Category Archives: Spend Analysis

Informationalization Is Important

Simply put, the more informed you are, the better you are going to be able to source and procure. And this recent article over on the HBR blogs on why you need to integrate data into products, or get left behind just scratches the surface.

As the post notes, virtually every product and service can be made more valuable through informationalization. The GPS example provided is classic. Turn-by-turn directions make the car more valuable as the driver can keep his eyes on the road, get to his destination faster, and, during delivery, avoid left turns that just lead to extended idling at busy intersections. And, as predicted by Stewart Taggert, half of the value in the delivery of a shipping container from halfway around the world would be in the data associated with the container. Good information allows you to calculate in-transit time, and associated costs, loading and unloading costs, storage costs, insurance costs (as you can appropriately determine the chance of accidental loss or theft), etc.

But the best example of the value of informationalization is how it allows you to optimize your sourcing decisions. The more you know about your product options, shipping options, associated costs, and the inherent value of each product versus your other options, the more accurately you can model your options. The more accurately you can model your options, the better chance you have of determining the solution with the lowest cost, the lowest risk, the highest value, and the best value (defined as risk reduction, profit generation capability, etc — whatever makes sense) to cost ratio. And this is how leading Supply Management organizations can save 12%, on average, off-the-top in an optimization-enabled sourcing event — and even more if they collaboratively work with their peers to identify all of the options that may be available and all of the associated tradeoffs. As pointed out in SI’s recent paper on “Top Ten Technologies for Supply Management Savings Today”, integrated, collaborative sourcing can often identify savings opportunities of up to 30% or 40% on categories that were exhaustively combed for savings in the past.

Plus, good information allows your organization to:

  1. constantly improve products and services by way of the fact that you are able to
  2. collect more relevant, timely, accurate, detailed, and integrated data.

And when you have relevant, timely, accurate, detailed, and integrated data, you can take out your best-of-breed data analysis tool, use the tips and tricks SI outlined in it’s free e-book (co-authored by Bernard Gunther of Lexington Analytics, now a division of Opera Solutions) on Spend Visibility: An Implementation Guide, and extract even more value for the organization by optimizing not just Supply Management spend, but utilization, service, warranties, Marketing & Legal spend, and every other product and service activity that burns capital and/or creates organizational value.

The Insightful e-book Spend Visibility: An Implementation Guide is still FREE!

That’s right, this illuminating e-book, co-authored by the doctor and Bernard Gunther of Lexington Analytics, now a division of Opera Solutions, which has already been downloaded over 2,450 times, is still completely and totally FREE.

This e-book, which is a rare medium well-dome, really is the definitive book on next level spend analysis performance. It’s one of the first books to not only get to the science of spend analysis, as compared to the elusive art, but to also provide you a detailed 10-step process that you can use to implement spend analysis in your organization and get real, repeatable, results — starting from your first project. And the numerous examples, backed up by 78 figures, really go the extra mile to making theory reality. There’s a reason it has been called one of the most comprehensive step-by-step resource guides I have seen for this industry and a reason the downloads keep going and going like the energizer bunny. It was written to help an average sourcing analyst get results, and that’s exactly what it does.

So if you still haven’t downloaded your FREE copy of Spend Visibility: An Implementation Guide, do so today!

Good Data Will Not Guarantee Good Decisions

It was great to see this recent article in the Harvard Business Review on how “Good Data Won’t Guarantee Good Decisions” now that we are in the age of “Big Data” (which, in business, is Bullshit in Guise) and everyone is diving into their OLAP and reporting tools without even a clue as to what they are (or should be) looking for. There’s data. There’s information. There’s knowledge. There’s the intelligence required to understand it. And then there’s the wisdom to choose the right course of action.

As the authors state, investments in analytics can be useless, even harmful, unless employees can incorporate that data into complex decision making.

In the article, the authors summarized the result of a study by the Corporate Executive Board that evaluated 5,000 employees at 22 global companies. The study separated the employees into three groups:

  • Unquestioning Empiricists
    who trust analysis over judgment
  • Visceral Decision Makers
    that go exclusively with their gut and
  • Informed Skeptics
    who effectively balance judgment and analysis with their strong analytic skills and willingness to listen to others’ opinions but dissent.

Only the latter group are equipped to make good decisions, and, not unexpectedly, only 38% of employees and 50% of senior managers fall into this group.

And when you consider that their analysis also found that the functions where the employees had the highest average scores performed 24% better than other functions across a wide range of metrics (including effectiveness, productivity, employee engagement, and market-share growth), this is not a good thing.

Why is this the case? The researchers identified the following four problems that prevent organizations from realizing better returns on their data investment:

  • analytic skills are concentrated in too few employees
    just because you have a few experts doesn’t mean that the analytics skills will trickle down
  • IT spends too much time on “T” and not enough on “I”
    IT is used to working with functions where business needs are clearly defined, stable, and relatively consistent … when the needs become less defined, IT becomes less able to support them
  • reliable information is hard to locate
    many organizations lack a coherent, accessible structure for the data they’ve collected; the authors found in their survey that fewer than 44% of employees say they know where to find the information they need for their day-to-day work
  • business executives don’t manage information well
    (at least when compared to capital and brand) — they focus on more physical or traditional assets

While not addressed, and possibly not covered, by the study, I’d also add the following to the list:

  • No Good Roadmaps Exist
    Analytics skills are not enough — a guide on how to find the needle in the haystack is also required; take Spend Analysis for example … how many practical guides exist? (At least one.)
  • Lack of EQ
    as an employee needs to not only understand where to look, but when something is worthwhile to chase and when it’s not as there is a need to understand the business impact of what the data might be suggesting which requires understanding the business needs as well as the data

So what can an organization do to get more informed skeptics?

Storytelling in Data

Today’s guest post is from Doug Hudgeon, Director of PitchMap, and a long-time Procurement blogger. Back in the day, he authored a vendor relations blog on WordPress (at hudgeon.wordpres.com) and more recently he authored the Operating Efficiency blog (at OperatingEffieciency.org), which has now been ported to the PitchMap Blog. It originally appeared on the PitchMap blog yesterday (Storytelling in Data), and is being reprinted with kind permission.

Now that we’ve introduced Pitchmap, I’m returning to topics on business operation efficiency. Today’s topic is Telling stories in data: Using data to support your arguments

Yesterday, I attended the first Australian IACCM meeting of the year. The two presenters spoke on very different topics, “Clean energy laws and carbon trading” and “Utilities Benchmarking” but both presenters were equally adept at using data to underpin their arguments. Today, data is everywhere and an effective business person must be an expert in presenting their arguments using data. In my view, there’s nothing like a story to make your audience feel that change can happen and a vision can be achieved.

Storytelling in Data

Let’s look at some Pitchmap data to show how data can be used to tell a story. This data compares the procurement processes of three companies (Salamander Logistics, Melbourne Transport and Queensland Trucking) with each other and with an optimised process. The columns in the chart show the cost per transaction: the higher the column the greater the cost per transaction. The type of transaction is shown by the label above the columns.

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The first story in the above data is indicated by the red arrow. It shows that Melbourne Transport is spending about the right amount on Vendor Creation processes whereas the other two companies, Salamander and Queensland, appear to be under-investing. This does not say that Melbourne Transport is doing it right, just that they are spending about the right amount on it.

The second story is indicated by the yellow arrow. The story within the data is that Melbourne is better than its peers but higher priced than optimal. Interestingly, the purple section of the column (transaction costs relating to invoice processing) is the same as the optimised process but the green section of the column (transaction costs relating to placing orders) is significantly more expensive. This indicates that Melbourne Transport should be focusing its process improvement initiatives on order placement rather than invoice processing.

The last story is highlighted by the blue arrow. Melbourne Transport and its peers are significantly more expensive than the optimised process. This should serve as a red flag in any attempt to re-engineer this process given that no one is doing it particularly well. It may well be that there is some aspect of expense processing such as regulatory requirements in this industry or geography that adds to the cost of the process and further investigation should be undertaken to ascertain whether this is so.

The keys to successful storytelling

The keys to being able to tell stories with data are four-fold:

  1. The data must be clearly displayed – preferably on one page,
  2. The data must show where you are now and where you could be (either by reference to an optimal state or comparison against your peers or benchmarks or all three),
  3. The data must be sufficiently detailed to make the story interesting, and
  4. You need to be able to dive into the details underlying the data when your assumptions are questioned.

Doing so will enable you to present a compelling picture (as in the chart above) of what needs to be changed, how it needs to be changed, and what further inquiries need to be undertaken to resolve outstanding questions.

In my next post, I’ll discuss how to collect and present variable data in a compelling manner.

Thanks, Doug!

Spend Visibility: An Implementation Guide – The Definitive Book on Next Level Performance

Don’t forget to take advantage of this great offer and Download Sourcing Innovation’s “Spend Visibility: An Implementation Guide” – The Definitive Book on Next Level Performance for FREE! No Registration Required!

But don’t take Sourcing Innovation’s Word For It! Listen to these reviews from leading bloggers in Supply Management:

A Rare Medium Well-Done

Vinnie Mirchandani, Deal Architect (January 18, 2012)

This book gets to the science of spend analysis vs. treating it as an art.

Jason Busch, Spend Matters (December 8, 2011)

The guide is well thought-out, practical, and well-written.

Stephen Guth, Vendor Management Office (February 4, 2012)

This guide is very comprehensive and will provide valuable information to both procurement functional and IT implementation focused readers.

Bob Ferrari, Supply Chain Matters (January 17, 2012)

It is, in fact, one of the most comprehensive step-by-step resource guides I have seen for this industry.

William Dorn, The Strategic Sourceror (January 17, 2012)