This rather short section Task 1-B-3 is a power packed section and has become even more important with the availability of "Big Data." See a marketing Big Data example.
In the supply field, let's say that you have 100,000 items bought from 10,000 vendors and these items include leverage items, bottleneck items, strategic items and non-critical items (see the Kraljic Matrix post). What if you could analyze exactly which suppliers were involved in which category, what their quality and reliability performance was and yes what was the dollar value purchased from each supplier? - You could make some great decisions. For example:
- If you had low performing suppliers in non-critical items - you could simply fire them and find other suppliers without disrupting operations.
- Similar low performance would have shown up in catastrophes with bottleneck suppliers because your production might have stopped. With the data you know exactly which suppliers to bet on and also the exact inventory holding cost for bottleneck items.
- If a leverage (e.g. raw material) supplier has been performing badly ... you might have heard from your production planning folks but now you can systematically shift some volume from the ailing supplier as you try to visit them and help sort out problems.
- A Strategic supplier (like a consultant) doing badly is difficult to find out only from spend analysis because you only know you paid bills, but are not sure whether the spending got you the results you were paying for.
In other words, strategic action from spend analysis is not just about consolidating suppliers but also about taking your organization to the next level through strategic action based on hard data. And where does the strategic insight come from? It comes from your Company's mission statement and your supply department's mission statement. In other word's look for clues about the direction the company wants to go as you weigh your options of what to do with the spend analysis data.
Getting "Big Data" is really easy and your ERP system is the best bet, (see earlier post). Asking the right spend analysis questions most important to your organization is the challenge. Think of a high dollar value leverage item supplier who supplies some low value bottleneck items as well. Before you remove highly specialized bottleneck item suppliers (because they have such a low $ value) stop and think strategically. It might be a better idea to have the leverage item supplier focus only on the leverage items and deliver more innovation there than do a half-hearted job on the low billing bottleneck items that is only of marginal interest to the supplier.Taking out the bottleneck items from a leverage raw material supplier might be a better option.
To summarize, for this section think first about your strategy choices, they seek spend data analysis data, take data driven action that makes sense for your particular situation.