Free Essay

The Abcs of Spend Analysis

In: Business and Management

Submitted By rmacaracena
Words 892
Pages 4
1. Why are data analysis skills and thinking so important to spend analysis? Can’t software applications be used to generate the information needed automatically? In today’s world, advanced technology has provided us with a lot of tools to help sift through and process huge amount of data. However, in spite of all this, the fact remains that data is useless without the skills to analyze it. Critical thinking is still a skill inherent only to humans. Software applications are much capable of generating data automatically, however, only one equipped with data analysis skills can translate that data into information that can support corporate decision-making. Equipped with the right data analysis skills, one would be able to select the significant data from the wide array available and turn it into actionable information. These skills are important in spend analysis as the most critical stage is making sense of the output and deriving strategic solutions based on the information available. The employment of data analysis skills and critical thinking in spend analysis is necessary to reach the goal of enjoying the benefits of spend data management which include reduced material and services costs, better supplier and product management, and lower inventory costs.
2. How might a structured process such as Six Sigma methodology be useful here?

The Six Sigma Improvement Model known as DMAIC can be used in implementing spend management in the enterprise with the aim of continuous improvement. At the Define stage, the team will outline their business goals pertaining to the spend analysis initiative, which could include decreasing total cost of ownership and enterprise spend visibility. The team would also have to identify which data need to be secured in relation to the objectives. Moving on to the Measure stage, the spending process is defined and measured, and data is collected. Key metrics in the spending process are also established. Methods such as benchmarking against best practices and calculating variances from set baselines can be used. Having done so, the team now proceeds to the Analyze stage where the information is reviewed to identify opportunities for improvement in the spending process and derive strategic options to achieve the company’s goals in initiating spend management. This stage translates data collected into actionable information. Tools such as cause-and-effect diagrams, flowcharts, and histograms can be employed. In the next stage Improve, the opportunities and strategic options determined are now translated into processes and procedures which can be implemented in the organization. The successful implementation of such would translate to improvements in process quality, which in continuity would ultimately lead to excellence in spend management. At the final stage, Control measures that are significant to the business goals of the initiative are put into place to make sure that improvements have been achieved and if so, that performance levels are sustained.
3. Why is it important to get other functional areas, notably finance, involved in spend analysis efforts? Can you think of some other functional areas that should be involved?

A representative/s from finance is necessary in spend analysis efforts as they have access to enterprise data which are essential to understanding organizational spending. As the keeper of the company’s financial records, finance has the data on how the company’s resources are utilized and allocated. Furthermore, they manage accounts payables and therefore have a good idea of the company’s spending per supplier, including the timing of spending. Along such information are the invoices kept by finance, which is important to determine items purchased, the quantity, and the unit costs. These data can serve as a basis of what additional data need to be extracted. Furthermore, on a higher level, finance has the data on product and/or services costing, which would give the team an insight on how the purchased inputs contribute to the final output. This establishes the significance of each input in the firm’s production or service processes, and therefore is a good basis of ranking cost drivers in the company. Aside from finance, representatives from operations such as the inventory or raw materials manager, maintenance manager, and logistics manager should be part of the team, as these people/groups are the biggest end-users in the company’s spending process. Majority of the company’s annual spending are to serve the requirements of these departments. Therefore, they should be onboard the spend management initiative for easier implementation of any improvements in the sourcing process.
4. What Opeman concepts in the case will help increase productivity?

In order to produce goods and services, a firm needs utilize and convert various resources. In order to increase productivity, a firm can either reduce input while achieving the same level of output or seek to maintain input while increasing output. Spend management pertains to the former, as it seeks to improve enterprise spending while still being able to produce the goods and services required by the market. The various resources that go into the production process have costs; thru spend management we take a closer look into the expenditures for these resources and use information derived from such exercise to better utilize and allocate the company’s financial assets in sourcing the needed inputs for the business. By managing spending while still achieving desired output, spend management ultimately adds value to the company, as it drives down cost by pursuing informed strategic sourcing strategies.

Similar Documents

Premium Essay

Select Business

...Typical business-case topics include: •Executive Summary •Business Opportunity •Alternatives •Benefits •Costs •Financial Analysis •Assumptions •Constraints •Market Analysis •Organizational Considerations •Sensitivity Analysis •Project Description •Implementation Plan •Recommendations The executive summary highlights the key points in the business case. These include important benefits and the return on investment. The business opportunity describes the motivation for the project that the business case will propose. The business opportunity includes a definition, a statement of scope, and a discussion of objectives that the project will help the organization achieve. A business case analyzes the alternatives to a proposed project. For example, an online learning business case might compare the benefits and costs of classroom learning. All business cases involve at least two alternatives: doing or not doing a project. Benefits and costs are discussed in the next tip. Financial analysis compares benefits to costs (tip 2) and analyzes the value of a project as an investment (tip 3). The analysis may include a cash flow statement, return on investment, net present value, internal rate of return, and payback period. Assumptions are events that a business case assumes will happen. For example, a business case might assume approval from a regulatory agency. Critical assumptions must occur for a project to succeed. Constraints are......

Words: 1147 - Pages: 5

Premium Essay

Finance and Account

...capital and markets, and finally activity based costing. The purpose of this study is to summarize and analyze the implementation of ABC in the banking industry. Total quality management (TQM) is a process of continuous improvement that focuses on increasing customer satisfaction. TQM is founded on the principle that every customer (internal or external) has a set of spoken or latent needs or requirements. The ultimate objective of TQM is to improve the horizontal linkage of operations to produce a product or service. ABC is a fundamental factor in implementing TQM. The implementation of TQM is greatly facilitated by analyzing organizational activities, linking activities to business processes, evaluating cost of quality (prevention, appraisal, and failure), and determining customer perception of value (valueadded activities). A value-added activity is required to meet customer requirements, modifies or enhances raw materials, is a critical step in getting the product or service to the customer, and adds value that customer might be willing to pay for. If the activity is determined to be a non-valueadded activity, one of four things should happen: activity reduction, activity elimination, activity sharing, and activity selection. Not only does ABC support total quality management, but it also supports process value analysis and benchmarking. ABC has been used mainly by manufacturing companies, but recently it has been implemented in service, as well as merchandising,......

Words: 2134 - Pages: 9

Premium Essay

Abc Analysis

...ABC analysis (Inventory) In supply chain, ABC analysis is an inventory categorization method which consists in dividing items into three categories, A, B and C: A being the most valuable items, C being the least valuable ones. This method aims to draw managers’ attention on the critical few (Aitems) and not on the trivial many (C-items). Prioritization of the management attention Inventory optimization is critical in order to keep costs under control within the supply chain. Yet, in order to get the most from management efforts, it is efficient to focus on items that cost most to the business. The Pareto principle states that 80% of the overall consumption value is based on only 20% of total items. In other words, demand is not evenly distributed between items: top sellers vastly outperform the rest. The ABC approach states that, when reviewing inventory, a company should rate items from A to C, basing its ratings on the following rules:    A-items are goods which annual consumption value is the highest. The top 70-80% of the annual consumption value of the company typically accounts for only 10-20% of total inventory items. C-items are, on the contrary, items with the lowest consumption value. The lower 5% of the annual consumption value typically accounts for 50% of total inventory items. B-items are the interclass items, with a medium consumption value. Those 15-25% of annual consumption value typically accounts for 30% of total inventory......

Words: 1498 - Pages: 6

Premium Essay

Acct

...increasing. This suggests that there is no longer a direct link between the level of direct labor and overhead. Indeed, when a company automates, direct labor is replaced by machines; a decrease in direct labor is accompanied by an increase in overhead. This violates the assumption that overhead cost is directly proportional to direct labor. Overhead cost appears to be driven by factors such as product diversity and complexity as well as by volume, for which direct labor has served as a convenient measure. 7-3 Top managers provide leadership that is needed to properly motivate all employees to embrace the need to implement ABC. Top managers also have the authority to link ABC data to the employee evaluation and reward system. Cross-functional employees are also important because they possess intimate knowledge of operations that is needed to design an effective ABC system. Tapping the knowledge of...

Words: 7088 - Pages: 29

Premium Essay

History Is Today

...Harvey Industries’ is experiencing issues with their current inventory control system. The first step in the process to improve the efficiency of the inventory management system is to identify the weaknesses of the inventory management system and their corresponding financial impacts. After the areas of concern are identified, solutions can then be developed. The first area of concern identified is that there is no one single person who is responsible for managing the inventory levels. Therefore, there is no one who has the responsibility for ensuring that inventory costs are minimized. A second area of concern is that there is currently no policy in place which sets the optimal stock levels for each item in inventory. This is a critical issue because out of stock items lower revenue and leads to dissatisfied customers. A third area of concern is that it appears that just one person has access to inventory and the same person holds the responsibility of maintaining inventory records. This is concerning as it can create a conflict of interest and allows for the opportunity for inventory fraud and mismanagement. A fourth area of concern is that stock outs are occurring in the assembly area because no one is responsible for maintaining the inventory stored in this area. When stock outs occur in the assembly area, there is a loss of productivity which leads to added costs to the company. The final area of concern is that there is no paper trail when it comes to controlling...

Words: 873 - Pages: 4

Premium Essay

Management Accounting (1984-1994) – Development of New Practice & Theory

...obsolescence of existing cost and performance measurement systems Three major change in new theory & practices that influence management accounting practices: Activity Based Costing Management Operational Control Systems Performance Measurement: The Balanced Scorecard Activity Based Cost (ABC) Management Traditional cost allocation system that is identical to overhead allocation and direct costing were acknowledged to be obsolete. New cost system shifts the paradigm of how to allocate cost, to the paradigm of how to identify the cost flows from organizational spending to supply resources that create the capability to perform activities. New cost system is valuable for the following reasons: Enhance accuracy of manufacturing overhead cost analysis that influencing product design decisions Accurately assign the organizational cost throughout a company’s value chain to their underlying causes: products, customers, channels and organizational units. Trace resource expenses to the activities performed by the resources. The activity cost could then be traced to individual products, customers, and services as cost objects. Activity Based Cost (ABC) Management Breakthrough for ABC systems came from 2 theoretical developments: Hierarchy for Activity Cost Drivers of indirect and support expenses: Unit–level activities: costs that incur inline with activities that are performed for every unit of product or service produced. The quantity is proportional to......

Words: 605 - Pages: 3

Premium Essay

Cosmetic Industry

...Market Potential Analysis – A study of the Cosmetics Industry in the ABC Islands Master Thesis within Business Administration Author: Danny Reijntjes Ryan Wagijo Tutor: Jönköping Desalegn Abraha May 2012 Master Thesis within Business Administration Title: Market Potential Analysis – A study of the Cosmetics Industry in the ABC Islands Authors: Danny Reijntjes & Ryan Wagijo Tutor: Desalegn Abraha Date: 2012-05-14 Subject terms: Market potential, Aruba, Bonaire, Curacao, Cosmetics. Abstract Background: The main aim of the research is to focus on the market potential of the cosmetic brands in the market of Aruba, Bonaire and Curacao (ABC islands). These islands are located in the Caribbean Sea in front of the coast of South-America. Before starting to expand, international companies first search for potential suitable markets to invest in. This thesis attempts to find out if there is a potential market for the cosmetic products of the companies on the ABCislands. The purpose of the Master thesis is to find out if there is a potential market for new cosmetic products on the ABC islands. To achieve the purpose, the research addresses the market potential analysis. The market of Aruba and Curacao offer a great number of potential clients and a good future prospect. These findings are also supported by research that was conducted in 2007 by the Icongrouponline. Majority of the consumers on the islands are willing to try new professional cosmetics products. Additionally,......

Words: 37005 - Pages: 149

Premium Essay

Swot Analysis of Walt Disney

...An  Analysis  of  The  Walt  Disney  Company    1   An Analysis of The Walt Disney Company Kendall Forward TELE 3310 October 29, 2013 An  Analysis  of  The  Walt  Disney  Company   Overview & History  2   The Walt Disney Company is a leading American diversified multinational entertainment and mass media conglomerate, headquartered in Burbank California. Founded on October 16, 1923 by Walt Disney and his brother Roy as a small cartoon animation studio, the company struggled through years of unsuccessful creations but turned around after the debut of Mickey Mouse, the official mascot of the company. Now headed by CEO Robert Iger, Disney is one of the largest entertainment corporations in the world with approximately 166,000 employees and annual revenues approaching the $45 billion mark (Walt Disney). For eight decades, Walt Disney has entertained people around the world with its theme parks, resorts, cruises, movies, TV shows, radio programming, and memorabilia. Before diversifying into live-action film production, television and travel, the company established itself as a leader in the American animation industry. The company went public in 1940 and was reincorporated under its current name in 1986 and expanded operations and also started divisions focused on theatre, radio, music, publishing and online media (Cohesion Case). Mission Statement The mission of The Walt Disney Company is to be one of the......

Words: 3954 - Pages: 16

Premium Essay

Swot of Walt Disney Company

...An#Analysis#of#The#Walt#Disney#Company# !1! An Analysis of The Walt Disney Company Kendall Forward TELE 3310 October 29, 2013 An#Analysis#of#The#Walt#Disney#Company# Overview & History !2! The Walt Disney Company is a leading American diversified multinational entertainment and mass media conglomerate, headquartered in Burbank California. Founded on October 16, 1923 by Walt Disney and his brother Roy as a small cartoon animation studio, the company struggled through years of unsuccessful creations but turned around after the debut of Mickey Mouse, the official mascot of the company. Now headed by CEO Robert Iger, Disney is one of the largest entertainment corporations in the world with approximately 166,000 employees and annual revenues approaching the $45 billion mark (Walt Disney). For eight decades, Walt Disney has entertained people around the world with its theme parks, resorts, cruises, movies, TV shows, radio programming, and memorabilia. Before diversifying into live-action film production, television and travel, the company established itself as a leader in the American animation industry. The company went public in 1940 and was reincorporated under its current name in 1986 and expanded operations and also started divisions focused on theatre, radio, music, publishing and online media (Cohesion Case). Mission Statement The mission of The Walt Disney Company is to be one of the world's leading producers and providers of entertainment and information.......

Words: 3954 - Pages: 16

Premium Essay

Nam Duong Bank

...ACTIVITY-BASED COSTING IN THE SERVICE SECTOR - NAM DUONG BANK Nam Duong Bank began operations in the mid-1990s. The bank quickly grew by providing checking account services to many small businesses that preferred to do business with a "local" bank. Although Nam Duong initially offered checking account services for individual accounts (retail customers), the bank primarily focused on serving its business customers. During the Asian financial crisis after the mid-1990s that weakened the Vietnamese economy, growth in business customer accounts began to decline. In response, Nam Duong's senior management adopted a new strategy, focusing on increasing the number of retail customer accounts. By aggressively marketing individual retail accounts, Nam Duong continued to grow. Today, Nam Duong Bank strives to maintain a stable base of business customers, while actively competing for an increased market share of retail customers. Recent income statements (Exhibit A) reveal a decline in the bank's profits. The bank's primary (noninterest) expense consists of salaries and employee benefits. Most full-time employees' first priority is providing services to customers; these employees conduct their administrative responsibilities during slack times. The Bank schedules additional part-time employees to work during peak demand times, from 11 am - 2 pm and Friday afternoons. Flexibility in scheduling part-time employees means that the bank's staff is lean and fully utilized. Nam Duong's......

Words: 2383 - Pages: 10

Premium Essay

Sally Case

...Sally under in the ABC systems is, her application of the 150% for both the internal control and information systems departments. The flaw here is that Sally is kind of using both the ABC and the standard cost system at the same time in determining the charge out rate for the two departments. This will inflate the charge out rate for the internal control consulting, with the information system consulting been reduced, considering the activities performed in the information systems consulting which includes software development, installation, conversion assistance, and training. Yes The key here is that we would be basing the cost driver rate by actual capacity, not practical capacity so cost issues could still be hidden and there is not incentive to be more efficient. For example, it may turn out they have similar subscriptions or four people have the same subscription and they don’t know. 1/4 D Since Sally’s company is a service company, activity based costing is ideally suited for her organization. This is because virtually all the cost of her firm is indirect and appears to be fixed. The large component of apparently fixed costs in her firm arises because, unlike manufacturing companies, service companies have virtually no material costs—the prime source of short-term variable costs. Three ways in which ABC leads to accurate product cost for Sally are outlined below. Firstly, ABC provides more appropriate means of charging support costs to products. ABC allows......

Words: 945 - Pages: 4

Premium Essay

Sdfdsfdsfdsf

...What-If Analysis and Activity-Based Budgeting Forecasting Resource Demands Excerpted from Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits By Robert S. Kaplan, Steven R. Anderson Harvard Business Press Boston, Massachusetts ISBN-13: 978-1-4221-2227-3 2227BC Copyright 2008 Harvard Business School Publishing Corporation All rights reserved Printed in the United States of America This chapter was originally published as chapter 5 of Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits, copyright 2007 Harvard Business School Publishing Corporation. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to permissions@harvardbusiness.org, or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163. You can purchase Harvard Business Press books at booksellers worldwide.You can order Harvard Business Press books and book chapters online at www.harvardbusiness.org/press, or by calling 888-500-1016 or, outside the U.S. and Canada, 617-783-7410. chapter five WHAT-IF ANALYSIS AND ACTIVITY-BASED BUDGETING Forecasting Resource Demands the full benefits from Time-Driven ABC only if they adjust the supply......

Words: 7486 - Pages: 30

Premium Essay

Business Plan

...Table of Contents 1. Executive Summary .................................................................................................................................. 4 1.1 Business Overview .............................................................................................................................. 4 1.2 Business Model ................................................................................................................................... 4 1.3 Market Analysis ................................................................................................................................... 4 1.4 Financial Projections ........................................................................................................................... 5 1.5 Financial Needs ................................................................................................................................... 5 1.6 Debt Repayment Plan ......................................................................................................................... 5 2. Business Overview ................................................................................................................................... 6 2.1 Vision and Goals .................................................................................................................................. 6 2.2 Business Location .......................................................................................

Words: 9643 - Pages: 39

Premium Essay

Sport Achievements

...MANAGEMENT S T R AT E G Y MEASUREMENT M A N AG E M E N T AC C O U N T I N G G U I D E L I N E Customer Profitability Analysis By Marc J. Epstein Published by The Society of Management Accountants of Canada, the American Institute of Certified Public Accountants and The Chartered Institute of Management Accountants. N OT I C E TO R E A D E R S The material contained in the Management Accounting Guideline Customer Profitability Analysis is designed to provide illustrative information with respect to the subject matter covered. It does not establish standards or preferred practices.This material has not been considered or acted upon by any senior or technical committees or the board of directors of either the AICPA, CIMA or The Society of Management Accountants of Canada and does not represent an official opinion or position of either the AICPA, CIMA or The Society of Management Accountants of Canada. Copyright © 2000 by The Society of Management Accountants of Canada (CMA Canada), the American Institute of Certified Public Accountants, Inc. (AICPA) and The Chartered Institute of Management Accountants (CIMA). All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, without the prior written consent of the publisher or a licence from The Canadian Copyright Licensing Agency (Access Copyright). For an Access Copyright Licence, visit www.accesscopyright.ca or call toll free...

Words: 15434 - Pages: 62

Premium Essay

Managerial Accounting

...|Name of Course |Managerial Accounting | |Course Code |EBF 2043 | |Credit hours |3 | |Prerequisite |Accounting | |Synopsis |The course introduces the vital role played by management accounting and the information provided by management accounting information | | |systems (MAIS) in a firm or an organisation. Management accounting is used for decision making, learning, planning and controlling | | |activities that are supporting operational and strategic needs. It also supports continuous learning and improvement activities and | | |serves as a linkage between strategy and execution of that strategy. | |Learning outcomes |At the end of this course, students are able to: | | |Compare and explain......

Words: 2279 - Pages: 10