Spend analysis describes the application of various quantitative processes or techniques of data, used in purchases with a vivid intention of getting a better understanding of the spending patterns (Pandit, 2008). Besides, it further helps in getting an insight into other areas of opportunity that might need improvement. The aspect of spend analysis involves various processes such as the collection, purification, classification and analysis of various expenditures within a company. The aspect is carried out with a primary aim of cutting down on the cost of procurements, increasing the rate of efficiency within an organization and checking on a company’s compliances. Furthermore, a spend analysis can be very important in the identification of various aspects within a company, such as the bulk of spending and to identify if an organization has any spending patterns (Pandit, 2008).
The information obtained from a spend analysis can be very vital to a company as it enable it to a clear view into areas that might require a reduction in cost and identify other areas that might need improvement. Besides, the company is in a position to identify if any compliance opportunity arises and take necessary advantage of it (Pandit, 2008). The process of carrying out a spend analysis might be time-consuming and long, but with proper analysis and presentation of data and cooperation between different departments within the company, the process often becomes beneficial. Data analysis, on the other hand, refers to the collection and transformation of data and extraction of important information (Ott, 2009). The information is vital as it might help the organization in the implementation of certain changes that will aid in profit increase and cost reduction.
The current corporate world is loaded with complex technology, and any data or information that carries business aspect has become very crucial in terms of decision-making and daily operations (Ott, 2009). It is further to note that the future of companies or organizations mainly depends on the results and the decision of the data obtained from these operations. The main challenge that remains though is how this data can be put together and sense made out of it.
The application of critical thinking and data analysis are very critical to spend analysis since the extracted information mostly requires the element of a human being to synthesize and understand it (Pandit, 2008). Moreover, data only becomes valuable to a given organization if it is properly analyzed and proper action taken upon it. Most companies in the current organizational set ups, who engage in data collection about certain aspects, often acquire the services of experts. The experts often have the required skills and know-how to transform this data and allow the organization to understand and act on it (Pandit, 2008).
The data presented in graphs and charts can further be helpful in consolidating huge amounts of data to a format that is easy to read (Ott, 2009). The aspect will further bring out a clear view on some patterns of the company’s spending which would otherwise go unnoticed. The use of histograms can be important in showing a company’s overall spending history or certain categories within the companies set up that spends the most. Members of a company can further rely on other statistical charts such as the pie charts, to depict the percentage of various departmental spending (Ott, 2009). Therefore, the analysis of data is one of the most vital aspects for the improvement efforts of any given company. The organizations should, therefore, be in a position to know the kind of data that is meaningful to them and how to apply the data analyzed into the real world situation.
The Six Sigma describes a tool for improving business processes to minimize high-level mistakes within an organization. In most cases, the structured process can easily be integrated into the spending analysis of a company with much success. From a statistical point of view, the quality of a Six Sigma process can produce only 4.4 defects in every million opportunities that arise (muhandharan, 2015). Furthermore, if the process is taken as an improvement methodology process, then Six Sigma can be vital in the utilization of the rigorous analysis of data to effectively minimize data variation. When conducting a spend analysis, a company may effectively utilize the methodology of Six Sigma, which contains mostly of five important processes namely definition, analysis, improvement, measurement and the control process(DMAIC).The five critical processes gives a clear guideline to be followed in improving the processes that exist within an organization (muhandharan, 2015).
The first process of definition is vital as it aids in defining the goals to be accomplished by the spend analysis and how such goals are important in improving the aspect of an organization. Furthermore, the process will enable the data analyst not to lose any focus while carrying out their task of gathering and analyzing data. Furthermore, the process ensures that no effort that will be beneficial to the company is wasted. In the second step, the Six Sigma mostly concentrates majorly on the measurement of the processes existing within the organization (muhandharan, 2015). The aspect involves the analyst validating every currently existing company process, gathering company’s process data and measuring the current company’s performance.
In the analysis step, the information that had been gathered is analyzed, and it is vital in isolating and validating certain processes that seem to be not cost effective for the company. The aspect enables organizations to find out the cause of certain isolated issues such as quality, poor policies in purchasing, low performance and issues to do with compliances within the organization (muhandharan, 2015). The improvement step allows for improvement of some processes that had been isolated without notice during the analysis process. The last step in this process is the control process, where the organizational processes are established. The new processes will further require implementation of procedures to ensure organization members acquire proper understanding of the accomplishment the new processes will give to the organization. The new processes will, therefore, require control so as to ensure the future success of the processes (muhandharan, 2015).
In the process of applying the spend analysis, it is vital to utilize the effort of other key functional areas of the business such as the finance department (Pandit, 2008). The aspect is important because in the process of going through certain areas such as the invoice system, account payables, purchase order acquisition and invoices, the team involved in the spend analysis can easily and quickly get result that clearly shows whether a given project has potential and good value. Furthermore, the finance department members contain the requisite knowledge and training, which can enable them to check through its data system and point out valuable information from the reports (Pandit, 2008). The members further have the ability to answer questions and verify certain financial reports that the spend analysis team might require instantly. In addition the efforts of the purchase department might also be vital when working with the spend analysis, since the department will be important in gathering information on services and goods that need to be acquired from suppliers and outsourced goods and services information.
Muralidharan, K. (2015). Six Sigma Process. In Six Sigma for Organizational Excellence (pp. 39-48). Springer India.
Ott, L., Longnecker, M., & Ott, R. L. (2009). An introduction to statistical methods and data analysis (Vol. 511). Pacific Grove, CA: Duxbury.
Pandit, K., & Marmanis, H. (2008). Spend analysis: the window into strategic sourcing. J. Ross Publishing.