What is automated spend analysis?
Automated spend analysis is an automatic digital process that captures, consolidates, and interprets spend data across an organization. It’s used to provide insights into spend efficiency and effectiveness, informing sourcing and purchasing decisions.
It’s typically facilitated through dedicated automated spend analysis software, usually integrated with a wider enterprise resource planning (ERP) system. By automatically extracting data from purchase orders or invoices processed through the ERP, it eliminates the need for manual spend analysis procedures.
The data collected significantly improves spend visibility. It enables organizations to understand patterns, habits better, and weaknesses in the way spend is managed. This information can prove invaluable in helping them improve their spend management, which positively influences their working capital position, approach to supplier management, and overall operational efficiency.
Although a relatively recent technological development, often aided by emerging AI applications, automated spend analysis is fast becoming all but essential for large organizations. The benefits it offers are invaluable in guiding efficiency-driving decision-making, particularly for companies with vast supply chain networks and significant spending requirements.
This is especially true in periods of economic instability or high competition, where optimizing working capital to build resilience against external conditions or investment in growth is a priority. The improved spend visibility and decreased manual responsibility that automated spend analysis offers can form the foundation of better spend management processes.
How automated spend analysis works
Automated spend analysis is typically achieved by integrating dedicated software with a central ERP system. It is often packaged alongside other solutions, like cash flow forecasting or supplier management facilities – features that amplify each other’s effectiveness when implemented together.
Connected to ERP software, automated spend analysis can leverage the live flow of data that results from transactional interactions with suppliers. The process involves the following steps:
- Spend data is collected automatically from purchase orders or invoices. This is facilitated through optical character recognition (OCR) or a similar alternative for maximum accuracy and minimum manual input.
- The data is interpreted and collated by the spend analysis software. Necessary information, such as the amount spent, the supplier, and the date of spend, is normalized, creating a consistent dataset. Spend categorization can also be carried out at this stage, if relevant.
- The spend data is analyzed, resulting in easy-to-understand insights. Typically delivered through a central spend analysis dashboard, these insights are made visible to stakeholders and can be used as the basis for new spend management initiatives or improvements.
The process details will vary between different automated spend analysis platforms, but all rely on good data. Without the proper inputs, the utility of spend analysis software is limited. Therefore, it often goes hand-in-hand with broader digitization efforts. Companies that commit the vast majority of their spending through digital means can reap the greatest rewards.
Benefits of automated spend analysis
Improved spend visibility
The most obvious benefit of automated spend analysis is that the process vastly improves spend visibility. When left to manual processes, spend analysis can become an afterthought or be neglected altogether. Automating it means that better spend visibility becomes the status quo – spend insights will be delivered regularly and without fail.
Because of its digital nature, it’s also fundamentally more accurate than manual spend analysis. There is little room for human error, meaning that the resultant insights tend to better reflect the reality of spend. By implementing automated spend analysis, organizations can have more confidence in the scope of their spend visibility and therefore treat it as a more reliable factor in guiding change.
This improved spend visibility is a means to several ends. It can make clear where working capital is being put to best use and where inefficiencies lie, making it easier to move towards a more effective procurement strategy. It can also highlight instances of maverick spending, highlighting issues with payment controls or unmanaged costs that must be addressed.
Better cash forecasting
Automating spend visibility necessarily involves ensuring that as much spend as possible is digitally trackable. The process of spend digitization doesn’t just unlock the potential to take advantage of working capital optimization solutions like dynamic discounting and ; it also facilitates better cash forecasting capabilities.
Cash forecasting relies on clear and comprehensive payables and receivables data. Improving the quality and quantity of collected spend data covers the payables side. Automated spend analysis makes predicting future cash flow performance easier, provided that historic receivables data is also collected and managed effectively.
More efficient supplier management
Supplier performance is critical to supply chain operations’ overall effectiveness and efficiency. Understanding which supplier relationships contribute most to your business and which are underperforming is essential to make supplier management decisions that improve overall supply chain health.
Automated spend analysis allows you to see spend categorized by the supplier. This information highlights the suppliers you spend most with, making it clear what relationships should be prioritized. It can also pick up on where there is redundancy in your supplier network – several suppliers fulfilling orders for similar products, for instance – which can be valuable when trying to streamline your supplier network for a more efficient procurement process.
How to use automated spend analysis in working capital management
While the insights delivered by automated spend analysis software can be reached through manual processes, the efficiency improvements available by automating the process are hard to ignore.
Spend analysis should fit into your working capital management strategy – playing a pivotal role in illuminating where capital is being spent, who it’s being spent with, and how it could be spent more effectively. When seeking approaches to strengthen your working capital position, improve operational efficiency, or plan for the future, absorbing the insights delivered by automated spend analysis should be one of the first steps.
Particularly when integrated into a centralized ERP system, an automated spend analysis solution can transform the way you approach spend management and bring about a new, more efficient era of business spend.
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