and which
suppliers you want to target for renegotiation.
 

Machine Learning Spend Classification

Some of the greatest recent advancements in procurement spend analysis involve machine learning in
spend classification.

Machine learning (ML) is the field of artificial intelligence where computer systems are given the ability
to learn from large amounts of data without explicitly being programmed.

In the context of Procurement, machine learning techniques can be utilized to classify spend more
accurately or efficiently than data classified by human practitioners alone.

Curious about AI in Procurement? Look no further than our complete guide!  

Examples of spend classification techniques include:

 Supervised Learning in Spend Classification – when humans train algorithms to detect patterns
in spend, removing dull work of repetitive new spend classification.

 Unsupervised Learning in Vendor Matching – when algorithms are programmed to detect new
and interesting patterns in vendor relationships without intervention or support from humans.

 Classification Reinforcement Learning – where spend classification actions taken by algorithms

are reviewed by humans and rewarded or punished depending on the consequences.

While machine learning techniques can prove highly effective within procurement spend classification,
human input is still required to capture category and customer-specific knowledge.

Example of unsupervised learning – vendor matching:

 
 

Procurement Big Data

What is Big Data?

Big Data describes extremely large sets of structured and unstructured data that can be mined for
information and analyzed through complex data-processing techniques. The data can be collected from
a number of internal and external sources and stored in Big Data repositories.

Internal Data Assets

Internal data assets typically refer to data gathered from an organization’s own IT infrastructure, such as
the enterprise resource planning (ERP) systems, but can include data provided by suppliers, or collected
through ad hoc processes using Excel or Sharepoint.

External Data Assets

Any data that originates from outside of an organization's existing IT framework can be considered
external data assets. This includes data publicly available on the Internet, 3rd party proprietary assets,
and data enriched and anonymized by external organizations.

Procurement Big Data

Procurement Big Data refers to the adoption of Big Data techniques and technologies within the
framework of procurement performance optimization. In the context of procurement analytics, Big Data
tools and techniques can be used to collect, organize and analyze internal and external data to identify
savings opportunities and other value-adding activities.

About the authors

This guide is created and regularly updated by a team of procurement AI enthusiasts at Sievo. You can
find out more about what we do in the video below. 

We’d love to hear what you think about this guide and how we can improve it in the future. You can find
us on LinkedIn and Twitter or reach out to us through our contact form.

About Sievo

We are the procurement analytics solution for data-driven enterprises. 

We give procurement, finance, and leadership teams a single source of truth and radical transparency in
all sourcing decisions. Our solution helps you choose the right suppliers, deliver savings and manage
compliance with confidence. Not only that, we enable a sustainable, diverse, and resilient supply base.

We master the art of extracting, classifying, and enriching data across all ERPs, procurement systems,
and external data sources, saving your valuable time.

Simply put, we’re pretty damn good at turning even the crappiest data into actionable insights!

We’ve pushed the boundaries of spend analytics for two decades – and we’re just getting started. We
bridge the data-to-action gap and power agile procurement by combining AI with procurement
expertise. 

Procurement organizations need an analytics partner they can trust. We’re large enough to deliver,
small enough to care.

If you would like to learn more about Sievo you can request a free 30-minute demonstration with one
of our product specialists.

Read more:

 Key Terms and Abbreviations in Procurement

 Tail Spend Management in 5 steps

 How to select a spend taxonomy | Spend data categorization

 Everything you need to know about supplier negotiations

 Direct procurement and direct material sourcing

 Key differences between direct and indirect spend management

 What is spend management and why is it important?

What's after Spend Analysis 101?

Explore our other guides to dive deeper into procurement topics!

Sustainable Procurement 101

Sustainable procurement positively impacts the planet, profit, and people. Learn how to make a
sustainable procurement policy! 

READ GUIDE

Procurement Analytics Demystified

This guide covers how procurement data can be extracted, refined, and analyzed for actionable insights
and value.

READ GUIDE

AI in Procurement

The Ultimate Guide for Procurement Executives including Definitions, Examples, and Best Practices.

READ GUIDE

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