90 th annual meeting & exposition april 3 – 6, 2011 memphis, tennessee an introduction to...

90th Annual Meeting & ExpositionApril 3 – 6, 2011

Memphis, Tennessee

An Introduction to Spend Analysis and Spend Management

Optimizing your spend


Memphis, Tennessee

•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?

Spend Analysis and Spend Management


Memphis, Tennessee

In the name of transparency…


Memphis, Tennessee

Spend data comes primarily from the AP, ERP or FMS

systems…Ask questionsWhat do you call spend

outside of contract?Do you trust your current

data?

Let’s agree on a few things first…


Memphis, Tennessee

Spend Analysis:What you do to the data…

Spend Management:What you do with the

data…

What are they?


Memphis, Tennessee

Enhance

Classify

Cleanse

SpendData

pCard Data

AP DataPO Data

Spend Analysis


Memphis, Tennessee

…is the proactive use of spend analysis data to carry out the following within the organization:

SpendData

Deliver Savings

Improve Processes

Manage Maverick

Spend

Manage Supplier

RelationshipManage Risk Recover Over-

payments

Procure Co- operatively

Reduce Disparity

Source More Locally

Ensure Legal Compliance

Benchmark Relative Position

Quantify Savings

Spend Management


Memphis, Tennessee

Spend Analysis:Procurement

Spend Management:Everyone

Who uses them?


Memphis, Tennessee

84.4%Spend Analysis Survey


Memphis, Tennessee

Spend Data

Buyers Procurement Managers

Contract Managers

Finance Department

Accounts Payable

Environmental OfficersEquality Officers

Economic Development

Legal Department

Audit Department

Budget Holders

SpendData

Spend Management


Memphis, Tennessee

Spend Management:In order to save, you have to know what you spend…

Spend Analysis: If you can’t trust the data,

how can you trust the analytics?

Why bother?


Memphis, Tennessee

Challenges

Cut spending but not services – do more with less

Spend more with Local/ Small/ Diverse Suppliers

Be transparent

Obstacles

System data isn’t good enough/ doesn’t contain all of the data

Multiple systems within the organization

No two organizations have the same system

Why bother?


Memphis, Tennessee

Solutions

Software

AP system tools

E-Procurement

Analytics/ BI tools

Data

Spend Analysis Provider

Hire a Data Analyst / Excel

or Access Expert

Guidance

Customized consultancy

project

What are the solutions?


Memphis, Tennessee

Here is how spend analysis is done…

How are they done?


Memphis, Tennessee

1. Supplier name 2. Supplier address3. Invoice number4. Invoice date5. Spend value

5 Pieces of Data

How is spend analysis done?


Memphis, Tennessee

Level 1 Analysis of AP Spend

Analysis of PCard spend

Analysis of eProcurement

spend



Memphis, Tennessee

Level 2Export from

AP, pCard and PO systems

Sense check exports

Stitch exports together

Manually classify

suppliers

Enhance data on top 25 suppliers

Manipulate in Excel, Access

etc.



Memphis, Tennessee

Level 3Export from AP + pCard + PO Systems

Standardize exported data

Check fitness/ accuracy of data export

Validate value and volume

with organization

De-duplicate supplier records

Classify to common

taxonomy

Manually validate

classification

Enhance supplier

information

Link to a master record

Provide MI tools and

export function

SpendData



Memphis, Tennessee

Basic assumptionsOne version of the truth – how much was actually spentExtract 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



Memphis, Tennessee

1. Invoice Consolidation

2. Long Tail Consolidation

3. Terms in the Top Tier

4. Contract Compliance

6. Category Extension

5. Category Rationalization

7. Aggregation with others

Using the results of spend analysis


Memphis, Tennessee

If I could answer these

questions, I could find savings…

If I want to answer those questions, this is the data I

need…

Example Savings Opportunity


Memphis, Tennessee

Identifying Savings:

• Which suppliers should I seek weekly/monthly invoices from?

• Which category of suppliers are giving me an invoice volume problem?

• Which suppliers would be best to move order and payment to pCard?

• How much could I save by moving to pCard?

$Supplier Names

Aggregate number of

invoices per supplier

Average invoice value per supplier

Invoices by value range per supplier

Invoice Reduction


Memphis, Tennessee

43,979 invoices < $500


Memphis, Tennessee

$Supplier Name

Aggregate spend per supplier

Aggregate number of

invoices per supplier Category of

supplier

Department spend per supplier


• 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?

• Which categories do we have a lot of small suppliers in?

Long Tail Consolidation


Memphis, Tennessee

442 suppliers <$1000


Memphis, Tennessee


• 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?”

• How much do my top tier suppliers rely on my business?

$Supplier Name

Aggregate spend per

supplier (de-duplicated)

Category of supplier


Other suppliers in

the same category

Percentage of supplier’s turnover

represented

Contracts already in

place

Terms in the Top Tier


Memphis, Tennessee

84 suppliers >$250,000


Memphis, Tennessee

$Supplier Name



Other suppliers in

the same category

Dept. spend per supplier

Current contracts

Categories with no

contracts

Monthly spend

information

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 off-contract spend quickly?

Contract Compliance


Memphis, Tennessee

36% average with contracted suppliers


Memphis, Tennessee

$Supplier Name



Other suppliers in

the same category


Current contract

expiry date


• Which suppliers enjoy a relative monopoly of supply to my organization?

• 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?

Category Rationalization/Extension


Memphis, Tennessee

38 Computer Programming and Design


Memphis, Tennessee


• 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?

• When are the current contracts for members of the group expiring so that we can collaborate?

$Standardized supplier

name/number

Standardized public sector

body name/number

Aggregate spend per supplier)

Category of supplier to common

classification Current contract expiry

date

Centrally hosted and maintained

database

Common tools that all

contributors can use

Aggregation with other organizations


Memphis, Tennessee

55 Common Suppliers, $60.5 spend


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.


Memphis, Tennessee

?


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]

90 th annual meeting & exposition april 3 – 6, 2011 memphis, tennessee an introduction to...

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