Daily Archives: October 28, 2010

Spend Analysis Is Not Strategic. It Isn’t Always Strategic! Part II

That’s right, in and of itself spend analysis is Not strategic. This isn’t to say that spend analysis isn’t one of the most important actions that your supply chain can take in its effort to reduce costs, improve efficiency, and make the most effective use of business resources, but that the art of simply doing a spend analysis is not strategic.

Spend analysis provides a picture of the products and services the organization is spending money on, whom the products and services are being bought from, the organizational buyers who are spending the money, where the products and services are being bought from, and where the products and services are being shipped to and/or utilized. But this process is not strategic — it’s tactical. Furthermore, this information alone is not strategic. Let’s say the organization is spending 2M on computing equipment. So what? On it’s own, this information is not strategic. And unless the spend is significant (at least 1% of organizational spend) and the number one goal is to reduce total organizational spend by 5%, or the equipment needs to be unique (the organization’s proprietary trading platform only runs on hardware that natively supports AIX Unix), it’s not going to be used strategically. If the analyst compares spend to market prices and determines that reasonable savings are available (5% to 15%), the decision might be to run a sourcing event, but if it’s just another cookie-cutter RFX/Reverse Auction and/or TCO optimization with the same supplier base, it’s not strategic.

And then there’s the most common use of spend analysis in an organization that knows how to use it. Ad-hoc queries to determine if a (duplicate) invoice is being paid twice, if the wrong amount was paid to a vendor, if a department is on budget, if a category has enough spend to warrant a sourcing event, etc. Not strategic. Very important, but not strategic.

The reality is that very few events are strategic, because very vew categories are strategic. Unless it’s a unique product or service, unless the spend is a significant percentage of organizational spend, unless the product or service directly relates to a (long-term) organizational goal, or unless you’re looking for a strategic-partner to share in development, production, costs, or risk (mitigation)s, it’s probably not strategic. It’s probably still important, because every cent and resource counts in today’s economy, but let’s stop confusing tactical with strategic.

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Cultural Intelligence IX: Mexico

This series is edited by Dick Locke, SI’s resident expert on International Trade, author of Global Supply Management — A Guide to International Procurement (which was the definitive guide for almost a decade), and President of the Global Procurement Group which regularly gives seminars on International Trade and working with International Cultures.

As highlighted in last year’s post on Overcoming Cultural Differences in International Trade with Mexico, while Mexico is part of North America, there are significant differences in doing business in Mexico when compared to Canada or the United States. For example, as appropriately summed up in Richard D. Lewis’ When Cultures Collide, while the Mexican gives freely to his guest, conducting business and obtaining many social services incur a cost which is normally obviated in U.S. and Northern European societies. Mexican civil servants, officials, and police are paid very little and usually seek to augment their meager salaries by accepting what Americans call bribes to facilitate the granting of permits and other services.

With respect to Locke‘s seven key cultural differences (first outlined as six in his classic text on Global Supply Management), power distance is very high with severe power distances between those at the top and those at the bottom. While the modern factory may work on the clock, Mexico is an authoritarian polychronic culture and punctuality is nowhere to be found on their list of priorities. You’ll have a higher rank than the seller if your money “talks” with respect, as long as you don’t bring a lot of uncertainty to the table (as they don’t like too much uncertainty, though some is okay). While harmony doesn’t have the importance it has in other countries, honor, obedience to authority, and group loyalty is very important. On the other hand, due to their exceptionally high emphasis on personal dignity, they need to save face at all costs. Despite their rankings on Hofstede’s individualism scale, they are actually quite individualistic and very personal.

With respect to verbal communication, Mexicans are generally very direct, but like Korea, “no” can be indirect. The volume is usually moderate as their style is toned down, warm, and gracious, but as in India, you can get louder if you are passionate about what you are saying.

With respect to non-verbal communication, facial expressions are common, as they are a passionate people, gestures are normal (but, as always, avoid the US ‘OK’ sign), touching is common (and they commonly hug and backslap each other) and essential between friends and colleagues, and body position is relaxed (just don’t put your hands on your hips or in your pockets). They tend to stand close, make eye contact (and if they don’t, it’s a sign of respect), and show their emotions.

Meetings are generally social, and business is often discussed over lunch. However, business lunches are not power-business sessions. Ideas, concepts and possibilities are discussed, not specifics. The only exception is if the detail has been pre-negotiated and agreed to beforehand, in which case it’s time to seal the deal over a meal. Negotiations are slow, involve lots of haggling, but only after they get to know you. It’s important to always keep your hands visible at a meal.

It’s also important to remember that while it is perfectly acceptable to discuss business over lunch, it is not acceptable to discuss business over dinner (except in very exceptional circumstances, and only if initiated by the host). Mexican people make friendships first (business comes later), and they often do this over dinner.

Finally, people from the United States need to remember the historic “difficulties” between Mexico and the United States. What US Marines call ‘The halls of Montezuma’ is a national monument to the revered Ninos Heroes. Every Mexican schoolchild learns that these six young cadets committed suicide rather than surrender to the invading US military. And the last time the US military invaded Mexico they were chasing Pancho Villa. He went on to become President of Mexico and there’s a street named after him in nearly every Mexican city.

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