The right vendor can be a huge asset to your business. On the other hand, a vendor that charges too much or under delivers can slow down growth and can even stunt your profits. How do you make sure you’re getting enough bang for your buck before getting to this point or, better yet, prevent it entirely? The answer is vendor spend analysis.
When done correctly, the vendor spend analysis process can give you insight into which business partnerships are having the biggest impact on your success. This allows you to streamline who you work with by deepening relationships with vendors that hit the mark and discontinuing contracts with the ones who don’t.
Let’s take a look at the A to Z of vendor spend analysis and how it can help you decide which vendors are working best for your business.
Vendor spend analysis is a type of spend analysis that evaluates the money spent on goods and services that keep your business running.
When conducting vendor spend analysis, make sure to define what counts as “vendor spend.”
Vendor spend typically includes line items like:
Vendor spend typically does not include line items like:
Generally speaking, you should only include vendors that you plan to buy from regularly. A spend analysis example might include a monthly or yearly subscription, a long term contract with an agency, or a supplier that restocks necessary office supplies.
The reason is that vendor spend analysis helps you evaluate whether to continue said relationships. As such, one-time purchases that fall outside the scope of your day-to-day business should not be included in your analysis.
There are two ways to analyze your vendor spending. Either you can gather all of the data yourself and search for the right insights, or you can gain insights through automated analysis.
Regardless of how you go about your vendor spending analysis, it’s vital to determine your objective first. What do you hope to accomplish with your analysis?
Common objectives include:
Setting an objective will save you time by defining which pieces of data are relevant to your analysis. Once you have a clear direction, it’s time to choose between manual or automated analysis.
This method involves gathering information from disparate data sources and consolidating it into a single database. We’re well past the time when this was written by hand, but you might still cramp up trying to type each line of data into a spreadsheet.
Keep in mind that finance teams that conduct manual spend analysis typically spend far too much time cobbling together invoices, purchase orders, payments processed and contracts. When it’s time to build spend analysis reports, finance teams are forced to dig through multiple sources of information, which makes it difficult to make a confident decision whether to renew with a vendor.
Managing renewals this way can also be challenging. When contract details are entered manually into a spreadsheet, the risk of human error increases exponentially and contract information is commonly lost. This leads to missed renewal dates or an inability to properly forecast payments.
These are just a few reasons why more companies are leveraging automated vendor spend analysis tools—and why there’s a growing consensus that the need for platforms like Ramp has never been more urgent.
Automating vendor spend analysis requires centralized tools and methods of payment. This type of analysis is best for businesses that wish to scale quickly and are comfortable using a tech stack to do so.
Platforms like Ramp make it easy to automate the most critical facets of your vendor spend analysis. Our Vendor Management dashboard provides a single view into every vendor detail, document, and transaction so you can get answers about your vendors quickly and easily.
Ramp also extracts the most important details from each contract automatically, which eliminates hours of manual work for your Finance team. You can also set 30 or 60-day reminders that will alert you when a contract is coming up for renewal.
Manual vendor spend analysis is time-consuming, but not impossible. With diligence, you can gather the needed data and begin to understand how much is being spent with each vendor. This gives you the insights necessary to complete objectives like cost-savings or identifying opportunities for growth.
The most important step to manually assessing your vendor spend is to make sure you have an accurate overview of all relevant vendor transactions. Depending on your team size, this may involve looking over employee accounts to assess maverick spending.
Maverick spending occurs when employees make purchases without using the correct protocol. Because maverick spending often happens organically, it may be hard to catch if you are manually analyzing your spend.
The next step is to understand where your data lives. If your business is proactive about sorting invoices and bills in one place, that makes it easy. If not, then you might have to chase after credit card and bank account history, individual budgeting spreadsheets, and accounting software.
This work is tedious, but collecting and organizing your data is critical to building out an accurate vendor spend analysis. Here’s a list of the tasks finance teams complete before they analyze vendor spend:
When you extrapolate these tasks across your entire vendor list, it can seem like an overwhelming amount of work. This is one of many reasons why finance teams seek out platforms that automate data entry.
This is actually two steps, but for the sake of simplicity, let’s combine them.
Clean data: This ensures that you don’t count anything twice and that the data that you’re looking at is actually relevant to your objective. Make sure to correct any errors before moving on to the next step.
Organize spending with clear classifications: This is so you can clearly see trends, areas of opportunity, and potential risks and challenges. Messy or mismatched classifications obscure insights and make it difficult to make data-driven decisions.
How you organize will depend on your objective. You can classify spending by business team, frequency, spending category, or any other quality that you wish to investigate. Make sure to collect the same information about each transaction.
This is where you complete your objective. Once you have your data centralized and have double-checked that it’s clean and usable, you can begin to piece together which vendors are worth keeping. Common analysis includes unintentional redundancies, subscriptions or contracts that are no longer being used, disproportionate spending in low-impact areas and upcoming renewals that can be negotiated or ended altogether.
Note that manual spending does not update on its own. So the more you stay on top of it, the more accurate your insights will be.
Automating vendor spending analysis takes a little bit of forethought, but it cuts the number of steps in half.
To automate vendor spend analysis, you must be able to connect all business spending to one platform. This can be tricky because different vendors accept payment in different ways.
To help streamline this process, look for a spend management platform that offers all of the following:
To truly be automated, all these payments should automatically categorize whenever a card or ACH payment is used to pay a vendor. This makes it easier to catch where you’re able to consolidate or eliminate subscriptions and services when they are gathered into one place.
Voíla! Once you have your system and accounts set up, all you have to do is check into the dashboard. When all your spending exists in one place, you can access your spending data in real-time.
Below you’ll see an example of what this would look like in Ramp’s Vendor Management dashboard:
In terms of vendor spending, this makes it easier to catch duplicate spending, flag when a service is no longer being used, negotiate contracts, and plan future partnerships. It also means that you get real-time updates on vendor spend. If an invoice is accidentally processed twice or if an unusually large purchase is made, it takes minutes to appear on your dashboard.
With virtual corporate cards, real-time alerts and an AI-powered reporting dashboard, Ramp is uniquely equipped to save you time and money. Vendor invoices and payments are filed and categorized automatically, giving you powerful insights without tedious data entry.
There’s no need to keep your eyes glued to the screen when you equip your team with Ramp. Our software will notify you about duplicate subscriptions, increases in spend and unused partner rewards.
Whether you’re a small team or a growing enterprise, taking control of your vendor spend starts with automation. Get started with Ramp in under 15 minutes.