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Spend analysis

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How spend analysis can improve your profitability

When you want or need to improve your profitability, it’s often easier to save money by managing costs than by increasing sales. Given that expenses represent an average of 60% of a company’s revenue, understanding those with clarity and precision is crucial.

 

Altesia addresses this by creating a detailed spend map, which identifies:

  • Who is spending on what products and how frequently
  • Where the company’s money is going

 

 

The objective: providing businesses with a holistic and clearer understanding of their costs, allowing them to align expenditures with budgets and make informed business decisions.

What is a spend analysis?

Spend analysis is the process of collecting, categorizing, and evaluating an organization’s spending data to improve cost efficiency and procurement decision-making. It helps businesses gain visibility into their expenditures, identify cost-saving opportunities, and enhance supplier relationships. A well-executed spend analysis provides insights into who is spending, on what, with whom, and why, ensuring financial transparency and strategic sourcing optimization.

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This is why spend analysis is a fundamental tool in any procurement strategy, ensuring that decisions are based on solid data.

Benefits of a Spend Analysis

  • Understand spending patterns Without this clarity on your spend, it’s challenging to grasp where the money is going and to manage the business effectively.
  • Cost optimisation Identify which costs can be reduced and ensure every expense supports your business goals.
  • Risk management Mapping costs and assessing their associated risks builds strong data management and is fundamental to a company’s sustainability.
  • Supplier performance improvement Understanding the costs associated with suppliers is crucial to assess supplier relationships. Adjustments might be needed to better align with a company’s financial goals, or improve operational efficiency.

Difficulties and pitfalls of spend analysis

While spend analysis is a powerful tool for procurement optimization, it comes with several challenges and potential pitfalls.

  • Data complexity & quality issues​

    Managing spend data is a significant challenge, as information is often scattered across multiple systems (ERP, accounting software, procurement platforms), making consolidation difficult.

     

    Inconsistent formats, duplicate entries, and missing information further complicate the process, leading to inaccurate insights. Failure to account for hidden spending, such as maverick purchases, further distorts the analysis.

     

    Additionally, manual data cleansing and classification can be time-consuming and resource-intensive, slowing down procurement optimization.

     

    To overcome this difficulty, envisage investing in business intelligence (BI) solutions that automate data collection, standardization, and visualization, ensuring real-time, accurate reporting.

  • Focus on short term and quick wins only

    One of the biggest risks in spend analysis is taking a short-sighted approach, where businesses focus on immediate cost reductions rather than long-term value creation.

     

    While identifying quick savings is important, prioritizing short-term cost-cutting over supplier relationships, quality, and risk management can lead to higher long-term costs and operational disruptions.

     

    For example, selecting a cheaper supplier without assessing service reliability or compliance risks may result in supply chain instability, increased hidden costs, or missed innovation opportunities.

How we help optimise your spend

Altesia helps clients make data-driven decisions when managing expenses.

 

Our approach is:

  • – meticulous: avoiding the common error of superficiality
  • – holistic: providing a comprehensive view of costs.

This allows businesses to understand the broader context and interactions between expenses and business operations, leading to more effective cost management and informed decision-making.

  • Spend mapping

    Altesia collects, cleans and inventories all relevant transactions and spending data from a company, categorising it into direct purchases (raw materials, equipment, etc.) or indirect purchases (marketing services, consultants, transportation, etc.). This provides a comprehensive view of internal and external expenses, offering insights into spending patterns and areas for optimisation.

  • Analysis of suppliers’ expenses (ABC analysis)

    This analysis provides insights into:

    • Which suppliers are most critical to the business (in terms of business continuity, quality assurance, etc.)
    • Which suppliers generate most spending.

    This thorough supplier analysis allows you to realign relationships and optimise your procurement strategy, for example by automasing less critical suppliers.

  • Risk management

    • In parallel to this internal analysis work, we conduct supplier interviews under a formal mandate to benchmark pricing, challenge cost structures, and assess market alternatives.

    • ESG factors are integrated into supplier assessments, evaluating carbon footprint, ethical labor practices, and responsible sourcing.

    • This provides external validation of procurement opportunities and helps refine potential negotiation strategies.

  • Data analysis and cross-referencing

    Quality of data, ideally over a minimum three-year span, provides a crucial long-term perspective. This enables to:

    • understand cost trends
    • assessing their impact on internal management
    • identify areas for improvement
    • uncover any inefficiencies such as redundant or unnecessary purchases.
    • better plan and anticipate certain expenses to minimise unforeseen costs.

Results of a spend analysis

As an outcome of the spend analysis exercise, we aim to:

  • Determine potential cost optimisation levels, often achieving 10 to 15% savings compared to the past five years.

  • Optimise the supplier management.

  • Reduce the time required for managerial decision-making through a clear, precise, and structured spend analysis.

  • Consequently, help improve profitability and operational efficiency in your business.

 

The deliverable consists of a comprehensive spend map analyzing:​

  • The type of spend:

    • Opex vs. Capex

    • Direct vs. Indirect

    • ABC classification, reflecting criteria such as business value, complexity and volume of transactions

    • Supplier categorisation

  • Strategic supplier mapping, serving as a basis for risk management strategies

  • Contract coverage analysis

  • Identification of quick wins to optimize costs

What we don’t do

  • Here are a few things you won’t see us doing:
    Judge expenses: we don’t judge past spending or investment decisions.
  • Recommend without data: we never makes recommendations without thoroughly analysing past spending and verifying the data.
  • Impose standard strategies: We don’t impose optimisation strategies that do not align with the company’s unique reality.
  • Create tech dependency: We avoid creating a technological dependency, ensuring our recommendations aren’t tied to specific software or tools.

Our goal is to deliver practical solutions that work for you, not just standard advice.