How to build a spend analysis and find where your money is really going

Most growing companies have a poor understanding of their actual procurement spend — they know the big categories but not the detail, and they almost certainly have significant spend that is neither managed nor optimised. A spend analysis is the starting point for any serious procurement improvement.

Pull your spend data from three sources: your accounting system (all purchase invoices, categorised by vendor and expense type), your bank statements (all payment outflows), and your credit card statements (often a significant source of untracked software and subscription spend). Reconcile them — if something appears in bank statements but not in your accounting system, that's a data quality issue to fix.

Categorise your spend into a hierarchy. Level 1: people costs, direct materials, indirect materials, services, capex, overheads. Level 2 within each: for direct materials, by commodity type; for services, by category (professional services, logistics, marketing, IT, etc.). The categorisation should reflect how your business actually works, not standard accounting categories.

Analyse by vendor and by category. How many vendors are you using? What percentage of spend is with your top 10 vendors? Which categories have the most vendors (indicating fragmented spend with low leverage)? Which categories have single vendors (indicating dependency risk)? These patterns reveal your biggest opportunities.

Look for consolidation opportunities. If you're buying the same category from 8 different vendors in different departments, consolidating to 2–3 vendors gives you volume leverage and reduces the transaction overhead of managing many vendor relationships.

Identify maverick spend — purchases outside your normal vendor base or procurement process. This is often a significant portion of your tail spend and represents both cost reduction opportunity and compliance risk.