What is Spend Analysis in Procurement?

Key takeaways: What you need to know about spend analysis in procurement

• Centralize spend data to gain full visibility across your tech stack – including shadow IT and untracked purchases.
• Classify and analyze expenses by supplier, category, and contract to identify duplicate tools, underutilized licenses, and rogue spend.
• Benchmark pricing and usage against industry standards to uncover overpriced vendors and overlapping tools, creating leverage for negotiation and consolidation.
• Drive data-backed decisions by optimizing contracts, eliminating waste, streamlining approvals , and enforcing tighter budget controls.

What is spend analysis in procurement?

By definition, spend analysis in procurement refers to the process of collecting, classifying, and analyzing a company’s expenditure to reduce procurement costs, improve efficiency, and uncover opportunities to demonstrate value as a function.

It ultimately turns purchasing data into strategic insights, enabling procurement teams to uncover trends, identify inefficiencies, and make more informed purchasing decisions.

Benefits of analyzing procurement spend

Cost reduction

One of the most obvious benefits of conducting a spend analysis in procurement is the cost-saving opportunities it’s likely to deliver.

The reality is that most organizations hemorrhage vast amounts of money each year, especially in indirect spend categories such as software.

Just look at the data:

• 21% of tools go entirely unused
• A further 45% are underutilized
• 90% of companies overpay for their SaaS applications by an average of 26%

Now, when you factor in how the average company juggles around 132 different software applications, it’s not difficult to visualize the sheer volume of tools – and subsequently money – going to waste.

Procurement spend analysis plays a critical role in identifying and reducing this waste.

In fact, by pinpointing unused or overlapping tools, right-sizing contracts, renegotiating overpriced applications, and consolidating vendors, organizations not only stand to reduce procurement spend, but get far greater value from their software stack.

More effective supplier management

Many companies are using far more suppliers than are necessary – and in many instances, they don’t even realize it.

Why?

Because of fragmented purchasing.

With individual departments often given the autonomy to make their own buying decisions, the chances of supplier overlap and duplicated spend becomes almost inevitable. This leads to organizations procuring identical goods from different providers and paying for multiple tools that serve the same purpose.

As software providers expand their capabilities to increase stickiness, this problem further amplifies. In fact, our own data shows that this issue is particularly rife for Development, Security, Sales, Marketing, and Collaboration & Productivity tools.

Procurement spend analysis helps centralize visibility, eliminate redundancies, and drive smarter supplier consolidation strategies.

Beyond just cutting waste, this data can also strengthen supplier relationships by giving procurement the insight to negotiate better terms and hold vendors accountable to performance.

Greater spend visibility

When it comes to procurement, you can’t control what you can’t see – and for many organizations, it’s a lot.

The reality for many is that spend is scattered across numerous business units, software applications, suppliers, and even geographies, making it nearly impossible to manage effectively without a consolidated view.

Which is why spend analysis in procurement is so crucial – it centralizes purchasing data and provides the relevant stakeholders with total visibility of who is spending what, with which suppliers, and for what purpose.

This level of visibility enables teams to pinpoint inefficiencies, eliminate maverick spend, and make more strategic, informed decisions across the entire procurement function.

Better, more streamlined processes

Procurement inefficiencies often hide in plain sight, buried in manual workflows, slow approvals, and inconsistent purchasing practices across departments.

Without a clear view of procurement spend patterns and procurement processes, these issues can go unnoticed and unchallenged, quietly draining time, money, and momentum.

This is where spend analysis proves its value. It goes beyond just identifying cost savings – it looks at how goods and services are being procured end-to-end across the organization, specifically:

• Revealing bottlenecks such as delays in the approval processes
• Flagging instances of maverick spend
• Uncovering shadow IT
• Exposing areas of operational risk, for example, unapproved vendors, supply chain vulnerabilities, and the possibility of automatic contract renewals being missed

Most of all, it provides the foundation for streamlined, data-driven processes that align procurement with broader business goals, which in turn increases accountability, accelerates procurement cycle times, and enables more strategic supplier relationships.

Improved budget control

By analyzing procurement spend, companies can more accurately forecast, allocate, and enforce budgets.

By consolidating and categorizing spend across every department, finance and procurement leaders can more easily track expenditures against allocated budgets – pinpointing areas of overspending, misaligned purchases, or even underutilized funds.

With this level of visibility, they can course correct early, set more realistic departmental budgets, reduce waste, and ensure organizational spend is fully aligned with broader strategic priorities.

How to analyze procurement spend

Procurement spend analysis is way more than just analyzing invoices – it’s about turning data into meaningful insights that drive smarter decision making.

Here’s an example of how it works in practice:

1. Consolidate spending data

Total spend visibility is only possible when you have a consolidated view of all procurement activity across the organization – shadow IT included.

Having blind spots in the form of hidden or unmanaged spend will prevent you from being able to control costs, manage risk, and optimize your supplier base.

Investing in procurement software with SaaS discovery capabilities can help with this by automatically identifying all software subscriptions across your company – including those that were purchased without the knowledge or approval of finance, procurement or IT – giving you the full picture of your organization’s spend.

2. Identify patterns and anomalies

Procurement analysis tools will not only classify spend by supplier, business unit, category, and contract terms, but they will also uncover:

• Goods or services that you’re overpaying for
• Instances of duplication across your supplier base
• Maverick or non-compliant spend
• Feature overlap
• Underutilized tools or services
• Shelfware, or in other words the tools that aren’t being used at all

3. Benchmark and evaluate performance

With the right procurement benchmarking data you can compare supplier pricing, terms, and usage against your peers, using this intel to assess the value of each of your vendors – especially high spend suppliers – while determining whether or not the terms of your contract are reasonable and whether you’re paying a fair price for the tool.

4. Make the necessary adjustments

It is at this point that you can use your analysis to drive value across the business:

• Renegotiate contracts – Use your spend data to identify areas of leverage and use this to secure better pricing and terms. This could be in the form of negotiation levers, for example, demonstrating consolidated spend across departments to justify volume discounts, or comparing your own fee with peer benchmarking data to push for a more favorable deal.
• Consolidate vendors – Identify opportunities to reduce the number of suppliers you use by identifying areas of shelfware, as well as instances of feature overlap across your SaaS stack. By consolidating vendors, you can increase your bargaining power, simplify contract management, and even secure volume-based pricing.
• Eliminate waste – Uncover costly inefficiencies and eliminate wasteful spending – something that impacts 66% of all software applications – by analyzing your organization’s software utilization data, and right-sizing or terminating contracts that are either going unused or underutilized.
• Streamline procurement processes – Analyze your procurement spend data to identify bottlenecks in your workflow, for example delays in the approval process, as well as inconsistent purchasing behaviors such as purchasing the same item from multiple suppliers or buying from unapproved vendors.
• Mitigate risks and improve compliance – Identify maverick spend, unvetted suppliers, and other potential supply chain vulnerabilities, such as over-reliance on specific vendors and lack of visibility into contract renewal dates, and take corrective action to enforce procurement policies and reduce exposure to legal risks or contractual breaches.

Key metrics for effective spend analysis

When conducting a spend analysis, procurement leaders should be tracking a combination of financial, operational, and strategic metrics to gain a more accurate picture of performance, inefficiencies, and opportunities that exist across the organization.

While some of the more obvious metrics include budget vs spend, spend by category and department, and spend under management, you should be digging deeper to uncover hidden inefficiencies and strategic opportunities.

This includes tracking:

• Maverick spend percentage – Assess the proportion of purchases made outside of formal procurement processes, using this information to identify compliance gaps, introduce stricter purchase controls, and hold non-compliant departments to account when it comes to rogue spending.
• Majority spend suppliers – Identify the suppliers that account for the largest proportion of your spend and ensure you’re scrutinizing their costs, performance, and the terms of their contracts. Use vendor benchmarking data to ensure you’re getting the fairest possible price.
• Procurement cycle time – Measure the average amount of time it takes from purchase requisition to implementation or delivery, using this insight to pinpoint bottlenecks, reduce delays, and achieve faster turnaround times.‍
• Supplier diversity spend – If your organization is committed to environmental, social, and governance (ESG) goals, it’s important that you’re tracking supplier diversity spend. To do this, assess how much of your total spend is directed toward diverse, minority-owned, or small businesses.‍
• Risk exposure indicators – Monitor signs of concentrated or high-risk spend, such as overreliance on a single supplier, geopolitical risks, or non-compliant vendors, using this data to proactively address vulnerabilities. This might include diversifying your supplier base, renegotiating contract terms, shifting spend to lower-risk regions, or tightening compliance requirements for vendor onboarding. ‍
• Spend variance analysis – Compare your actual vs forecasted spend across the different departments and spend categories to identify areas of over- or under-spending, using this insight to improve budgeting.

Choosing the right spend analysis software provider

The level of insight required to effectively analyze and manage your procurement spend is only possible with the right technology in place.

When selecting a spend analysis platform, you should be considering a solution that not only collects procurement data but also turns it into actionable intelligence. Key capabilities to evaluate include:

• Usage analytics – Understand how the platform tracks software utilization across the organization, along with its ability to pinpoint underutilized licenses, redundant tools, and overlapping functionality.  
• Benchmarking data – Ensure that any potential provider can provide vendor benchmarking data, enabling you to compare your current or quoted prices with what similar companies are paying for the same subscription. Assess how extensive and accurate the data is, whether it can be tailored to your company’s unique circumstances, and if it’s included in the core offering or charged as an add-on.
• In-workflow insights – A robust procurement analytics tool will surface insights directly within procurement workflows, enabling quicker review processes by comparing agreed contract terms with industry benchmarks, while highlighting critical legal, security, and compliance information.
• Data integration – Any good spend analysis platform will integrate seamlessly with your ERP and finance systems, consolidating all procurement data into a consolidated view, while also helping to uncover shadow IT.
• Spend forecasting – Look for spend analysis software that has the capabilities to project future spend, helping you to budget more accurately
• Cloud spend insights – Ensure the platform provides visibility into cloud-related expenses across departments. It should help you monitor usage, identify unexpected cost spikes, and optimize your cloud service commitments.

Drive procurement value with Vertice’s Automated Spend Analysis Software

Vertice combines automated spend analysis with intelligent procurement orchestration capabilities, enabling organizations to uncover hidden value, reduce waste, and take full control of their procurement strategy.

From consolidating fragmented spend and identifying inefficiencies, to leveraging exclusive benchmarking data and surfacing actionable insights, our platform empowers finance and procurement teams to make faster, more informed decisions – ultimately driving maximum time and cost savings.

Take a look at how we helped one company achieve average SaaS discounts of 32%, while saving them as much as $155,000 on a single contract. Alternatively, why not see for yourself how you can optimize your spend and identify maximum cost-saving opportunities with Vertice by taking a self-guided tour of the platform.