Spend analysis is crucial to any organization’s procurement strategy.

Knowing where money is spent lets you identify cost-saving opportunities, improve procurement processes, and make data-driven decisions.

However, even experienced procurement professionals can fall into common traps that undermine the effectiveness of their analysis.

That’s why today, we’ll explore five common mistakes to avoid during spend analysis.

We’ll also provide actionable tips for a thorough, accurate spend analysis aligned with your company’s strategic goals.

Not Collecting Data From All Data Sources

When conducting spend analysis, failing to gather relevant data from all data sources can lead to flawed analysis and decisions based on incorrect assumptions.

Data constantly changes and becomes more complex, with new information emerging from various internal and external sources.

If you overlook this, you can make serious mistakes in your spend analysis.

For example, if you compare the prices agreed with your similar suppliers (internal source) but do not benchmark them against current market prices (external source), you could end up:

• missing out on better deals,
• overpaying for goods or services,
• or failing to adjust your procurement strategies to market changes.

When you also consider the number of data sources organizations typically manage, it’s easy for some crucial information to fall through the cracks.

Illustration: Veridion / Data: Informatica

When data from one or more of these data sources is outdated or missing, companies can lose visibility into their true spend profile.

This can distort the overall picture and lead to poor supplier choices, missed cost savings and efficiency gains, and even compliance risks.

So, how can you ensure that all relevant data is collected and regularly updated?

The first step is to leverage a centralized data management system that consolidates all of your organization’s internal spend data in one place.

That way, you can ensure that internal data sources, such as supplier contracts, purchase orders, and departmental budgets, are integrated and continuously updated.

To do so, you can choose from various procurement management platforms that offer centralized spend data integration and analysis, such as Coupa, SAP Ariba, and GEP Smart.

Source: GEP Smart

Such solutions, whether as standalone tools or part of all-in-one procurement platforms, typically allow you to:

• automate data collection and updates from key internal sources,
• consolidate spend data from multiple departments and systems,
• and analyze spend across different categories, locations, and suppliers.

However, as our example illustrated, ensuring your spend analysis relies on the latest data from external sources is equally important.

That’s because internal data alone provides only a partial view, leaving out critical insights such as current market trends, supplier risks, and competitive pricing.

Therefore, without incorporating external data, your spend analysis would remain incomplete and may lead to poor decision-making.

This is where big data platforms like our Veridion come in.

Source: Veridion

Veridion aggregates and regularly updates vast amounts of supplier data, including their pricing, financial health indicators, and sustainability compliance data.

Veridion’s data service integrates easily with other procurement management and spend analysis tools, allowing you to:

• enrich your supplier profiles with the freshest data,
• benchmark your suppliers against others on the market,
• and quickly find new suppliers that match your specific criteria.

This way, you ensure that spend analysis outcomes aren’t distorted by outdated supplier data or a lack of the latest market intelligence.

Overall, you can easily avoid the mistake of not collecting and updating all relevant data for spend analysis if you implement the right tools and establish clear data management protocols.

Not Including All Spend Categories

Another common pitfall is when companies focus their spend analysis only on high-value purchases while ignoring smaller or infrequent expenses.

Most organizations have their direct spend—such as essential raw materials and components or core services—under the procurement department’s control.

However, the same can’t always be said for their indirect spend, which includes costs like office suppliers, IT services, marketing, or travel.

When these categories are left out of spend analysis, you miss out on potential savings.

And the numbers back this up.

Globality survey from 2023 estimates that between 20% and 40% of a company’s revenue can be allocated to indirect spend categories.

Illustration: Veridion / Data: Globality

Moreover, the same survey found that 82% of procurement leaders believe their organization’s indirect spend could be better managed.

All this indicates that indirect spend categories generally have more room for savings than more controlled direct spend categories.

Therefore, by not including all spend categories in your analysis, you risk missing hidden inefficiencies, which can ultimately lead to:

• inaccurate budgeting,
• duplicate or redundant suppliers,
• off-contract purchases (maverick spend),
• fragmented spend across departments or locations,
• unused services that continue to incur costs despite no longer being needed.

So, how can you avoid this mistake?

One key action, as mentioned earlier, is investing in spend analytics software.

These tools help you capture and categorize all spend, even small or infrequent purchases.

Source: Pivot

In addition to using spend analytics software, it’s important to take other measures to ensure all spend categories are included in spend analysis.

Start by mapping out all spend categories to get a comprehensive view of where your money is going.

It’s also a good idea to set clear policies or guidelines for how purchases in each category should be managed and tracked.

Finally, establishing firm spend approval workflows and spending thresholds can help prevent maverick spend and ensure compliance with your procurement policies.

By following these simple steps, you can make sure that all spend categories—direct and indirect—are captured in your analysis.

Only then can you identify inefficiencies and maximize cost-saving opportunities.

Failing to Involve Key Stakeholders In the Process

This mistake can undermine the effectiveness of your efforts.

That’s because different departments, such as finance and operations, offer unique insights crucial for aligning procurement goals.

Without their input, your procurement strategies may not fully address the organization’s needs.

Moreover, when it comes to implementing changes based on the spend analysis, there’s a greater chance of resistance.

More precisely, non-consulted stakeholders may hesitate to adopt new procurement policies or spending controls if they feel their concerns weren’t addressed.

Therefore, before conducting a spend analysis, it’s essential to identify all key stakeholders and categorize them based on their interest and influence.

Gabriel José de Souza, a strategic sourcing and supply chain expert, agrees and advises how to categorize your stakeholders:

Illustration: Veridion / Data: LinkedIn

In addition to categorizing stakeholders, it’s essential to form a cross-functional team with representatives from key departments such as finance, operations, and procurement.

This ensures that every perspective is considered, resulting in a more comprehensive and aligned spend analysis.

Of course, setting clear communication channels is also vital for providing regular updates and feedback that keep stakeholders informed and engaged throughout the process.

Another best practice is to hold spend analysis workshops to gather input and foster a collaborative approach.

These workshops enhance teamwork but also help identify potential savings opportunities that might not be apparent from spend data alone.

Additionally, they provide a platform for validating data and findings from the spend analysis.

To recap, proactively involving all key stakeholders from the start ensures a smoother analysis process.

Ultimately, this leads to better alignment with company goals, and greater buy-in for any procurement strategies developed from the spend analysis.

Conducting Spend Analysis Manually

Relying only on manual processes makes spend analysis less efficient and more time-consuming than necessary.

It also increases the likelihood of human error, lacks scalability and becomes unsustainable as data volumes grow.

Despite these challenges, research by Forrester reveals that many organizations still rely on spreadsheets or a mix of spreadsheets and other databases and reporting tools for spend analysis.

Illustration: Veridion / Data: Incisive

Based on the above figures, it follows that only 20% of companies have fully adopted automated spend analysis tools.

Those who continue to rely on manual processes for spend analysis experience lower efficiency and limit their ability to uncover actionable insights.

Why so?

Well, without automation, teams are forced to sift through large amounts of data manually, which often leads to inaccuracies, delayed reporting, and missed savings opportunities.

Naturally, this becomes even more problematic as the volume of spend data grows over time.

Automated spend analytics tools, on the other hand, consolidate data from multiple sources, identify patterns, and generate real-time insights.

To illustrate the capabilities of such tools, let’s look at a case study for Bass Pro Shops, a leading outdoor sports retailer.

When they acquired Cabela’s, another retailer in the same space, for $5 billion, they faced multiple challenges:

• lack of spend visibility across multiple general ledgers and ERP systems,
• difficulty consolidating and categorizing combined spend data from both companies,
• aggressive post-acquisition synergy goals challenging to meet without spend visibility.

To tackle these issues, they decided to implement Coupa’s automated spend analytics tool.

Here’s what this tool helped them achieve:

Illustration: Veridion / Data: Coupa

As you can see, Coupa’s tool provided Bass Pro Shops with complete visibility into their combined spend, allowing them to exceed their post-acquisition synergy goals.

Generally, such tools or systems use machine learning algorithms and AI-driven advanced analytics to ensure spend data is more accurate, up-to-date, and scalable.

Therefore, to avoid the pitfalls of manual processes, invest in spend analysis software that integrates with your existing procurement systems.

It will pay off sooner than later.

Focusing Only on Cost Savings        

While we mentioned savings opportunities several times, treating spend analysis only as a cost-saving exercise is a mistake.

Ignoring other critical factors, such as supplier relationships and risk management, can lead to increased supply chain risks and negatively impact your company’s long-term success.

For example, overly focusing your analysis on cutting costs might result in sourcing from cheaper, less reliable suppliers.

However, this increases the risk of delivery delays, quality issues, or even supplier insolvency.

Such disruptions can significantly impact your operations, often outweighing any short-term savings.

Instead, your spend analysis should also consider factors like supplier performance, long-term sustainability, and financial health.

Incorporating these elements helps balance cost savings with risk mitigation.

One effective way to integrate risk management into your spend analysis is by leveraging Veridion’s automated supplier risk monitoring feature.

Source: Veridion

As illustrated, this enables you to monitor critical risk factors, including suppliers’ financial stability, geopolitical risks, and compliance with sustainability standards.

By integrating this information into your spend analysis, you can better assess potential risks and avoid costly disruptions.

To recap, focusing solely on cost savings can expose your company to unnecessary risks.

By considering additional factors and using advanced tools, you can make more informed, sustainable sourcing decisions that support your organization’s long-term procurement goals.

Conclusion

Effective spend analysis is vital to modern procurement, but it requires a strategic approach to avoid common pitfalls.

In addition to adopting clear data management and procurement policies, most mistakes can be prevented by investing in the right tools for data collection, risk management, and spend analytics.

Such tools can automate your analysis processes, minimize maverick spend, and unlock significant opportunities for your organization.  

As procurement continues to evolve, companies that implement a comprehensive, data-driven approach to spend analysis will be better positioned to drive sustainable cost savings, mitigate risks, and support long-term business goals.

So, make sure to do the same!