How to Conduct a Category Spend Analysis That Drives Results

Follow these steps to ensure your analysis is comprehensive and actionable. While tools like procurement software like Lasso can automate parts of this, the principles apply even with basic spreadsheets.

Step 1: Define Your Goals and Scope

Start by clarifying what you want to achieve. Are you aiming to cut costs in a high-spend category like IT? Or identify risks in supply chain categories? Define the category’s breadth—e.g., does “marketing” include digital ads, events, and agency fees? Set measurable objectives, such as “reduce spend by 15% in office supplies within six months.”

Also, select a spend taxonomy—a standardized classification system like UNSPSC or your company’s custom categories—to ensure consistency. This prevents apples-to-oranges comparisons later.

Step 2: Identify and Gather Data Sources

Collect all relevant spend data from across your organization. Common sources include:

• ERP systems (e.g., invoices, purchase orders)
• Accounts payable records
• Credit card statements
• Supplier contracts
• Expense reports

Gather data for at least the past 12-24 months to spot trends. Centralize everything in one location, like a spreadsheet or procurement platform, to avoid silos.

Pro tip: Involve stakeholders from finance, procurement, and department heads early to ensure buy-in and access to all data.

Step 3: Cleanse and Normalize the Data

Raw data is often messy—think inconsistent supplier names (e.g., “IBM” vs. “International Business Machines”), duplicate entries, or missing details. Cleanse it by:

• Removing duplicates
• Standardizing formats (e.g., currency, dates)
• Filling in gaps with enrichment tools (e.g., adding supplier details)

Aim for 95-100% accuracy; poor data leads to flawed insights. Automated tools can speed this up, but manual review is key for complex categories.

Step 4: Categorize the Spend

Assign each transaction to a category using your chosen taxonomy. For example:

• Group “laptops” and “software licenses” under “IT”
• Break down “manufacturing” into subcategories like “raw materials” and “machinery”

This step reveals spending distribution—e.g., 40% on one supplier in a category might signal over-reliance. Use AI-powered classification if available for larger datasets.

Step 5: Analyze the Data

Now, dig deep. Key analyses include:

• Spend by supplier: Identify top vendors and negotiate better terms.
• Spend trends: Look for seasonal spikes or year-over-year increases.
• Compliance check: Spot off-contract or maverick spending.
• Opportunity identification: Calculate potential savings from consolidation, volume discounts, or alternative suppliers.

Visualize with charts—pie charts for category breakdowns, line graphs for trends—to make insights pop.

Step 6: Develop and Implement Strategies

Translate insights into action. For instance:

• If analysis shows fragmented suppliers, consolidate to fewer, reliable ones.
• Renegotiate contracts based on volume data.
• Implement category-specific policies, like preferred supplier lists.

Create a roadmap with timelines, responsibilities, and KPIs.

Step 7: Monitor, Review, and Iterate

Spend analysis isn’t one-and-done. Set up ongoing monitoring with dashboards to track progress. Review quarterly, adjusting for market changes or new data. This ensures sustained results.