There's one thing procurement professionals are always in search of, it's clarity. They certainly want lots and lots of it. And what better way to get clarity than from a good old-fashioned cube? That's right—we're talking about a spend cube, which is a powerful tool that provides insight into the total value of spend per category, the number of suppliers each category has, and more.
For any business, managing and controlling costs is essential to profitability. When it comes to procurement, understanding organizational spend is pivotal to making sure that your company is maximizing its potential for growth and sustainability.
A favorite method that many businesses use to analyze spend data is building a spend cube. What is a Spend Cube
A spend cube is just a fancy name for a systemic organization of how all your spending ties together and interacts across the various dimensions—Suppliers, Corporate Business Units, and Spend Categories.
It's a three-dimensional cube that shows you how much money your company is spending on what, where, and with whom. It may sound like an unlikely reality show for math wizards, but the "cube" in "Spend Cube Analysis" is actually a data analysis tool generated by spend analytics. The term "cube" refers to the way data is organized. It's essentially a three-dimensional data table that allows you to slice and dice your data in a number of ways and create a foundation for insights into your spending habits, which helps improve your bottom line.
Understanding Spend Cube
Remember when you were a kid and wanted to understand how the world worked, so you took everything apart?
If your parents were anything like mine, they were less than thrilled. They wanted you to put those pieces back together! And you did, but then you'd have questions about how it was constructed in the first place. You just couldn't stop taking things apart to see what was inside. Let's take that same inquisitive approach and apply it to your business's spend data. You can slice and dice your data in three dimensions — the suppliers that you buy from, the business units in your company, and finally, the categories of products that you're buying — to understand your company's financial health. The result is a graphic representation of spend analysis output from which you can make decisions on what to cut or keep, where to spend more or less, and how to justify future spending. Elements Of Spend Cube
A spend cube is essentially a data table or traditionally, a spreadsheet, with multiple dimensions—the category, the business unit, the supplier, and the period of time or "time slice" (monthly, quarterly, annually). This tool allows you to quickly see how much you are spending on a given product or service (e.g., packaging) across all suppliers and all business units during a given time.
When we talk about spend cube, it's not just the three dimensions most people think of, there are multiple layers and columns to it.
Often, you will find that different groups within your own company will have different definitions of what constitutes a category. The first step in creating an effective spend cube is to define these categories so that everyone is working with the same definitions. A typical way to do this is to categorize by product/service based on similar characteristics—such as usage and price.
There are three different categories that are assigned an axis on the spend cube:
Who: Region, Business Unit, Plant, Function, Cost Center, Project, Requester, etc. or the Cost Center Analysis which specifies the sources of demand within the organization. Where: Ultimate parent supplier, parent supplier, supplier, subsidiary, etc. or the Supplier Analysis which identifies the suppliers being paid. What: Category L1, L2, L3,..., Ln, item, unit of measure, etc. or the Category Analysis which specifies the goods and services purchased
Once you have added spend data into your cube, you can clearly see the following aspects:
The total spend of your company The total spend procurement can influence Direct and indirect spend Category-wise distribution of spend Supplier-wise distribution of spend Number of suppliers per category Spend trends Different Types of Spend Cube Analyses
There are a lot of different ways to slice and dice your company's spend, and you can use all of them to get new insights into your business.
Direct and Indirect spend analysis: It provides total visibility for all purchasing in indirect spend, so you can see all of your transaction data at a glance and make informed decisions about which purchases are necessary and which are not. It also functions as a way to improve internal compliance, which will help keep your organization running smoothly by eliminating rogue or maverick spending. Supplier spend analysis: Supplier spend analysis is an essential element of strategic sourcing and supplier management. It helps you to identify your top suppliers, evaluate their performance, and analyze the percentage of spend dedicated to each supplier. By systematically evaluating your suppliers, you can have a fact-based approach to consolidating supplier base, supplier development and much more. Category spend analysis: Category spend analysis is a process by which businesses examine their spending at the category level to create a strategic plan for essential materials and better understand where their money is going and how to manage it. The goal of this type of analysis is typically to improve business performance through the more informed management of supply chain contracts and internal controls, as well as through enhanced forecasting and risk management. Item spend analysis: This analysis will help your company avoid redundancies and discrepancies in purchasing and expose maverick spending and sub-optimal vendor selection. Benefits of Spend Cube
When it comes to spend management, visibility is everything. With Spend cube as your linchpin, not only will you have the visibility you need to make the right decisions every step of the way; you'll also be able to leverage that insight to drive profitability and monitor ongoing performance and risk.
But that's not all! When you empower your company with better spend visibility and the tools to take advantage of it, you can expect a myriad of benefits for your business. Here are a few things you can expect with improved visibility from spend cube: Manage performance and uncover opportunities: When it comes to spend classification, one of the most useful ways to analyze a company's spending trends is to segment supplies into categories. These categories allow stakeholders to get a bird's eye view of their overall purchasing activities. It also helps them decide which areas are working well, which need improvement, and where the opportunities are. Savings: You already know the importance of cost savings. You're being asked to do more with less, and you want to deliver the best possible services to your stakeholders. But there's only so much negotiation you can do with vendors—and they often have their own business to run, too. That's why spend visibility is important. It gives you greater insight into your spend data and can help you identify opportunities you didn't even know existed. Manage risks: When a company is running smoothly, it's easy to forget that there are always risks lurking. But when something goes wrong, the whole house of cards can tumble down—and fast. As a procurement professional, you're in charge of making sure those threats don't ever become realities. You may not be able to avoid risks —such as geographical risks, supply risks with single-source items, financial risk, etc— entirely, but with spend cube, you can at least identify them early (so they can be managed or avoided altogether). Focus on medium to long-term strategy: It is very easy for procurement to slip into a reactive mode, where day-to-day operational issues take over. But it is important to maintain a bigger picture focus on the overall strategy of purchasing. The use of a spend cube can help to highlight the largest spend areas and identify those areas where there is a scope for improvement. In this way, procurement can align its activities with the business objectives and focus its energies where they will have the most benefit. Maximize capacity and minimize waste: A spend cube analysis can help you do this by highlighting areas of the purchase process that add no real value to the organization. Such activities can then be adapted to allow for greater efficiency and reduced costs. The Evolution of Procurement: From Spend Cube to Procurement Analytics
"Procurement analytics" has become a buzzword. It's often used interchangeably with spend cubes, but spend cubes are only a small part of the potential power of procurement analytics. Spend cubes are useful, but they don't capture the full potential of analytics to transform your procurement function and your company as a whole.
That's because spend cubes are purely built on spend data, whereas cross-functional cubes enables procurement analytics connecting the spend data to contracts, initiatives, supplier performance, ESG, etc. to provide you a 360 degree view of procurement performance, risk and opportunities. Thus, the procurement industry needs to take a step back and ask what procurement analytics is and what value it can deliver? Procurement analytics is not just about spend data; it's about getting a panoramic view at every stage of the procurement lifecycle, from planning to sourcing to spending. True procurement analytics can help you understand your organization in new ways—and make smarter decisions about how to use the information that's right in front of you.
All too often, companies get stuck in the status quo because they don't know the real potential of analytics and what they can get out of it. By redefining the goal of procurement analytics from spend reduction to data-driven decision making, Procurement leaders can unlock the full potential of their data and use it to drive real change for their organizations. Does Your Business Need A Spend Cube? How Ignite Can Help
Spend cubes are a structured way of analyzing large amounts of procurement spend data. They can be done in Excel as an independent exercise by a procurement analyst or tools.
Analysis tools range from Microsoft Excel to dedicated spend analytics software. The best choice for analysis depends on your procurement organization's resources, needs, and maturity. You can create a simple spend cube based on procurement data exported from your ERP system or accounting database into Excel. You do not need any special training or outside support for this type of analysis. However, it is essential to have a good understanding of your procurement processes, spend data structures, and your company's coding system for suppliers and categories. If you are responsible for purchasing about $50 million per year with several hundred suppliers, this should be sufficient for independent analysis in Excel for most industries.
If your organization spends more than $100 million per year or has more than 1,000 suppliers, you may want to consider using dedicated software for analysis. Benefits of using dedicated software like Ignite include automated extraction of data from different sources, intelligent classification, enrichment of data from different sources, and advanced visualization and analytics options for data.
Ignite lets you extract data from multiple sources and clean and classify it in a matter of seconds. Furthermore, you can also use Ignite to automatically enrich your data with additional information such as the supplier's financial, ESG, other potentially useful information. With Ignite's easy-to-use dashboards, you can slice and dice your data the way you want—on maps, tables, charts—and recognize patterns and opportunities, and reveal the necessary insight required to drive real change across the business impact the bottom line.