Spend Intelligence: A Matter of Thought Versus Knowledge

Posted on February 3, 2011

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As Lord Acton said, historical thought is far more important than historical knowledge. Historical thought is using the lessons of history to understand the present and to make decisions for the future. In other words, it was by using history as an analytical tool and making use of the lessons of history that our founders brought our constitution into being.

from The Lessons of the Roman Empire for America Today by J. Rufus Fears, Ph.D., December 19th, 2005

As many of you probably already know, I am a prolific writer in that I post several articles on a daily basis for 10 blogs, a variety of other electronic media as well as my books.  I love writing simply because the sheer volume of topics for which I have an interest is humblingly sizable meaning that I am in a perpetual state of learning.

In fact I believe that it is this constant pursuit of learning that provides the checks and balances that ensure content relevancy on an ongoing basis.  A kind of the older I get, the smarter my parents become kind of mindset.

Of course learning from history is at the heart of today’s topic in that in my research for an article in the PI Window on Business Blog regarding the current turmoil in Egypt (Unintended consequences: Like Vietnam which triggered the Six Day War, is the present day Mideast crisis an unintended consequence of U.S. policy regarding Iran?), I drew a parallel between knowing history and understanding what it means, and the emergence of spend intelligence solutions as a key driver for enterprises today.

As Lord Acton had so observantly opined, having a great deal of historical knowledge (which is more readily available now through the Internet than at any other time in the past), without a corresponding historical thought or understanding of its actual meaning  limits the effectiveness of our ability to respond and/or to adapt to a changing reality.  Hence why the old adage that those who fail to learn from history are doomed to repeat it endures in its relevancy.

Present day spend intelligence solutions offer an unparalleled and instantaneous view into an organization’s spending patterns that when aligned with centrally established objectives can immediately identify where and when a front-line action might conflict with the collective interests of the organization.

I am not just talking about buying from the right supplier at the right price – although this is in its most basic form the lens through which spend intelligence solutions have traditionally been vectored.  What I am talking about is the significant and adjunct effects of a purchasing decision on areas of increasing importance such as SME diversity utilization, economic impact and ultimately collective impact value.

In essence, purchasing does not operate as an island unto itself, a fact that has become increasingly clear with the realization on the part of senior executives that there is a definite strategic element to procurement and supply chain practice, especially in a globalized market.  Simply being able to ensure that a buyer is complying with a centrally negotiated contract is no longer a sufficient indication of true performance.  Instead we need to understand the implications of a purchasing decision in Des Moines in the broader sense of its effect on production in China.

Nothing demonstrated the veracity of this statement more than the Toyota accelerator problem where in the name of cross model manufacturing efficiency and volume savings relative to parts, the Japan automaker forgot that streamlined productivity without considering real world implications is a flawed strategy with potentially negative (and for it’s customers, deadly) consequences.

The Toyota example raises a number of serious questions relative to how this new abundance of intelligence is processed in terms of assessing implications in and under multiple scenarios.

For example, should Toyota have looked at the concept of establishing cross model manufacturing part utilization through a multifaceted  lens in which the potential failure of a single component was examined in the context of a what if scenario in different areas, as a means to properly assess the risk?  In essence, did the intelligence associated with potential savings drive the decision making versus empowering it.  There is as we have learned a world of difference between the two.

There are of course a myriad of other examples that I could sight from poorly conceived vendor rationalization strategies to the embracing of low cost country sourcing to name just a few.

But the real issue upon which today’s post is focused is not on the availability or misuse of intelligence, but the understanding of it and, whether or not purchasing professional have been truly equipped with the necessary skill sets to appreciably leverage this bounty of data to turn it into meaningful and actionable insight.

Like the computers on a plane will ensure that it will fly the charted course, automatically making adjustments to changing weather patterns and the like, it still takes a pilot to properly program the system in the first place, as well as monitor real-world conditions to ensure that the end destination – including the chosen route, is where the vessel should ultimately go.  In short, have education programs within the industry kept pace with technological advancement, and in the process kept the purchasing professional ahead of the technology?

This is an important question, and one which we had raised in our two-part guest panel discussion series on Blog Talk Radio which originally aired in the spring of 2009.  (Note: here are the links to both the April 9th – Is The Traditional Association Model Dead?, and the May 21st – Is The Traditional Association Model Dead? (Part 2) broadcasts.)

While there has definitely been a recognition of the need to change both the understanding and skill sets of the profession in recent years, has there been a substantive evolution beyond the mere semantics of changing an association name from a purchasing to supply chain designation?

A 1994 paper in the Journal of Business Logistics by John Pooley and Steven C. Dunn titled “A longitudinal study of purchasing positions: 1960-1989,” attempted to bridge the gap between concepts and (actual) practice.  It was an interesting undertaking and one that is worth reading.

But here we are almost 17 years later and have we gained any appreciably insights outside of anecdotal references based on a collective sensing that provides us with the tools that lead to our understanding of the knowledge that is now readily at our fingertips?

What’s interesting is that the answer to this question is not nearly as important as it contemplation, as an answer tends to confine rather than broaden one’s openness to new ideas and patterns of thought.  It is perhaps through this openness that the true power of today’s Intelligence solutions or dashboards can be harnessed effectively.

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