Bus 307 Week 3: Spend Analysis
BUS 307 – Operations Management & Quantitative Techniques
Michael Dennis-Leigh
July 23, 2012
Spend Analysis
I. Introduction
The current condition of the economy in the United States (US) and increased economic pressures has reinvigorated many companies to rethink their purchasing practices. One of the best ways for a company to evaluate its spending patterns is through a spend analysis. “A spend analysis is the process of determining what is being spent, with whom and for what” (Hingorani, 2010, p. 58). In order to accomplish this task companies must use software programs to import and aggregate data from multiple systems. This paper will explore several components of the spend analysis process including the risk of using software programs alone to analyze spending patterns; how Lean Six Sigma processes might be useful when developing a spend analysis process, and why it is important to involve multiple functional areas, most notably finance.
II. Relying on Software Alone
While software programs offer a great platform for organizing data they do not provide a method of cleansing data. What I mean is, spend data can be housed in many different databases, and trying to consolidate the data correctly can prove to be very difficult. Ever heard of the saying “garbage in, garbage out”? That is exactly what you might get relying solely on software programs to complete your spend analysis. This is where analytical skills and critical thinking become very important when setting up a spend analysis process. First, you must determine what questions you want to answer, and the data sets that are needed to provide you with the necessary information. Next, you must extract data from various systems and standardize it to ensure all supplier (parent/child) relationships are mapped correctly (Hingorani, 2010). “Establishing corporate parent/child relationships is another key step to ensure that all subsidiaries of an organization are
Michael Dennis-Leigh
July 23, 2012
Spend Analysis
I. Introduction
The current condition of the economy in the United States (US) and increased economic pressures has reinvigorated many companies to rethink their purchasing practices. One of the best ways for a company to evaluate its spending patterns is through a spend analysis. “A spend analysis is the process of determining what is being spent, with whom and for what” (Hingorani, 2010, p. 58). In order to accomplish this task companies must use software programs to import and aggregate data from multiple systems. This paper will explore several components of the spend analysis process including the risk of using software programs alone to analyze spending patterns; how Lean Six Sigma processes might be useful when developing a spend analysis process, and why it is important to involve multiple functional areas, most notably finance.
II. Relying on Software Alone
While software programs offer a great platform for organizing data they do not provide a method of cleansing data. What I mean is, spend data can be housed in many different databases, and trying to consolidate the data correctly can prove to be very difficult. Ever heard of the saying “garbage in, garbage out”? That is exactly what you might get relying solely on software programs to complete your spend analysis. This is where analytical skills and critical thinking become very important when setting up a spend analysis process. First, you must determine what questions you want to answer, and the data sets that are needed to provide you with the necessary information. Next, you must extract data from various systems and standardize it to ensure all supplier (parent/child) relationships are mapped correctly (Hingorani, 2010). “Establishing corporate parent/child relationships is another key step to ensure that all subsidiaries of an organization are
References: Anonymous. (2005). BEST PRACTICES: USING SPEND ANALYSIS TO HELP AGENCIES TAKE A MORE STRATEGIC APPROACH TO PROCUREMENT. Journal of Public Procurement, 5(2), 244-273. Retrieved from ABI/INFORM Global. (Document ID: 903164761). Bozarth, C. & Handfield, R. (2008). Introduction to operations and supply chain management (2nd ed.). Upper Saddle River, New Jersey: Pearson Prentice Hall. ISBN: 9780558317867 Hingorani, N. (2010). DOMINO EFFECT. Risk Management, 57(3), 56-58,60,62. Retrieved from ABI/INFORM Global. (Document ID: 2045079891).