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Spend Analysis 1

Spend Analysis Francisco Rodriguez BUS 307: Operations Management (CCl1124A) Professor Timothy Koester July 11, 2011

2 Spend Analysis

Spend Analysis Case Study


Given Facts: 1. Spend Analysis is one of the most important parts of strategic planning. 2. The data can be spread in around several departments and can reside in several different databases that may not be compatible. 3. Data when analyzed and acted upon becomes information. 4. Strengthening the data analysis skills will benefit the company and helps to understand the suppliers cost proposals. 5. Buyers need to learn how to manipulate data out of large databases. 6. The process known as ETLextract, transform, and loadmeans pulling every morsel of data together and cleaning it up before funneling it through a spend analysis program. 7. Before pulling information, planning is important at macro and micro levels. 8. Refreshing the data is a important function of companys information system. 9. Having finance team in spend analysis is a big advantage. 10. This spend information is usually the easiest to obtain, and by grabbing requisition, purchase order, invoice, or purchase card data, spend analysis teams can gain fast results to demonstrate the worth of the project. 11. Spend analysis improves relationships with suppliers. 12. Traditionally, purchasing staffs think of spend analysis as an opportunity for finding where to consolidate their own spend, and that is certainly important. 13. Spend analysis helps to frame a better payment system.

3 Spend Analysis Questions: 1Q. Why are data analysis skills and thinking so important to spend analysis? Cant software applications be used to generate the information needed automatically? Answer: The data analysis skills are important to Spend Analysis because of the following reasons. 1. Spend analysis can be obtained from companys historic data. 2. Modern organizations have large databases. 3. Global procurement needs analysis of supplier data from the entire globe. 4. Because of large number of suppliers. 5. Data is spread in various departments. 6. Data is residing on several databases that are not compatible. 7. To analyze worth of proposed projects. 8. For future projects of the business. Modern software solutions like Enterprise Resource Planning(ERP) automatically generates the information needed automatically, but they are not exact substitute for Spend Analysis, where a critical thinking is important in dynamic market environment.

2Q. How might a structured process such as Six Sigma methodology (Chapter 3) be useful here? Answer: Six Sigma: Six Sigma is a highly disciplines approach used to reduce process variations to the extent that the level of defects reduced to less than 3.4 per million process, product or service opportunities.

4 Spend Analysis The Six Sigma Methodology: The projects having large impact on decision making (Spend Analysis) and significant impact on bottom line are selected. The projects are clearly defined in terms of expected key deliverables. The actual problem is converted into a statistical problem. The power of statistical tools is used to determine the statistical solution. This is then converted into practical solution.

Practical Problem Statistical Problem Statistical Solution Practical Solution Conclusion: From the above discussion it can understood that six sigma methodologies can be applied to large databases, which helps make accurate spend analysis. The Spend analysis is a practical problem for managers when there are large databases. The six sigma methodology provides a statistical solution and then it can be converted to a practical solution. Hence structured process like six sigma is useful in Spend Analysis.

3Q. 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? Answer: The importance of other functional areas, notable finance, involved in spend analysis efforts due to the following reasons. 1. Finance can verify if the easy-target spends data is correct or pinpoint any other easy spend targets. 2. Spend Analysis is related to accounts. 3. The input for Spend Analysis is from Finance department. 4. The Finance Department provides valuable information. 5. Data related to expenses is available with Finance department only.

5 Spend Analysis 6. Having finance representatives on the team provides a big advantage. 7. This spend information is usually the easiest to obtain, and by grabbing requisition, purchase order, invoice, or purchase card data, spend analysis teams can gain fast results to demonstrate the worth of the project. 8. Starting small with the finance data serves as a base for the rest of the data extraction process. Yes, apart from finance other departments like Procurement, Marketing, and Materials Management etc provides valuable information for Spend analysis. The data of various departments to be integrated for Spend analysis, then it helps the buyer in decision making.

Conclusion: Spend Analysis is an important function for buyers in the large organizations. It requires analyzing of large databases using various softwares available in the market. Spend analysis improves supplier relations and for Supply Chain Management. ERP Softwares generating the information automatically is not exact substitute for Spend analysis. Spend analysis is an important part of Strategic Planning.