In What Way Would I Improve Spend Analysis?

When it comes to spend analysis there is at least one particularly powerful tool out there that will meet the majority of the needs of any organization and probably at least one tool that will do, with elbow grease, just about any analysis an analyst can think of. Since businesses have wanted reports and analytics since the days of the first spreadsheets, analysis tools are always advancing and most are beyond the ability of the average user to fully utilize their functionality.

So, given this fact, how would I improve spend analysis? And given that this question may imply that I may only make one improvement, just what would that improvement be? Especially since most tools don’t do (true) federation, don’t support full reg-ex (regular expressions), don’t understand semantics, and don’t run fast enough on large data sets — indicating that, as a PhD in CS with deep expertise in analysis, modelling, optimization, and semantics, there are theoretically a number of advancements I could bring to the table if I put my mind to it?

Despite the plethora of options available, today there is only ONE thing I would do to improve spend analysis. I’d make it impossible to do anything but spend analysis. Specifically, I’d make it illegal to include dash-boarding capability in any (spend) analysis product.

Why would I do such a thing? Besides the fact that I’ve been ranting since 2007 that dashboards are dangerous and dysfunctional, I would do such a thing because, among other things, they give you a false sense of security that, if mismanaged, could be so grave that, like the myth of Nero, you would fiddle while the factory burned.

Why would I ditch the dashboards and make it a crime punishable by any fate one could devise that was worse than death to include any capability whatsoever designed to support a dashboard? Because I just read this post on Purchasing Insight on “the inordinate cost of poor spend analytics” that said that it’s reckoned that more than 50% of businesses employ between 2 and 5 people to prepare and create procurement dashboards and spend reports. This is ludicrous. (No, not Ludacris.) If these people are senior analysts, then a large organization is spending more than 500,000 a year on salary and overhead to create dangerous and dysfunctional dashboards that spit out shiny spend reports that, after being analyzed the first time for inefficiencies, provide zero value to the organization. Once the report is analyzed, the inefficiency identified, and the problem corrected, and once this is verified in the next report, no subsequent report is going to tell the analyst, or management, anything new.

As SI has said again and again, the value of spend analysis is actually doing spend analysis, again and again, testing new hypothesis every time they pop into the analyst’s head. Yes, most hypotheses will yield nothing, but that’s not important because it only takes one insight to yield 100,000 worth of savings. If the tool is flexible, powerful, and configured appropriately, the user will be able to explore dozens of different analyses in a week, and if even one yields 10,000 of savings, that’s an (amortized) ROI of (at least) 5X. Spend analysis is analysis. Not dashboards and reports.

So if you really want to improve spend analysis — ditch the dashboards and focus your talent on real analysis. Otherwise, just download a free reporting engine off the internet. You’ll get the same worthless result, without forking out six figures for a tool you’re not really using.

Air Canada! Blame Canada!

Today, SI is going to pay homage to SM and Jason’s recent experience with Air Canada Rouge, summarized in this post on “A Review of Air Canada Rouge – Just Say No for Business and Personal Travel” over on Spend Matters. In consideration of his predicament, I suggest that one takes a South Park view and, in the spirit of consideration granted us by Trey Parker and Matt Stone … Blame Canada! (South Park Movie Clip; language NSFW)

Times have changed
Our flights are getting worse

They won’t upgrade their planes
They just want to fatten their purse!

Should we blame the government?
Or blame society?
Or should we blame United* for their misdeeds?

No, Air Canada<sup>**</sup>!
Blame Canada!

With all their beady little eyes
And flapping heads so full of lies

Air Canada!
Blame Canada!

We need to form a full assault
It’s Air Canada’s fault!

Don’t blame greed for old aircraft
Canada is so lax, they don’t know how to spend the tax!

And CEOs once had our travel needs first
But now amenities, one by one, have been dispersed!

It’s Air Canada!
Blame Canada!

It seems that everything’s gone wrong
Since Air Canada came along!

Blame Canada!
Air Canada!

They’re not even a real airline anyway

My son could’ve flown with dignity and flown in comfort too
Instead he froze like an eskimo without an igloo

Should we blame the captain?
Should we blame the crew?
Or the VPs who cut the fuel budget too?
Heck, no!

Blame Canada!
Air Canada!

With all their hockey hullabaloo
And that loser Harper too!

Blame Canada!
Shame Air Canada for…

The dirt we must avert
The excess we must redress
The despair and woe, out it all must go
We must blame them and cause a fuss
Before somebody thinks of blaming us!

* They Break Guitars!

** Before you tell me Air Canada Rouge is technically not Air Canada, as they are a (wholly owned) subsidiary, ask yourself if the average person is going to know that.

Why Don’t We Hear Anything About Market Informed Sourcing?

Because the acronym is a MIS!

While I agree that we need more discussion around Sourcing Optimization, I don’t think calling it Market Informed Sourcing is going to help any just because people are afraid of the “O” word. Even though good optimization is “market informed” and uses up-to-date market data, people don’t really understand what “market informed” really is. When people hear informed, they tend to not only think of fact but opinion, and optimization is all about fact, not fiction.

In a recent 3-part series on Sourcing Optimization (Part I, Part II, and Part III) by Alan Geelson over on Spend Matters UK, of Keelvar, a company which SI reviewed in its recent post on Strange Name. Uncommon Results, he notes that while there is no consensus on the name that best describes the approach — Market Informed Sourcing (MIS) Sourcing Optimization, or Collaborative Sourcing, the view at the heart of these propositions, namely, that suppliers should be afforded the opportunity to have greater flexibility as to how they engage with buyers, is an important one. And optimization is what enables this.

Furthermore, it also enables all parties to play to their strengths without discriminating against any one group. Suppliers can submit “sealed bid” bids bundling and packaging lots together as they see fit, offering price breaks and rebates for certain volume purchases. And buyers can weight the advantages and disadvantages of aggregating spend with less suppliers, finding the right balance between economies of scale and risk mitigation should one supply source go down.

However, sourcing optimization still has not enjoyed mass adoption. Some reasons for this, as noted by Alan, include:

  • lack of process, technology, and key benefit understanding,
  • cost, which is believed to be prohibitive, and
  • perception of complexity.

In other words, as SI pointed out in its recent post on how, When It Comes to Optimization, You Need Every Insight You Can Get!, it all comes down to

  • misinterpretation and misinformation,
  • cost, and
  • fear.

Even though it should all come down to, as Alan points out,

  • finding savings without “squeezing” suppliers,
  • gaining greater control over outcomes with business constraints,
  • while keeping acquisition cost and operating costs down.

Maybe some day the truth will be known and accepted, but, until then we have to keep spreading the truth.

Doing Procurement Right Regardless of Organizational Size

A few days ago, in our post on how You’ve Negotiated but you still might not be realizing savings on marketing print, we pointed out two great guests posts by Santosh Reddy of GEP on how just throwing a problem over the wall to an expert doesn’t necessarily save you money — it just guarantees that someone else, namely the Print Management Company (PMC), makes money on your behalf.

Today, we’re going to point out another guest post by a GEP consultant, Sanyam Khurana. In his recent post on Spend Matters on “Procurement Lessons for Small Businesses and Large Multinational Corporations”, he notes that some strategies work well regardless of organizational size. Thus, if you are a small business that wants to get bigger, you should take take these lessons to heart and work on these strategies.

Flexibility

If you’ve been paying attention, you know that Sourcing Innovation has been emphasizing the importance of the 3T’s to successful Supply Management — Talent, Technology, and Transition Management. Transition Management requires a lot of things, but above all else, flexibility as your organization needs to adapt to, and be in, a state of constant change, in order to navigate the ebbs and flows of today’s global economy.

Cost Optimization

Whether you’re buying 100 units or 100,000 units, you still have to make sure you’re paying the right price for the right product. Over paying by 10% is still overpaying by 10%, and with smaller budgets, and margins to work with, 10% is still a lot.

Supplier Rationalization

Whether you’re a 1 Million, 100 Million, or a 1 Billion dollar company, you still depend on your suppliers for your success. In Sanyam Khurana’s post, he gives the example of a bakery that requires raw material, namely flour, to produce its goods. If the suppliers don’t deliver, the bakery can’t bake its bread. Having the right suppliers that you can depend on through thick and thin is important regardless of organizational size.

Data Management

Not only does each of the above strategies require good data to be effective, but so do other organizational strategies. For example, you can’t optimize cost unless you know how much you are paying, how much you could be paying and the value you are getting. You can’t rationalize on the right suppliers unless you are keeping good performance metrics. And while you can always be flexible, there’s no point in being flexible unless you know the direction that you should be be flexibly moving in! Plus, in today’s economy, social media is often critical to marketing, sales, and advertising — and in order to focus on the right channels, you need data!

Data, data everywhere
And all the tables burst
Data, data everywhere
It can not get much worse!

 

Easy Question. Easier Answer.

A recent post over on Strategic Sourcing that asked “Executives:Do You Have the Right Resources” asked an easy question with an even easier answer. NO.

How does the doctor know this?

1) Not only did The Hackett Group 2014 Procurement Key Issues survey report that 76% of companies stated that they needed to expand Procurement’s scope/influence, but previous studies have shown that as little as 8% of organizations are world class.

2) Large organizations that embark on a Procurement transformation journey generally take 5 years or more to become world class, and by the time they reach this point, a number of technologies or processes that were upgraded in the first stage remained untouched for three years, meaning that these organizations have to go back and start a transformation journey all over again just to stand still.

3) Since the definition of the right resources changes with operational changes, product and services changes, market changes, and new developments in talent management, technology, and operations research, even if you had the right resources yesterday, you may not have the right resources today.

When you put all this together, the chances of a large organization having all the right resources are so astronomically small that they are effectively zero. A few organizations, which fall into the Hackett Group’s world class organization bucket, are close, but the vast majority, which make up the average or laggard category, are nowhere close.

So what are these resources? For a start, as pointed out in Mickey’s post, they are the right talent, technology, and transformation (capability) resources — the 3Ts that form the base of a successful, aligned*, organization.

Talent

Even though everything changes as time goes on, one thing has been the same since global trade began. Ever since goods first floated down the Nile or first travelled the Silk Road, people ran the supply chain. And even though they may employ a wealth of tools and be hindered and aided by a plethora of government regulations, they still do. You need the right talent to succeed.

Technology

Always in a state of change, and sometimes flux, you have to not only identify the best products for your organization, but implement and utilize them properly.

Transformation Capability

Remember, it’s not people, technology, process; it’s talent, technology, and transformation because you need the ability to constantly evolve your process as needed to meet the current needs of the supply chain. If you don’t have transformative capabilities, buying the best processes and practices from a big 6 consulting firm won’t do you any good.

You need to not only acquire the right talent, technology, and transformative capability but you also need to maintain the talent, technology, and transformative capability as time goes on to truly succeed. And if you ever say you have the right resources, in today’s economy, you’ve lost the supply chain battle before it has even begun.

* More to come on this!