Originally Published on: SpendEdge Why Should Companies Divide and Conquer? Assessing the Benefits of Category Spend Analysis in the Mining Industry

What is Category Spend Analysis and How Does It Help Companies? The extensive array of choices available to consumers is often attributed to the rapid pace of development, increased competition, and the necessity for innovation that has fueled growth across industries. As industries expand, supply chains grow, and company operations become more intricate. To mitigate the risks, confusion, and costs associated with managing extensive operations collectively, companies frequently categorize their offerings. These categories can be determined based on various factors, enabling companies to track, evaluate, and assess their spend in a more organized, data-driven, and efficient manner. This process has given rise to category spend analysis, providing companies, CPOs, and stakeholders with the opportunity to closely evaluate spend, costs, savings, and other crucial financial data in a controlled, organized, and secure method. There are various significant benefits to category spend analysis, including improved investment decisions, enhanced tracking, reduced risks, and overall improved performance across procurement and sourcing departments.

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What are the Key Benefits of Category Spend Analysis?

Improved Resource Allocation: Sourcing for a large company with high consumer demand, diverse offerings, and a vast supply chain can be extremely complex, necessitating an efficient, organized, and well-tracked process for spend and investment allocation. As companies grow, the need for various resources is distributed across multiple channels, causing them to often grapple with tracking, allocation, and improvement. With category spend analysis, companies can identify major needs within the category, enabling category managers to allocate resources accurately, and CPOs to oversee overall procurement resource allocation and spend management. This process also helps category managers minimize errors, prevent fraudulent activity, and avoid wastage or shortages of resources.

Increased Compliance: Consistent, efficient, and accurate tracking of spend, costs, savings, and other financial functions can significantly reduce various risks, human error, and potential fraud. Additionally, the necessity to track all transactions, processes, and functions can lead employees and managers to closely assess activities, minimize errors, ensure all required activities are completed, and stay updated regarding changing factors within the supply chain. This accountability and necessity for tracking all activity can lead to increased employee compliance rates and greater transparency. This practice can also result in higher compliance rates from suppliers and vendors pertaining to each category.

Tracking and Analysis: As digitization and automation become increasingly crucial across industries, data tracking and analysis have become essential and extremely beneficial. The impact of efficiently keeping track of spend, expenses, and savings is manifold, including increased profitability, reduced losses, higher efficiency, and more transparency along the supply chain. Additionally, category spend analysis and tracking can help companies identify and overcome shortcomings or gaps in performance, implement techniques to improve systems, and identify potential errors before they can cause any losses or major damage to the company. Tracking spend also provides companies with the data required to make consistent and regular improvements to the internal systems and strategies leveraged along the supply chain.

Reduced Risks: The rapid evolution of the industry has led to the development and occurrence of various major risks across markets, companies, and supply chains. As supply chains become more complex, businesses struggle to identify and minimize risks. Mitigating risks is extremely challenging, and companies often struggle to identify the factors that cause these risks preemptively. However, with category spend analysis, companies can closely track and assess patterns along their supply chain, and category managers can identify risks within their category in advance. This makes it possible to evaluate and develop effective strategies to address these risks. Identifying and mitigating these risks can help companies minimize losses, stay ahead of the curve, and gain a better understanding of their systems.

Higher Efficiency: Maintaining a robust and streamlined supply chain requires a combination of various processes, functions, and operations. As industries continue to grow, maintaining a strong and efficient supply chain becomes increasingly challenging, leading companies to make mistakes, suffer monetary losses, and witness a rise in customer attrition. Category spend analysis helps companies stay ahead of potential risks, identify shortcomings within the system, automate and accelerate many repetitive processes, and overcome evolving industry factors with ease and precision. This process helps companies significantly increase efficiency and maintain an unparalleled strategic edge with data, actionable insights, and well-informed decision-making.

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Implementation of Spend Analytics Implementing spend analytics involves several steps to effectively manage and optimize an organization’s spending. Here’s an overview of the implementation process:

Classification and Categorization: Sort spending information into sensible groups, such as those for IT services, travel, and office supplies. This aids in figuring out where money is being spent and locating potential places to cut costs or improve efficiency.

Management of Suppliers: Determine and classify the suppliers that the company works with to make purchases. Understanding supplier relationships, negotiating better contracts, and spotting consolidation opportunities are all made easier as a result.

Data Evaluation: Utilize a variety of data analysis approaches, including trend analysis, outlier detection, and descriptive analytics. Descriptive analytics aids in understanding previous expenditure patterns, while trend analysis highlights changes over time.

Success Story The rising demand for automobiles, electronics, and metals has propelled growth and demand in the mining industry, leading many companies to expand significantly. However, this growth has also come with various challenges, including the need for improved spend tracking, higher efficiency, and data-driven strategies and systems. A growing mining industry player experienced a significant rise in losses, decline in profitability, and an inability to efficiently track and analyze spend. To tackle this challenge, the company approached SpendEdge and leveraged our expertise in category spend analysis. Our experts worked closely with the growing company’s category managers to identify shortcomings, gaps, and weaknesses in the spend analysis and management system. With our actionable recommendations and data-driven insights, the company implemented significant changes to their category spend analysis approach, strategies, and processes, consequently significantly improving overall procurement department spend management and functioning. These changes helped the company restore overall balance, improve their spend tracking, and increase profitability substantially.

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