1 session code: dg spend analysis: first step in strategic sourcing rip greenfield vice-president of...

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Session Code: DGSpend Analysis: First Step in Strategic Sourcing

Rip GreenfieldVice-President of Global Alliances

and Business Development

Austin-Tetra, Inc.

Monday, May 9th10:40 – 11:40

Topics• Spend Management Defined

– Why does enterprise spend analysis matter?

• Benefits– What are the reasons for doing it?

• Approach– How do I do it?

• Results– What are the deliverables/output to expect?

• Solutions– Who can help me?

Why The Need to Manage Your Spend Data?

"Few enterprises know what they spend, on which products, with which vendors ...

Spend Data Management is critical for supply management and business success ...

Insufficient visibility into spending is a corporate epidemic."

- Tim Minahan, The Aberdeen Group

Spend Data Management DefinedMore simply, can you answer these questions?• Which suppliers provide the greatest value to the enterprise?• How does total spend roll-up in corporate families create

increased leverage to reduce supply costs?• Which commodity and service areas represent the greatest

sourcing opportunities for spend reduction?• What is my total spend by industry classification?• Where is spend occurring with non-preferred suppliers?

“How Can You Manage What You Don’t Measure?

Fact Based Decision Making

Example

Maverick Spending as a Key Performance Indicator

To measure it, you need to know whether a purchase for item specification A in commodity B, placed by person/department C in geography D, properly used contract E that hopefully existed for supplier F, to be used given these conditions.

The Opportunity

Three key reasons for planning and implementing best practices in spend management are:

– Baseline spend to establish visibility to current enterprise purchasing and identify cost savings and sourcing opportunities

– Support compliance initiatives to meet internal savings targets, Federal government regulations, SOX 404, and socio-economic initiatives

– Implement process improvement to meet the dual goals of sourcing savings and best practices in compliance

Spend Data Management Business Drivers

Strategic Sourcing

Procurement

• Identify non-preferred supplier spend in contracted categories

• Identify disparate terms and conditions across unidentified duplicates and related companies

• Identify categories that are potentially over-represented with suppliers

• Identify spend with contracted suppliers at various locations to establish transaction counts and consider restructuring payment plans

• Combine A/P and P-Card transactions to identify opportunities to migrate PO spend to P-Card where appropriate

Supplier Management

• Evaluate supplier performance via financial and operational metrics

• Collect and manage key supplier documents in order to meet contractual and social obligations

• Evaluate supply base for risk (denied/debarred parties)

Each step in the sourcing process has an element of data management – starting with the Opportunity Assessment

• Data extraction• Baseline spend visibility• Sourcing group definition

1. Profile Sourcing Group

2. Sourcing Strategy

3. Supplier Portfolio

4. Selection of Implementation Path

6. Operational Integration with Suppliers

7. Continuous Benchmarking of Supply Market

5. Competitive Supplier Selection

Opportunity Assessment

Sou

rcin

g S

tep

s

• Sourcing group analysis

• Supplier RFIs

• Supplier analysis

• Supplier RFPs

• RFP evaluations• Savings measurement system

Spend Analysis Steps1. Extract, Cleanup and Validate the Data

– Standardize, Normalize, and Enrich your spend information– Identify Exceptions

2. Rationalize your Suppliers– Get all the supplier spend linked to the corporate parent– Categorize supplier spend– Understand supply base risk, dependencies, and socio-economic breakdown

3. Code for Insight & Assess the Details– Categorize spend data to a sourceable commodity structure – (e.g. United Nations Standard Products and Services Code® or UNSPSC)– Does your system capture good descriptions?– Do you use them to allocate to the right category?

4. Identify and Act – Uncover strategic sourcing opportunities for immediate savings– Improve internal controls – Comply with government controls

5. Implement Process Improvement– Standardize on commodity framework across the company– Capture intelligence closer to the transaction for higher compliance – Supplier on-boarding & detail coding

Solid Spend Data Management Delivers• Data Quality

– Standardized – consistent formatting – Cleansed – identify duplicates, fix errors– Consistent – data represented in the same manner– Current – ongoing updates to manage business change – Grouped – categorized and classified– Granular – detailed data available

• Knowledge Enrichment– Completeness – fill in missing data for master information, hierarchies,

demographics, relationships– Expand – provide new insight– Risk – identify possible disruption in supply or supplier support

• Process Improvement– Spend Visibility – access to enterprise view of corporate expenditures– Supplier Evaluation and On-boarding – pre-qualification of suppliers– Policy Compliance – exception handling, workflow and monitoring

Spend Analysis allows many cuts of the data and can take many formsTransactionData Stores

Data Preparation

Data Management

SpendAnalysis

Extract

Strategic Procurement

Database Supp

lier

DataCleanse

Manual Data Entry

Use

r

Desktop Tool

Intellectual Capital

Analysis Tools• Analyzers

—Drill Down 1—Drill Down ...

• Queries• Reports• Spreadsheets

Categories

A/P

G/L

Master Files

POs

Cleansed and

Staged Data

Individual RDBMS**

If repeatable data capture processes and data cleansing capabilities are created, the spend analysis solution can be maintained over time

• Raw Database

• Database with end-user interface

• Data-ready for Spend Analyzer or OLAP* tool

Final Deliverable Formats

Others… *On-Line Analytical Processing

**Relational Database Management Systems

% o

f T

ota

l Sp

end

Data Characteristics

• By Transaction

• Supplier Name, G/L, Cost Center

• Unit Price

• High Volume, Low $

• By Invoice

• Aggregate Total Only

• All expenditures including non-inventoried materials and services

P-Card Spend

~1-20% of TotalNon-PO A/P

Spend

~30-40% of Total

A combination of top-down and bottom up spend categorization is required

Categorizing 100% of Spend

Use Supplier, G/L Use Item Description, Item Master

Confirm with Supplier, G/L

Categorization Method

• By Line item # & Description

• Quantity

• Unit Price

• Direct/COGs material

PO A/P Spend

~50-70% of Total

Use A-T #, G/L

Supplier Normalization

Link the same supplier, and customer, businesses to all representations of that business.

Benefits:

• Identifies, and links, duplicate records allowing supplier normalization

• Opens the door to a wealth of information on your trading partners

• Links suppliers, and customers, across various business units or source systems

Home Shield Corporation123 Main Street Ste 512Memphis, TNsupplier ID 12882ASpend – $75,500Source – Western Division Oracle

AHS CorpMain Street Ste 512Memphis, TNsupplier ID 76620GFTSpend – $100,000Source – Eastern – Legacy

American Home Shield Corporation 123 Main StreetSuite 512Memphis, TNA-T #: 14000647Sales: $1.27 BPrimary SIC: 6351 Surety Insurance

Spend Analysis Examples

Supplier ID Supplier Name Supplier Address Supplier City

Supplier State

Supplier ZIP

Spend (2004)

602127

STERLING MANUFACTURING COMPANY

640 STERLING STREET (RT 62)

SOUTH LANCASTER MA 01561 $172,312.96

100768

STERLING MANUFACTURING COMPANY ROUTE 62


100249


640 STERLING STREET ROUTE 62


Company Code

Purchasing Org

Vendor Number Vendor Name Account Group Spend (2004)

3510 P550 100249STERLING MANUFACTURING

COMPANY ZINV $2,724.25






COMPANY ZRMT $114,023.95

Four different company codes and three different purchasing organizations


Supplier ID Supplier Name Supplier Address Supplier City

Supplier State

Supplier ZIP

Spend (2004)

602127


640 STERLING STREET (RT 62)


100768

STERLING MANUFACTURING COMPANY ROUTE 62


100249


640 STERLING STREET ROUTE 62


These Three Records match to: AT Number: 46768 AT Name: STERLING MANUFACTURING CO AT Street Address: 640 STERLING STREET RT 62 AT City, State, ZIP: SOUTH LANCASTER, MA 01561

Corporate LinkageEstablishes supplier and customer parent and child ownership linkages.

Benefits:

• Compare key terms extended by different suppliers owned by the same company

• Aggregates spend by supplier and parent company to enhance sourcing leverage and negotiating power

• Consider balance-of-trade in customer pricing and procurement sourcing decisions

• Enables “dependency” analysis

• How much of a vendor’s business do you represent?

TruGreen-ChemlawnMemphis, TNA-T #: 03567354Sales: $880MPrimary SIC: 0782 Lawn and Garden Services

Rescue RooterMemphis, TNA-T #: 12691513Sales: $550MPrimary SIC: 1711 Plumbing Heating and Air Conditioning

The ServiceMaster CompanyDowners Grove, ILA-T #: 17138484Sales: $3.3BSIC:• 0782 Lawn and Garden Services • 1711 Plumbing, Heating, and A/C • 1731 Electrical Work

TruGreen-Chemlawn132 North Street

Dallas, TX

TruGreen-Chemlawn5551 Lamar Street

Chicago, IL


AT Ultimate Number Supplier Name # of Records Spend (2004)

13974153 MARRIOTT INTERNATIONAL, INC. 52 $1,349,801.23

16115316 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 27 $3,113,594.17

492553 GENERAL ELECTRIC COMPANY 27 $1,460,603.69

21173372 UNITED STATES, GOVERNMENT OF 24 $386,107.15

5597502 HILTON HOTELS CORPORATION 20 $241,868.71

18340971 TYCO INTERNATIONAL LTD. 19 $979,731.84

18343355 WOLTERS KLUWER NV 18 $1,080,728.23

3567301 FEDEX CORPORATION 17 $40,401,234.08

12527573 AMERICAN HEART ASSN 17 $145,012.56

14166301 H GROUP HOLDING, INC. 16 $687,262.17

10669694 ARKANSAS BEST CORPORATION 15 $443,018.44

30882246 DEUTSCHE POST AG 13 $3,437,699.88

18310528 BUHRMANN NV 13 $1,712,750.39

18344116 INTERCONTINENTAL HOTELS GROUP 12 $1,064,144.11

Corporate Family Spend


Supplier ID Supplier Name Spend (2004)

604246 UNITED STATES SURGICAL $465,267.25

600085 MALLINCKRODT MEDICAL INCORPORA $208,891.97

600003 ADT SECURITY SERVICES $78,629.45

600975 MALLINCKRODT INCORPORATED $65,409.40

104127 TYCO HEALTHCARE GROUP LP $47,975.76

600876 SIMPLEX GRINNEL $32,690.20

100043 TYCO MALLINCKRODT HEALTHCARE $29,547.12

607430 SIMPLEXGRINNELL LP $24,831.38

603485 MALLINCKRODT INCORPORATED $13,402.41

101779 MALLINCKRODT MEDICAL $6,057.82

302799 SIMPLEX $5,255.76

317413 SIMPLEX GRINNELL LP $1,330.00

608168 ADT SECURITY SYSTEMS $443.33

304106 ADT FIRE AND SECURITY LIMITED $0.00

713316 ADT SECURITY SERVICES INCORPOR $0.00

737481 ADT SECURITY SERVICES INCORPOR $0.00

102987 MALLINCKRODT BAKER $0.00

725201 SIMPLEX GRINNELL LP $0.00

603877 UNITED STATES SURGICAL $0.00

Tyco ~ Family Example

Commodity Categorization

Enterprise Spend Visibility

Spend Visibility Examples

• Organization• Entity Total Company

• Sub-Entity Division 2

• Geography• Region North America

• Country United States

• State Texas

• Supplier• Supplier Siemens Dematic

• Product Category• Cluster Ground Fleet

• Category Fleet Goods & Services

• Sub-Category Spare Parts

• Time• Year 2003

• Quarter 2nd

• Month April

Analyzing spend along any combination of dimensionsAnalyzing spend along any combination of dimensions

Supplier Dimension Resolution of redundancies and

corporate linkage Siemens Siemens Dematics

Location/Org. Dimension Organizes expenditures along

geographic or business lines N America US Texas Total Co. Division 2

Commodity Dimension

Organizes expenditures into sourceable commodity buckets

Ground Fleet Fleet Goods & Services Spare parts

Simplified Illustration of Spend Cube

Spend Figures can be viewed at the intersection of any combination of cube dimensions

Analysis Dimensions

Level Purpose Examples

Overall Provide a top-level picture of spend

• Spend and Number of Suppliers by category• Spend and Number of Suppliers by

location / business unit• Spend to Sales ratio by location/ business

unit

Category Compare categories to identify sourcing opportunities

• Top categories by spend• Spend to supplier ratio by category• Pareto analysis by category• Supplier overlap by category

Supplier Identify supplier base and fragmentation issues

• Top suppliers by spend• Pareto analysis overall and by location/

business unit• Supplier overlap

Item Isolate item discrepancies and prepare category baselines for sourcing

• Number of items by category• Number of suppliers by item• Price variance of an item across locations/

business units

Types of Analysis

Spend cube can be analyzed across its dimensions which provides a comprehensive view of purchasing

Presentation Alternatives

Spend Visibility OptionsTransactional &

Master Data

Categ

ory

Supp

liers

Organization

“The Spend Cube”

Data Sources

OutputOperating Co. 1(A/P data mart)

Operating Co. 2(A/P

systems)

Operating Co. 3(A/P

systems)

Data Mapping/Categorization

Output Files

Standard Reports/Views

Analytics Platform

Transformation

CLIENT NAME AT ATNUM AT NAME AT SUBNUM AT SUBNAME AT ULTNUM AT ULTNAME

3M COMPANY J CH0336 7052825 3M COMPANY 0 0CONAGRA BEEF 16748788 CONAGRA BEEF 0 8071131 CONAGRA FOODS, INC.CONAGRA DAIRY 16571351 CON AGRA DAIRY FOODS CO 0 8071131 CONAGRA FOODS, INC.COUNTRY SKILLET 17130902 COUNTRY SELECT COMPANY 0 8071131 CONAGRA FOODS, INC.LAMB WESTON 2433489 LAMB-WESTON INC 8520330 LAMB-WESTON INCORPORATED 8071131 CONAGRA FOODS, INC.FERNANDO'S FOODS CORP. 5603941 CONAGRA MEXICAN FOODS INC 8071130 CONAGRA FOODS FROZEN FOODS GROUP8071131 CONAGRA FOODS, INC.

MEADOW GOLD DAIRIES 3321387 MEADOW GOLD DAIRIES 7320009 DEAN DAIRY GROUP 10878311 DEAN FOODS COMPANYRYAN MILK COMPANY, INC. 4389247 RYAN FOODS COMPANY 0 10878311 DEAN FOODS COMPANY

FLOWERS BAKING - NORFOLK 10531344 FLOWERS BAKING CO. 1825068 FLOWERS BAKERIES LLC 13890077 FLOWERS FOODS, INC.FLOWERS BAKERY 2781568 FLOWERS BAKING CO 1825068 FLOWERS BAKERIES LLC 13890077 FLOWERS FOODS, INC.BUTTER KRUST BAKING 2054204 BUTTER KRUST BAKING COMPANY 11365197 BUTTER KRUST BAKERY 13890077 FLOWERS FOODS, INC.

KELLOGG SALES (FROZEN) 14166597 KELLOGG USA INC 0 16125443 KELLOGG COMPANYKELLOGG SALES (FROZEN) 14166597 KELLOGG USA INC 0 16125443 KELLOGG COMPANYKELLOGG SALES COMPANY 14166597 KELLOGG USA INC 0 16125443 KELLOGG COMPANYKELLOGG SALES COMPANY 14166597 KELLOGG USA INC 0 16125443 KELLOGG COMPANYAUSTIN FOODS COMPANY 2889871 AUSTIN QUALITY FOODS 17142989 KELLOGG SNACKS 16125443 KELLOGG COMPANY

SIMPLEX GRINNELL 8537335 SIMPLEX GRINNELL 38721 SIMPLEXGRINNELL LP 18340971 TYCO INTERNATIONAL LTD.

Spend CategorizationSegment high priority spend categories, identify savings

opportunities, and evaluate business risk.

Total Spend by Each Category

Total Spend by Each Supplier

Total Spend by Each BU

Category Spend by Supplier

Supplier Spend by Category

BU Spend by Supplier

Category Spend by BU

Supplier Spend by BU

BU Spend by Commodity

Supplier Spend by Entity

Category Spend by Entity

BU Spend by Entity

Total Spend by Each Entity

Region/Country Spend by Entity

BU Spend by Entity

Spend by Supplier Parent across Entities

Spend Ranked by Supplier Dependency

Deep Dive in Selected Categories/ Suppliers

Supplier Spend by Diversity Groupings

Spend with at Risk Suppliers

Total Overall Spend

Spend Analysis SolutionThe Basic Elements:• Web delivered reporting and analysis

• Global corporate family linkage

• Supplier master cleansing and rationalization

• A repeatable and refreshable update process

• Supplier data enrichment with unique tracking ID

• Diversity spend identification and classification

• Supplier portfolio risk assessment including denied/debarred party identification and balance of trade assessment

• Item level spend classification to UNSPSC taxonomy or other enterprise defined standard that takes advantage of internal and external coding routines

ERP: SAP, Oracle,

PeopleSoft

Content / Data Services

ApplicationsSpend

Analysis Boutiques:Analytics,

Ariba (Softface),

Zycus

Business Intelligence:SAS, Cognos,

Business Objects

SRM/Spend Management:

Ariba, Emptoris, Frictionless, i2,

Ketera, VerticalNet

Management Consultants: ATKearney, Accenture,

CGE&Y, Deloitte, IBM GS

Deep Niche Broad Suite

Professional Services

Sourcing Services /Technology Hybrids:: Ariba (FreeMarkets),

Silver Oak, UGS, VerticalNet (Tigris)

Supplier Data Management:Austin-Tetra,

D&B

SCM/PLM: i2, UGS

A/P Audit:PRG-Schultz,Apex Analytix

Source: AMR Research 2004

U.S. Procurement and Sourcing Space

Spend Analysis Benefits

• Baseline for strategic sourcing initiatives• Enabler for process improvement• Measurement device for cost reduction programs• Comprehensive spend visibility across direct and

indirect commodities and services• Significant cost-savings opportunities through

supplier and commodity consolidation• Enhanced compliance through effective spend and

supplier monitoring

Austin-Tetra Company Profile• Established in 1993, privately held, management controlled, headquarters in Irving, Texas

• Supplier & Customer intelligence domain expertise

• Best-of-class global business content • Coverage of 50 million active global businesses available

• Up to 220 data elements for each business

• Data aggregated from over 320 seed sources including infoUSA, Experian, LexisNexis and Bertelsmann AG

• Data is updated daily – an average of 10% of records experience business changes monthly (management, address change, change in ownership, linkage, diversity certification, etc.)

• Provider of outsourced business information management

• Content and web based solutions

• 200 blue chip customers• 115 of the Fortune 500• All three major credit card associations• Horizontal across all markets

comprehensive

datasolutions

Austin-Tetra Clients(Representative Listing)

Automotive and Transport Energy High Tech and Telecomn Burlington Northern Santa Fe n ConocoPhillips n AT&T Wirelessn Ford Motor Company n Duke Energy n Cox Communicationn General Motors Corporation n El Paso Corporation n EDSn International Truck & Engine n Exxon Mobil n Motorola

n Shell Oil Company n Sun Microsystems, Inc.Business Services n Xcel Energy n SBC

n Cendant Corporation Manufacturingn FedEx Financial Services n Eaton Corporationn Premier n American Express n International Paper Companyn Novation n J PMorgan Chase n W.W. Grainger, Inc.

n MasterCard International n York InternationalChemicals n Morgan Stanley

n Dow Chemical Company n Visa USA Median Eastman Chemical n Time Warner, Inc.n Monsanto Company Healthcare n New York Times Companyn Scotts Company n Memorial Health Systems

n Owens & MinorConsumer Products n Premier, Inc. Pharmaceuticals

n Archer Daniels Midland n GlaxoSmithKlinen ConAgra Foods, Inc. Hospitality and Travel n Pfizern General Mills n American Airlines n Schering-Ploughn Kellogg Company n Delta Air Linesn Nestle USA n HMS Host Retailn PepsiCo, Inc. n Kroger Co.

n Target Corporation

Contact Information

Rip GreenfieldPhone: 512.695.7999Email : [email protected]

1 session code: dg spend analysis: first step in strategic sourcing rip greenfield vice-president of...

Documents

supply management

sourcing process

element of data management

sourcing strategy

compliance slide

profile sourcing group

supplier performance

aberdeen group slide