Geng Wang Case ABCs of Spend Analysis Why are data analysis skills and thinking so important to spend analysis? Can’t software applications be used to generate the information needed automatically? Data analysis skill is important to decision making. We cannot understand why the company isn’t doing well but keeps very high productivity without data – perhaps the total cost for operating the robots are too high, perhaps the number of workers is too big, perhaps the demand for the products are too limited these days. We need the data to find out the reason.
For example, we can compare the historical data of amount of workers to get the conclusion that numbers are so big now. We may dig out the fact that the expense of operating robots is too high in the proportion of the total cost. We need various skills to analysis the data from various aspects. For example, we may ignore the fact that even the expense of operating robots is high, but robots has helped the company avoid millions of dollars fine of polluting the environment. So analysis skills are important, we have to think from all aspects.
Software can generate routine data analysis from time to time, but we cannot get intelligent analysis when we face something new. Even the goal of the company is to simply make money – which might means “ROI, cash flow, net profit”(from the book “the goal”), we may still find numerous ways to improve every part by different data analysis. For example, on the book’s example, the advertising category has the highest number of suppliers, followed by small-dollar suppliers, energy, security, general contracting. At first blush, the figure for advertising seems high to Susan.
However, business units will often use local suppliers, such as radio and newspapers, to provide advertising services. Software cannot think like this, but people can. How might a structured process such as Six Sigma methodology be useful here? Companies can often gain a competitive advantage by performing good purchasing process (for example Six Sigma methodology) better than their competitors do. Many organizations use information systems to automate routine purchase order preparation, while others even use Six Sigma teams to improve the outcome of supplier evaluation and selection efforts.
Six sigma team would do DMAIC to analysis the data and the fact of the analysis. They can ask questions, and develop a cause-and-effect diagram to find the problem where the analysis reveals. For example, when the operating fee is too high, they would ask Q Why does robots needs high fixing expenses? A Because it’s high-tech robot which requires a lot of expensive fixing fee by experts from the manufacture company. Q Why can’t we fix it by ourselves? A Because we don’t acquire that knowledge. Q Why don’t we have that knowledge?
A Because we didn’t pay enough money to send workers training. Then the Six Sigma team got the answer. Why is it important to get other functional areas, notably finance, involved in spend analysis efforts? Can you think of some other functional areas that should be involved? Spend analysis involves various aspects. Finance includes concepts of liabilities and assets, these aspects cannot be ignored. The cost of the purchasing can be achieved by some method – loan, stock, etc. Using those financing tools can necessarily improve spend analysis.
Strategic sourcing should be used. We can know the company’s current spend and the supply market, analyse total cost, identify suitable suppliers, develop a sourcing strategy(where to buy), negotiate with suppliers, create new supply structure. In scientific research companies, scientists should look into the ways to lower the cost. We also need to investigate more suppliers which offers the same kind of product, find out the reason why we buy it from a particular buyer. We also need to predict the prices in the market because it will change. This requires financing area.