Daily Archives: July 13, 2011

What to Look For in a Spend Analysis System

These
days,
every
vendor
and
his
dog
is
offering
“spend
analysis”
solutions
to
the
market,
but,
as
one
can
easily
guess,
not
all
“solutions”
are
appropriate
in
all
situations,
or
even
capable
of
producing
a
true
picture
of
spend
for
an
average
organization.
Therefore,
in
order
to
select
an
appropriate
solution,
one
has
to
know
what
to
look
for.
The
right
answer
is
often
elusive,
because
there
is
a
fundamental
lack
of
understanding
in
the
market
of
what
a
“spend
analysis”
solution
actually
is,
and
what
it
should
be
expected
to
do.

Depending
on
who
is
asked,
the
definition
of
analysis
will
vary
from
the
process
of
building
predictive
models
using
historical
data,
to
deciding
whether
past
events
or
transactions
are
statistically
significant,
to
sorting
through
haystacks
of
data
to
find
meaningful
needles
that
will
suggest
patterns.
Each
is
a
valid
definition,
but
it
is
not
necessarily
useful
to
an
organization
that
just
needs
a
better
understanding
of
what
it
is
spending,
where,
with
whom,
by
whom,
and,
more
importantly,
why.
From
a
practical
perspective,
spend
analysis
boils
down
to
“finding
stuff
in
your
data”
that
the
organization
was
not
aware
of,
or
was
not
sufficiently
aware
of.
Spend
analysis,
therefore,
is
the
process
of
deriving
insight
from
spend
data.

So how do you derive insight? You apply a well understood process to multiple data sets. Emphasis on “you” and emphasis on “multiple”. If the process can only be accomplished by a team of programmers in a back room, it is not useful from a business perspective. You have to be able to use the system to do the analysis you need to do. And if the system can only build one cube on one data set, then it is not a useful analysis system. Depending on your organization, there could be savings in the AP data, the invoice data, the HR data, or the ERP data. You don’t know until you look at all the data sources and build and analyze all the cubes.

So what does this mean from a system perspective? Find out in our article on What to Look For in a Spend Analysis System over on the new Next Level Supply site. True spend analysis is a fundamental requirement of a next generation supply management organization.

Some Great Ideas to Revitalize the Innovation Engine, Part I

A recent article over on Chief Executive that reviewed Henry Nothhaft’s recent book Great Again summarized some great advice on How to Revitalize our Innovation Engine. Tackling the link between innovation and prosperity that is diffused throughout society, Henry is worried that there are numerous forces that are severing this link. These forces include:

  • the divorce of innovation from production
    that has allowed other countries to advance, and become leaders in, technologies that were first developed (and patented) in the US, such as solar power (AT&T Bell Labs, 1957)
  • the lack of jobs in today’s web-based (social media) firms
    While Facebook has 500 M users and a market cap of up to 100B, it employs a mere 1,400 people while Sony (27 employs 170,000, Disney (75 employs 144,000, and Boeing (55 employs 157,000 people. Even Google had only 11,000 people at a comparable stage.
  • a lack of sustainable business(es) models
    since companies that are here today and gone tomorrow don’t have long to innovate

The first three suggestions he offers are the following.

  • Liberate Entrepreneurs from Start-up Killing Tax and Regulations
    Not only did a 2008 World Bank study find that a 10 percent increase in the effective tax rate reduces the investment-to-GDP ratio by 2.2 percent and foreign direct investment by 2.3 percent, indicating that lowering the effective tax rates for start-ups would likely have very positive results, but start-ups are expensive and taxes on necessary hardware and headcount are stifling. If a manufacturing start-up needs 10M of equipment, and the taxes on that equipment are 10%, that’s an extra 1M out of its pocket. While nothing to an established multi-million manufacturer, an extra 1M can sometimes break a start-up.
  • Fix the VC Engine
    In the 1990s, when most VC firms were staffed with executives with operational experience, firms were trying to build companies for the long-term. Today, most VC firms are led by financial types who want to “flip” companies for a quick return like PE firms do. They don’t want to invest unless you already have a product, beta customers, and the headcount to get the job done. At that point, a company could almost self-fund growth with customer partnerships and debt. It’s getting to that point that companies need money.
  • End the indifference to domestic manufacturing
    Most countries understand that manufacturing strengthens an economy and sustains a middle class like no other form of commercial activity. As Henry notes, decades of outsourcing have left the U.S. without the means to invent the next generation of high-tech products. Plus, R&D depends upon close contact with manufacturing for success. A design must be able to be manufactured efficiently and cost-effectively to be a success. R&D cannot be completely disconnected from manufacturing.

And they are all great. Tomorrow we will discuss his fourth suggestion and what your Supply Management operation should do to help revitalize the innovation engine.