Transcript Spend Analysis and Spend Management

Optimizing your spend
An Introduction to Spend Analysis
and Spend Management
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Spend Analysis and Spend Management
• What are they?
• Who uses them? Who are they relevant to?
• Why bother?
• How are they done?
• What does the Spend Analysis process look like?
• What spend management projects could I undertake after a spend
analysis to identify savings?
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
In the name of transparency…
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Let’s agree on a few things first…
Spend data comes primarily
Do
What
youdo
trust
youyour
call current
spend
from Ask
the AP,
ERP or FMS
questions
outsidedata?
of contract?
systems…
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
What are they?
Spend Management:
Spend Analysis:
What you do with the
What you do to the data…
data…
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Spend Analysis
AP
Data
PO
Data
pCard
Data
Cleanse
Spend
Data
Classify
Enhance
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Spend Management
…is the proactive use of spend analysis data to carry
out the following within the organization:
Improve
Processes
Manage
Maverick
Spend
Manage
Supplier
Relationship
Manage Risk
Recover
Overpayments
Procure Cooperatively
Reduce
Disparity
Source More
Locally
Ensure Legal
Compliance
Benchmark
Relative
Position
Quantify
Savings
Deliver
Savings
Spend
Data
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Who uses them?
Spend
Spend
Management:
Analysis:
Procurement
Everyone
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Spend Analysis Survey
84.4%
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Spend Management
Buyers
Budget
Holders
Audit
Department
Procurement
Managers
Spen
Spend
d
Data
Data
Legal
Department
Contract
Managers
Finance
Department
Accounts
Payable
Economic
Development
Equality
Officers
Environmental
Officers
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Why bother?
Spend Analysis:
Spend Management:
If you can’t trust the data,
In order to save, you have
how can you trust the
to know what you spend…
analytics?
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Why bother?
Challenges
Obstacles
Cut spending but not
services – do more
with less
System data isn’t good
enough/ doesn’t
contain all of the data
Spend more with
Local/ Small/ Diverse
Suppliers
Multiple systems
within the organization
Be transparent
No two organizations
have the same system
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
What are the solutions?
Solutions
Software
Data
Guidance
AP system
tools
Spend Analysis
Provider
Customized
consultancy
project
E-Procurement
Hire a Data
Analyst / Excel
or Access
Expert
Analytics/ BI
tools
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
How are they done?
Here is how spend analysis
is done…
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
How is spend analysis done?
1. Supplier name
2. Supplier address
Invoice of
number
53. Pieces
Data
4. Invoice date
5. Spend value
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
How is spend analysis done?
Level 1
Analysis of AP
Spend
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Analysis of
PCard spend
Analysis of
eProcurement
spend
How is spend analysis done?
Level 2
Export from
AP, pCard and
PO systems
Sense check
exports
Stitch exports
together
Manipulate in
Excel, Access
etc.
Enhance data
on top 25
suppliers
Manually
classify
suppliers
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
How is spend analysis done?
Level 3
Export from
AP + pCard +
PO Systems
Standardize
exported
data
Check
fitness/
accuracy of
data export
Manually
validate
classification
Classify to
common
taxonomy
De-duplicate
supplier
records
Validate
value and
volume with
organization
Enhance
supplier
information
Link to a
master
record
Provide MI
tools and
export
function
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Spend
Data
How is spend analysis done?
Basic assumptions
One version of the truth – how much was actually spent
Extract in an electronic format…
Common Pitfalls
• Finance or IT teams too busy to extract
• Data extracted incorrectly and not checked
• Relying on user entered classifications
• Existing tools are designed for analysts
• Assuming classification is easy
• Assuming data can be stitched together
• Assuming software can do it for you
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Using the results of spend analysis
4. Contract
Compliance
3. Terms in the
Top Tier
5. Category
Rationalization
2. Long Tail
Consolidation
6. Category
Extension
1. Invoice
Consolidation
7. Aggregation
with others
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Example Savings Opportunity
If I could
answer
these
questions, I
could find
savings…
If I want to answer
those questions,
this is the data I
need…
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Invoice Reduction
Identifying Savings:
• Which suppliers should I seek
weekly/monthly invoices
from?
Aggregate
number of
invoices per
supplier
• Which category of suppliers
are giving me an invoice
volume problem?
• Which suppliers would be best
to move order and payment to
pCard?
Average
invoice value
per supplier
Supplier
Names
• How much could I save by
moving to pCard?
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
$
Invoices by
value range
per supplier
43,979 invoices < $500
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Long Tail Consolidation
Identifying Savings:
• Which suppliers do I spend
less than $1000 per year
with?
• Which suppliers do I only have
one transaction with per year
which I could lose?
• Which departments are using
a lot of “one time” suppliers?
Aggregate
spend per
supplier
Supplier
Name
• Which categories do we have
a lot of small suppliers in?
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Aggregate
number of
invoices per
supplier
$
Category of
supplier
Department
spend per
supplier
442 suppliers <$1000
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Terms in the Top Tier
Identifying Savings:
• Which suppliers do I spend the
most with and how many
departments do they supply?
• How many other suppliers are
in the same category as my
top tier suppliers?
• Are all of my departments
getting the same “best rate?”
Category of
supplier
Department
spend per
supplier
Aggregate
spend per
supplier (deduplicated)
Supplier
Name
• How much do my top tier
suppliers rely on my business?
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Other
suppliers in
the same
category
Percentage
of supplier’s
turnover
represented
$
Contracts
already in
place
84 suppliers >$250,000
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Compliance
Identifying Savings
• Which departments aren’t
using the preferred/
contracted supplier in a given
category?
• Which categories of spend
don’t have any contracts in
them?
• Is my data source up to date
enough to deal with offcontract spend quickly?
Category of
supplier
Other
suppliers in
the same
category
Aggregate
spend per
supplier
Supplier
Name
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Dept.
spend per
supplier
Current
contracts
Categories
with no
contracts
$
Monthly
spend
information
36% average with contracted suppliers
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Category Rationalization/Extension
Identifying Savings:
• Which suppliers enjoy a
relative monopoly of supply
to my organization?
Other
suppliers in
the same
category
Category of
supplier
• Which categories do I have
too many suppliers in where
aggregation could drive costs
and prices down?
• What contracts are coming
up for renewal where I could
rationalize or extend my
supplier base?
Aggregate
spend per
supplier
Supplier
Name
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Department
spend per
supplier
$
Current
contract
expiry date
38 Computer Programming and Design
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Aggregation with other organizations
Identifying Savings:
• Which suppliers does my
group already share and
how much is spent with
those suppliers?
• Which categories does the
group have the greatest
spend/ greatest number of
suppliers?
Aggregate
spend per
supplier)
Category of
supplier to
common
classification
Standardized
public sector
body
name/number
Standardized
supplier
name/number
• When are the current
contracts for members of
the group expiring so that
we can collaborate?
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Current
contract
expiry date
Centrally
hosted and
maintained
database
$
Common tools
that all
contributors
can use
55 Common Suppliers, $60.5 spend
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Next Steps:
• Spend Analysis really is the first step
• Get the data in shape first
• Internal or External
• Start thinking about problem areas
• Let the data guide your projects
• Analytical/business intelligence tools are step two.
• A Spend Management plan is step three.
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Spend Analysis and Spend Management
The images, charts, and graphs in this presentation were exported
directly from Spikes Cavell’s Observatory. For more information
about how the Observatory could help your agency to identify real
savings, collaborate more effectively, increase contract compliance,
and record your success, please contact Spikes Cavell
Jonathan White
(571) 527 - 8310
[email protected]
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee