Spend Analytics Understanding Your Companys Spend Presented by
Spend Analytics Understanding Your Company’s Spend Presented by David Arleth and Thomas Housley May 8 th, 2008
Uses of Spend Analytics • Comparison Benchmarking § Compare annual expenditures § Benchmark intra-company spend Categorization • Compliance Reporting § Identify rogue purchasing § Aggregate spend § Categorize unknown suppliers § Gain insight into spend • Savings Analysis § Prioritize sourcing events § Set realistic targets • Budget Decision-making § Begin best-in-class discussion § Strategize cuts in expenditure
Sample Spend Analysis / Opportunity Identification Timeline 6 - 8 week plan from time of data receipt Data Cleaning and Categorization • Receive fiscal year A/P data • Validate data structure and fields • Cleanse and categorize data • Map categories to schema (UNSPSC, etc. ) Finalize Spend Categorization Data Validation • Validate and refine the initial categorization output • Present initial categorization and review and refine for relevancy • Develop electronic format that allows for dynamic review and manipulation of the categorization Opportunity Identification • Review data with Sourcing and commodity specialists • Develop sourcing • Present refined hypotheses for categorization to core priority categories team • Interview key • Re-categorize select suppliers and commodity classifications based on modifications provided by category owners stakeholders, as appropriate Savings Estimates • 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 Actual time may vary depending on corporate spend size and complexity 3
Apply Savings Estimates Svgs (%) Category Direct Materials Government Marketing Logistics Subcategory IT Products / Services Machinery MRO Travel Address Low High Low Components 30 0% 0 Rubber 20 0% 0 Taxes 30 0% 0 Creative Agency 20 90% 18 Commercial Print 10 90% 9 Truckload 10 80% 8 Ocean 10 80% 8 5 90% 5 Clubs 20 0% Telecom 10 100% Small Parcel Organizations $MM Svgs ($) High 0% 0% 0. 0 8% 13% 2. 2 3. 5 3% 8% 0. 4 0. 9 0 0% 0% 0. 0 10 8% 13% 0. 7 1. 2 6% 12% 0. 5 1. 1 4% 9% 0. 4 1. 0 5% 9% 0. 3 0. 5 4% 8% 0. 2 0. 4 6% 10% 5. 0 9. 0 IT Hardware 5 80% 4 Document Output 5 80% 4 Dies / Cutting 7 90% 6 Material Handling 5 90% 5 General Industrial 3 80% 2 Electrical 2 80% 2 Safety 2 80% 2 Air 3 90% 3 Hotel 3 80% 2 Total 200 44% 87 Spend x Addressability x Savings Identified Savings
Realized Savings Timing Month 1 Wave 1 Address: $23 MM Save: $1. 3 – 2. 2 MM • • • 12 6 18 Monthly Savings Telecom Truckload General Industrial Supplies Electrical Supplies Safety Supplies 1 2 3 70% 80% 90% 4 5 6 7 8 9 10 11 12 95% 100% Compliance 0. 10 0. 12 0. 13 0. 14 0. 15 0. 15 Wave 2 Address: $38 MM Save: $2. 2 – 4. 0 MM • • • Creative Agency Ocean Logistics Document Output Material Handling Equip Hotels Realized Savings • 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 Monthly Savings 1 2 3 70% 80% 90% 4 5 6 7 8 9 10 11 12 95% 100% Compliance 0. 10 0. 12 0. 13 0. 14 0. 15 0. 15 Wave 3 Address: $28 MM Save: $1. 5 – 2. 8 Commercial Print Dies / Cutting IT Hardware Small Parcel Air Travel Monthly Savings 1 2 3 70% 80% 90% 4 5 6 7 95% 100% Compliance 0. 10 0. 12 0. 13 0. 14 0. 15
Consistent and deliberate reporting of non-compliant spend can result in improved savings realization Keys to successful compliance reporting Sample Office Supplies Compliance Report Supplier Spend Lost Savings Cost 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 • Cost Center, end user information integrated into data cubes 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 • Category savings % information to calculate lost opportunity 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 • Identify acceptable off-contract vendors OFFICE DEPOT #358 $52. 58 $8. 33 California MFG David Wehner TUMBLEWEED $43. 35 $6. 87 IT Douglas Warren • Senior level support and visibility to put “teeth” into reporting OFFICE DEPOT $32. 45 $5. 14 IT Scott Ruffin OFFICE DEPOT #406 $14. 99 $2. 38 IT Victor Moyer $15, 002. 99 $2, 377. 97 • Accurate categorizations to ensure rogue vendors don’t slip through the cracks TOTAL 6
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 7
Sample output of a comprehensive spend benchmark Lower Spend/Rev Average Higher Spend/Rev Best Packaging Materials Notes • BIC = Top four ranked companies • Spend/Revenue used as indicator of rank • Customer is better than average for 60% of Chemicals, Gases and Fuels MRO Supplies Administrative Products Eng, Research & Tech Services • Information Technology Products • Marketing Services categories Customer is below average on mostly Corporate driven categories There remains opportunity in deltas from BIC Building and Facility Services Industry Best In Class Vehicles, Vehicle Acc. and Comp. Customer Average Industrial Machinery and Equipment Information Technology Services Financial and Insurance Services Corporate Category Building Materials Administrative Services Industrial Services Partnering with a 3 rd party provider allows for insight into best in class performers otherwise unavailable through internal sources 8
Spend Analysis market overview Three primary paths exist for implementation of a Spend Analysis 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 reengage 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) 9
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