Post on 24-Dec-2015
Spend AnalyticsUnderstanding Your Company’s Spend
Presented by David Arleth and Thomas Housley
May 8th, 2008
Uses of Spend Analytics
• Comparison Benchmarking Compare annual expenditures Benchmark intra-company spend
• Compliance Reporting Identify rogue purchasing Aggregate spend
• Savings Analysis Prioritize sourcing events Set realistic targets
• Budget Decision-making Begin best-in-class discussion Strategize cuts in expenditure
Categorization
Categorize unknown
suppliers Gain insight into spend
3
Sample Spend Analysis / Opportunity Identification Timeline
Opportunity Identification
• Review data with Sourcing and commodity specialists
• Develop sourcing hypotheses for priority categories
• Interview key stakeholders, as appropriate
• Develop estimated savings opportunity based on market knowledge, category expertise, and database benchmarks
• Finalize commodity sourcing strategies & economic opportunities
• Present initial recommendations for sourcing plan
Savings Estimates
Data Cleaningand
Categorization
Data Validation
Finalize Spend Categorization
• Receive fiscal year A/P data
• Validate data structure and fields
• Cleanse and categorize data
• Map categories to schema (UNSPSC, etc.)
• Validate and refine the initial categorization output
• Present initial categorization and review and refine for relevancy
• Re-categorize select suppliers and commodity classifications based on modifications provided by category owners
• Develop electronic format that allows for dynamic review and manipulation of the categorization
• Present refined categorization to core team
6 - 8 week plan from time of data receipt
Actual time may vary depending on corporate spend size and complexity
Apply Savings Estimates
Svgs (%) Svgs ($)
Category Subcategory $MM Address Low High Low High
Direct MaterialsComponents 30 0% 0
0% 0% 0.0 0.0Rubber 20 0% 0
Government Taxes 30 0% 0 0% 0% 0.0 0.0
MarketingCreative Agency 20 90% 18
8% 13% 2.2 3.5Commercial Print 10 90% 9
Logistics
Truckload 10 80% 8
3% 8% 0.4 0.9Ocean 10 80% 8
Small Parcel 5 90% 5
Organizations Clubs 20 0% 0 0% 0% 0.0 0.0
IT Products / Services
Telecom 10 100% 10 8% 13% 0.7 1.2
IT Hardware 5 80% 46% 12% 0.5 1.1
Document Output 5 80% 4
MachineryDies / Cutting 7 90% 6
4% 9% 0.4 1.0Material Handling 5 90% 5
MRO
General Industrial 3 80% 2
5% 9% 0.3 0.5Electrical 2 80% 2
Safety 2 80% 2
TravelAir 3 90% 3
4% 8% 0.2 0.4Hotel 3 80% 2
Total 200 44% 87 6% 10% 5.0 9.0
Spendx Addressability
x Savings
Identified Savings
Monthly Savings
1 2 3 4 5 6 7 8 9 10 11 12
70% 80% 90% 95% 100% Compliance
0.10 0.12 0.13 0.14 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15
Monthly Savings
1 2 3 4 5 6 7 8 9 10 11 12
70% 80% 90% 95% 100% Compliance
0.10 0.12 0.13 0.14 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15
Wave 1Address: $23MMSave: $1.3 – 2.2MM
• Telecom• Truckload• General Industrial Supplies• Electrical Supplies• Safety Supplies
Wave 2Address: $38MMSave: $2.2 – 4.0MM
Month 1 6 12
Realized Savings Timing
• Creative Agency• Ocean Logistics• Document Output• Material Handling Equip• Hotels
• Commercial Print• Dies / Cutting• IT Hardware• Small Parcel• Air Travel
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Monthly Savings
1 2 3 4 5 6 7
70% 80% 90% 95% 100% Compliance
0.10 0.12 0.13 0.14 0.15 0.15 0.15
Wave 3Address: $28MMSave: $1.5 – 2.8
• Savings count 12 months after implementation
• For most categories (particularly spend at facilities), there will be a ramp-up to adoption and compliance for a newly implemented supplier
• Product substitution, testing, etc., may push implementation and adoption beyond the expected timeframe
• Identified Savings x Compliance = Realized Savings
Realized Savings
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Consistent and deliberate reporting of non-compliant spend can result in improved savings realization
Sample Office Supplies Compliance Report
Supplier SpendLost
SavingsCost Center Description
Cost Center Manager
ID TECHNOLOGY INC $12,269.67 $1,944.74 California MFG David Wehner
ID TECHNOLOGY INC $780.93 $123.78 California MFG David Wehner
OFFICE DEPOT #358 $576.78 $91.42 California MFG David Wehner
OFFICE DEPOT #662 $369.58 $58.58 California MFG Rupert Fox
ID TECHNOLOGY INC $345.96 $54.83 Denver DC John Kirk
OFFICE DEPOT #512 $156.64 $24.83 Philadelphia Sales Jennifer Sheff
ID TECHNOLOGY INC $138.61 $21.97 Philadelphia Sales Jennifer Sheff
OFFICE DEPOT #512 $68.91 $10.92 Philadelphia Sales Jennifer Sheff
OFFICE DEPOT #358 $52.58 $8.33 California MFG David Wehner
TUMBLEWEED $43.35 $6.87 IT Douglas Warren
OFFICE DEPOT $32.45 $5.14 IT Scott Ruffin
OFFICE DEPOT #406 $14.99 $2.38 IT Victor Moyer
TOTAL $15,002.99 $2,377.97
Keys to successful compliance reporting
• Accurate categorizations to ensure rogue vendors don’t slip through the cracks
• Cost Center, end user information integrated into data cubes
• Category savings % information to calculate lost opportunity
• Identify acceptable off-contract vendors
• Senior level support and visibility to put “teeth” into reporting
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Spend analysis can enhance Category Management and Supplier Performance Management
• When used in conjunction with a comprehensive supplier performance management program, spend analysis can yield the following benefits: Provide supplier with visibility into line item data for additional continuous
improvement opportunities (ex. mfg discounts) Provide category manager and supplier with visibility into additional spend
(ex. items to target at the plant level) Depending on availability of data, reports can be generate to share KPI’s
such as lead times, order accuracy, invoice exceptions
• Reduce the number of instances of a supplier name in AP system to streamline invoicing process for suppliers and customer
• Identify areas of concerns through analysis of YOY category spending trends
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Packaging Materials
Chemicals, Gases and Fuels
MRO Supplies
Administrative Products
Information Technology Products
Marketing Services
Building and Facility Services
Industrial Services
Vehicles, Vehicle Acc. and Comp.
Industrial Machinery and Equipment
Administrative Services
Information Technology Services
Building Materials
Eng, Research & Tech Services
Financial and Insurance Services
Lower Spend/Rev Average Higher Spend/Rev
Notes• BIC = Top four ranked companies
• Spend/Revenue used as indicator of rank
• Customer is better than average for 60% of categories
• Customer is below average on mostly Corporate driven categories
• There remains opportunity in deltas from BIC
Best
Partnering with a 3rd party provider allows for insight into best in class performers otherwise unavailable through internal sources
Industry Best In Class
Customer Average
Corporate Category
Sample output of a comprehensive spend benchmark
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Spend Analysis market overview
Three primary paths exist for implementation of a Spend Analysis Solution
Solution Path Advantages Disadvantages
Software Provider: Emptoris, Ketera, Procuri, BIQ, Zycus
• BI Software enables dynamic “drill downs” and manipulate of data
• Solution can be distributed to large user base• SAAS solutions cheaper and easier to
implement• Typically self service: customer categorizes
(control)
• Lack of strong sourcing/category expertise • Hosted solutions are expensive to implement
and maintain• Typically self service: customer categorizes
(time/effort)
Procurement Service Provider: ICG Commerce, Accenture, IBM
• Strong category expertise resulting in more accurate categorizations
• Strong sourcing expertise resulting in improved savings identification and implementation
• Typically more “accepting” of customer specific schemas
• Provider will categorize data with validation from client
• More expensive, as typically part of a larger outsourcing or consulting agreement
• Typically one time events, will need to re-engage provider for refresh if you are not in long term agreement
In house solution: Customer resources
• Can be customized to meet customer’s needs (ERP integration)
• Potentially less expensive depending on IT infrastructure (ex. Oracle APEX platform)
• Very IT extensive• Lack of expertise in spend analytic design
principals (fuzzy matches, auto mapping, data cube development)