Transcript Document

Spend Analytics
Understanding 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
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
• Present refined
categorization to core
team
• Re-categorize
select suppliers
and commodity
classifications
based on
modifications
provided by
category owners
Opportunity
Identification
• Review data with
Sourcing and
commodity
specialists
• Develop sourcing
hypotheses for
priority categories
• Interview key
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
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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%
0
Telecom
10 100%
10
Small Parcel
Organizations
$MM
Svgs ($)
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
High
0%
0%
0.0
0.0
0%
0%
0.0
0.0
8% 13%
2.2
3.5
3%
8%
0.4
0.9
0%
0%
0.0
0.0
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
Spend
x Addressability
x Savings
Identified
Savings
Realized Savings Timing
Month 1
Wave 1
Address: $23MM
Save: $1.3 – 2.2MM
•
•
•
•
•
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 0.15 0.15 0.15 0.15 0.15 0.15
Wave 2
Address: $38MM
Save: $2.2 – 4.0MM
•
•
•
•
•
Monthly Savings
Creative Agency
Ocean Logistics
Document Output
Material Handling Equip
Hotels
• 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
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 0.15 0.15 0.15 0.15 0.15 0.15
Wave 3
Address: $28MM
Save: $1.5 – 2.8
Realized Savings
• Savings count 12 months after implementation
1
•
•
•
•
•
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 0.15 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
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
$15,002.99
$2,377.97
• Accurate categorizations to
ensure rogue vendors don’t
slip through the cracks
• Identify acceptable off-contract
vendors
• Senior level support and
visibility to put “teeth” into
reporting
TOTAL
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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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Sample output of a comprehensive spend benchmark
Lower Spend/Rev  Average  Higher Spend/Rev
 Best
Packaging Materials
Notes
Chemicals, Gases and Fuels
•
•
•
MRO Supplies
 Administrative Products
Eng, Research & Tech Services
•
 Information Technology Products
•
 Marketing Services
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
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 3rd party provider allows for insight into best in
class performers otherwise unavailable through internal sources
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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 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)
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