Enhancing Spend Analysis Through Data Analysis Skills and Structured Methodologies

Enhancing Spend Analysis Through Data Analysis Skills and Structured Methodologies

According to Moore et al., (2004), data analysis skills are essential in spend analysis, although there are software solutions that provide alternative solutions. Possession of solid data skills helps both the purchasing organization and suppliers. With sufficient data skills, purchasing organizations can better plan their spending strategies and understand price proposals offered by suppliers. Relying on software tools is not enough since they cannot help in making critical decisions regarding daily planning and purchasing activities.

Systems that help with data analysis are available, but they are not enough to support the organization derive helpful information and business insights from a data set. With strong analytical skills, one can access, manipulate, and use a wide range of tools to derive useful information. Spend analysis projects often look simple, to the extent that in-house tools like MS Excel can be used to analyze them. Small businesses even rely on manual tools or Excel to analyze the data. However, as much as software solutions help companies get better visibility about their data, human input, and analytical skills are required to make business sense.

Also, data analysis skills help the organization to identify and solve problems in purchasing activities. Spend managers with sufficient data skills can study purchase patterns and identify internal weaknesses and areas to be improved (Moore et al., 2004). Besides, data skills are helpful when conducting comparative analyses between different purchase options. The comparative analysis involves studying different costs of other purchase options and their resultant profits. Once the performance of different suppliers is identified, the organization can then decide whether it is profitable to continue cooperation with the suppliers.

Data skills are also needed to help businesses survive the highly competitive business world today. If companies make mistakes during the purchase process, there is a likelihood that such a business may not compete effectively with rivals. Although system software tools may help identify patterns, specialists need to sit and brainstorm to decide whether the company is currently taking the right direction (Moore et al., 2004). For instance, the finance team and developers of company strategy need to collaborate in collecting vital information and using it to make the right purchase decisions. Although technical applications may aid the process, they cannot replace the drive of company staff to improve performance.

How a Structured Process Such as Six Sigma Methodology Can Be Useful to Identify Spending Patterns and Opportunities for Improvement

Six Sigma requires organizations to follow defined steps and set specific targets as it pursues improvement. Apart from helping organizations reduce costs, six Sigma also goes a long way in assisting organizations to improve quality. Different products undergo different production processes, but each of them has a control point (Bozarth,, Handfield, & Weiss, 2008). To ensure there little variability between the actual performance and targets, the company can use Six Sigma to identify variability in processes and areas of improvement.

The first step in the Six Sigma methodology is the identification of key stakeholders and designing goals addressing the needs of the stakeholders. For instance, Ford Company was looking into reducing the overall cost of paint and improving delivery. The company’s first objective was to reduce the cost of producing paint by $1.5 million paints o achieve the target. Another aim is to improve customer satisfaction by cutting defective parts.

The second step of the lean sigma process is to measure the processes that could be causing inefficiency. Root causes of the problem also manifest at this stage (Bozarth, Handfield, & Weiss, 2008). Possible problems at this stage could include wastage and technical issues.

Next is to analyze the factors that could be making a process to perform in the manner it is currently performing. At this stage, the experts must make sure they identify the root causes of the problems noted (Bozarth, Handfield, & Weiss, 2008). It involves drawing a cause-effect schedule.

Next is process improvement. Here, teams bridge the gap between actual performance and target performance. The improvement step entirely focuses on implementing solutions to the root problem.

The final step in the Six Sigma process is process control. Here, the Sigma team collaborates with affected teams to ensure improvements are maintained. It may involve training employees on new techniques and implementing system updates to monitor employee performance and ensure it aligns with improvement objectives.

The Functional Areas of the Business That Should Be Involved in Spend Analysis Efforts

One of the business areas involved in spending analysis is procurement. The ongoing COVID-19 pandemic has undoubtedly hit businesses hard. As a result, companies’ CFOs are pushing the procurement function of most companies to cut costs. One of the solutions to the problem is adopting a procurement function that includes spending analysis, e-procurement, contract spending, and order management (Bozarth, Handfield, & Weiss, 2008). These solutions will provide the information required to make the right spending decisions.

Spend analysis can also be used to optimize a business’s internal processes. Once internal operations become smooth, it is easier to maintain good relationships with suppliers and customers. It is typical of most companies, for instance, to wait for the employee who wrote an invoice to approve it before payments are made. However, if internal operations are not smooth, it may take time to pay the supplier. Late payment may attract penalties and damage relationships with long-term suppliers. There is no reason to delay payments to suppliers even with small mistakes such as human errors and incorrect quantity and price. Invoice holds affect days payable outstanding (DPO) business metric, negatively affecting the company’s reputation and possibly leading to suppliers charging more (Bozarth, Handfield, & Weiss, 2008). Spend analysis provides the company with useful action-oriented information that can help the company avoid such delays.

References

Bozarth, C. C., Handfield, R. B., & Weiss, H. J. (2008). Introduction to operations and supply chain management. Upper Saddle River, NJ: Pearson Prentice Hall.

Moore, N. Y., Cook, C., Grammich, C., & Lindenblatt, C. (2004). Using a Spend Analysis to        Help Identify Prospective Air Force Purchasing and Supply         Management   Initiatives. Summary of Selected Findings. RAND CORP SANTA MONICA CA.

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Operations and supply chain managers as well as professionals in purchasing engage in strategic sourcing processes, and they demonstrate how spend analysis, total cost analysis, portfolio analysis, and weighted-point evaluation models can be used to support strategic sourcing efforts. Purchasing managers, for example, spend more time on strategic sourcing activities, such as spend analysis, supplier evaluation and selection, and make-or-buy decisions. All of these activities require individuals with a solid mix of quantitative and interpersonal skills. This assignment will enhance your skills in these important areas.

Enhancing Spend Analysis Through Data Analysis Skills and Structured Methodologies

In your paper,

Explain in detail why data analysis skills are so important to spend analysis.
Describe how a structured process such as the Six Sigma methodology (Chapter 4) can be useful to identify spending patterns and opportunities for improvement.
Recommend which functional areas of the business, such as finance, should be involved in spend analysis efforts, and justify the rationale for your choices.
The Data Analysis Skills and Thinking paper