DATA ANALYSIS SKILLS AND THINKING 7
Why data analysis skills are so important in spend analysis
Spend data management (Spend analysis) refers to the process ofclassifying, aggregating and leveraging spend data for the aim ofmaking decisions that help in reducing costs, improving operationalperformance and enhancing compliance. Spend analysis entails dataextraction, validation, cleansing or classification, enhancing andanalyzing data (Bozarth and Handfield, 2013). Not all data presentedto managers is essential for making strategic decision about anorganization.
Organizations collect and record huge volumes of data and this datais ineffective in making conclusive decision. In this sense, dataanalyses and thinking helps in sieving through vast data to makeconclusive judgment. Data analysis and thinking skills are importantin identifying more meaningful information as well as understandingpatterns, irregularity and consistencies in data for sound decisionmaking. Data analysis is vital since most automatic generated datadoes not provide all the information needed. In this case, dataanalysis and thinking helps in assessing which data is necessary andunderstand what output of data means and how such data will be used(Bozarth and Handfield, 2013).
The underlying objective of data analysis skills in spend analysis isto help organizational managers have clear understanding oforganization’s expenses and how such expenditure might be managedto save finances. Data analysis helps managers make detailed analysisof spend information and thus have informed information when makingpurchases from buyers, influencing buyer behaviors, enhancing savingsand efficiency. Spend analysis has two pronged steps. The first stepinvolves collecting raw data on historical expenditure from availablesources and transforming such data into information that is useful tothe procurement team. The next step of spend analysis involvesproviding tools for procurement professional to analyze and managefirm’s spending. As such, Good data analysis skills and thinkingare vital but if the data analyzed is poor the overall output mightbe ineffective and lead to wasted of time and effort.
Data analysis skills are effective in facilitating spend analysisthat deliver savings and efficiencies in the organization. This isachieved by ensuring that all departments get same ‘best rates’and terms from each vendor. Spend analysis helps in facilitating theuse of data for competitive processes and supplier negotiations aswell as strengthening organizations information (Anand, Shukla,Ghorpade, Tiwari & Shankar, 2007).
In addition, data analysis helps in creating and utilizing categoryanalysis for aggregating demand and hence drives down costs. Inaddition, spend analysis helps in identifying opportunities that leadto great internal and external collaborations in procurement. Lastly,spend analysis makes it easy to access spend information so thatresources and time are focused to delivering savings rather thancleaning data and struggling with complex analysis tools (Anand,Shukla, Ghorpade, Tiwari & Shankar, 2007).
How a structured process such as Six Sigma methodologies can beuseful in identifying spending patterns and identify opportunitiesfor improvement
Data analysis is important for business continuous improvementefforts. The Six sigma approach is a data driven methodology foreliminating defects in any process such as manufacturing, procurementand transactional processes (Bozarth and Handfield, 2013). The sixsigma approaches statistically describe quantitatively how a givenprocess is performing. Under the six sigma approach a given processmust not yield more 3.4 defects for million opportunities. A sixsigma defect is defined as anything that falls outside customerexpectation (Aggogeri & Gentili, 2008).
The main objective of six sigma approach is to aid in theimplementation of measurement based approach that focuses on processimprovement and variation reduction. The six sigma approach uses theDMAIC and DMADV methodologies. DMAIC implies defining, measuring,analyzing, improving and controlling existing processes and aidincremental improvement. As such the six sigma methodology DMAIC canbe useful in identifying spending patterns and identify opportunitiesfor improvement. In this case, the DMAIC will allow theidentification of processes leading to inefficiencies and addressthem accordingly to yield expected cost savings, improve quality andachieve more consistent positive results (Anand, Shukla, Ghorpade,Tiwari & Shankar, 2007).
Under the DMAIC approach, an organization is bale to define itssuppliers and other expenditure areas that are required to sustainthe business (Aggogeri & Gentili, 2008). In addition, under theDMAIC sigma approach an organization can define their buyingbehaviors and help bring expenses under management (Bozarth andHandfield, 2013). Six sigma methods helps in measuring the expensesused in transactions such as delivery, procurement and the end pricepaid for goods and services (Bozarth and Handfield, 2013). With thecollected information, organizational managers are able to aggregatetransactional costs, aggregate demands and assess the various pricesoffered by suppliers. The measured and aggregated data is thenanalyzed to assess loopholes for wastage or inefficiencies (Bozarthand Handfield, 2013). For instance, a firm could be buying goods orservices from a firm that offers higher prices than others, theprocurement process could be costly or some goods or services are notneeded by the firm.
Under the DMAIC analysis tool, a firm can analyze all the detailsregarding the demand of goods/services, sources, transactional costs,efficiency and overall price paid. This analysis helps in assessingareas of wastage and inefficiency and thus makes decision on how tochange. It is through the analysis of existing procurementtransaction history that an organization is able to assessopportunities for greater external and internal collaboration.Analysis leads to details of areas that need improvement such aschange of buyer, help in improving or renegotiate contracts, improveon monitoring and maximizing money spent (Aggogeri & Gentili,2008).
When the six sigma approach is used in the procurement process, ithelps in ensuring that all departments’ gets bests rates suppliersare reviewed on the basis of efficiency and costs, and ultimatelyidentifying opportunities for improvement (Bozarth and Handfield,2013). Improvement in the procurement maybe informs of newnegotiation contracts, reducing time wasted in the procurementprocess and delivery. Control is then applied on areas that exhibitwastage such as overpriced products, expensive delivery chain, buyingof unnecessary items and managing risks (Aggogeri & Gentili,2008). Control is the ultimate DMAIC strategy that helps streamlinethe spending habit and thus save and improve procurement process.
Recommendation for functional areas of business that should beinvolved in spend analysis efforts
Spend analysis is an interdepartmental task that should be achievedwhen all departments collaborate in spend analysis. All departmentswithin the organization have an important duty in participating inspend analysis (Anand, Shukla, Ghorpade, Tiwari & Shankar, 2007).This means that departments such as the human resources, finances,maintenance and procurement should be at the fore when making spendanalysis, However, the finance department plays an integral role inspend analysis especially in assessing the available resources andthe procurement demands requested by other department (Bozarth andHandfield, 2013).
A finance department should dictate the spending criteria and limitthat should be used by the other departments to reduce wastage andunnecessary spending. The rationale for this is because, the financedepartment makes audit that trace irregular procurement or overpricedprocurement transactions (Anand, Shukla, Ghorpade, Tiwari &Shankar, 2007). However the procurement department plays an importantrole in streamlining procurement expenses by other department. It isthe procurement department that should define measure, analyze,improve and control procurement transactions. Any transaction thatleads to inefficiency, wastage of resources or does not enhancesaving would be retracted by the procurement department. In thiscase, all operations that entail supply management chain should beanalyses by the procurement in order to assess areas of control andimprovement.
Aggogeri, F. & Gentili, E. (2008). “Six Sigma methodology: Aneffective tool for quality
management.” International Journal of Manufacturing Technology &Management, 14 (3/4), 1.
Anand, B., Shukla, K., Ghorpade, A., Tiwari, K., & Shankar, R.(2007). “Six Sigma–based approach to optimize deep drawingoperations variables.” International Journal of ProductionResearch, 45 (10), 2365–2385.
Bozarth, C.C., Handfield, R.B., (2013). “Introduction to Operationsand Supply Chain Management”. Upper Saddle River, New Jersey:Pearson Education.