AZ Capitol Chapter of NIGPOctober 16, 2014

Optimizing Your Spend

An Introduction to Spend Analysis and Spend Management

In order to identify cost savings opportunities and efficiencies in public procurement, practitioners first need better visibility over how much is being spent, on what, with and by whom.

THE REALITY TODAY

The good news is that your organization probably paid the right vendor, the right amount, the right number of times and the data about that transaction exists somewhere in your systems.

THE REALITY TODAY

The unfortunate reality is that public sector and higher education spend data is often poorly organized for procurement purposes, inappropriately classified, exists in many different systems and is difficult to access.

THE REALITY TODAY

• What are they?• Who should use them?• What are the common pitfalls?• What can be achieved?• How are they done?• Real examples

SPEND ANALYSIS AND SPEND MANAGEMENT

IN THE SPIRIT OF TRANSPARENCY

Does your procurement team have easy access to data about how much is spent, on what, and with whom?

ASK YOURSELF

Does your procurement team trust that the spend data they have access to is reliable, complete, without too many duplicate suppliers and classified accurately?

ASK YOURSELF

Spend Analysis is what you do to the data…

Spend Management is what you do with the data.

A TWO PART PROCESS

Contract Record

Accounts PayableSpend

eProcurement

TransactionsPurchasingCard Spend

Enrich

Classify

Cleanse Spend data that you trust and that contains as much detail as possible

SPEND ANALYSIS

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 Data

SPEND MANAGEMENT

WHO SHOULD USE THE DATA?

• Procurement Directors• Contract Managers• Buyers• Business Officers/Vice Presidents• Finance Directors• Accounts Payable• Audit/Legal Departments• Economic Development• Diversity Officers• Sustainability Officers

WHO SHOULD USE THE DATA?

Department heads, budget holders and anyone who spends the organization’s money.

• Access to data may be difficult and it may come from multiple systems in multiple formats.

• Relying on the raw data to be accurate for procurement analysis.

• Trying to use encumbrances, budgets or contract award values as the basis for analysis.

COMMON PITFALLS

• Software based classification tools are not automatic & accurate classification is not easy.

• Analysis tools aren’t always built for business user and may not be quickly deployable.

• Time, resources and support may be lacking.

COMMON PITFALLS

Deliver savings and efficiencies by using data to get better pricing, leverage data in competitive/

negotiation processes & identifying opportunities for

internal and external collaboration.

WHAT CAN BE ACHIEVED?

Bring spend under management by providing a solid foundation for decision making that includes all

data sources, profiling and managing suppliers according to importance & identifying non-

compliant spend.

WHAT CAN BE ACHIEVED?

Change buying behavior by providing stakeholders with

visibility of their spend, creating departmental spend reports to

influence behavior & using data to have more informed discussions.

WHAT CAN BE ACHIEVED?

POTENTIAL SOLUTIONS

Software Focused

Data Focused

Guidance Focused

• AP System Tools• eProcurement Tools• Analytics/BI Tools

• Spend analysis service• Hire a data analyst

• Consultancy Project

Export spend data from all

systems

Sense check exports

Stitch exports together

Manually classify

suppliers/spend

Enhance vendor information

(top 25)

Manipulate in Excel

POTENTIAL SOLUTIONS - DIY

Export spend data from all systems

Standardize exported data

Check fitness/accuracy of

data exports

Validate exports with organization

De-duplicate supplier records

Classify vendors/spend to a

common system

Manually validate classifications

Enrich vendor information fro

third party sources

Link to a master record number

Provide BI tools and an export

function

POTENTIAL SOLUTION – 3RD PARTY

1. Supplier Name2. Supplier Address

3. Transaction Number4. Transaction Date5. Transaction Value

5 PIECES OF DATA TO START

•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 time and resources could I save

by moving to pCards or consolidated invoices?

INVOICE CONSOLIDATION

2,544 (36%) all invoices processed were for less than $100. The value of all of those invoices accounted for less than 1% of

expenditure.

INVOICE CONSOLIDATION

• Which suppliers do I spend less than $1,000 per year with?

• Which suppliers do I only have one transaction with per year?

• Which departments are using a lot of ‘one off’ suppliers?

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

LONG TAIL CONSOLIDATION

Less than $1,000 was spent with 555 suppliers (54%) in the year, and the total spend with all of those suppliers equaled

1.32% of expenditure.

LONG TAIL CONSOLIDATION

•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?

IMPROVED TERMS

The top 20 suppliers represented 62% of the total expenditure for the year. If these 20 suppliers/projects are well managed,

62% of spend is well managed.

IMPROVED TERMSSupplier Name Aggregate Spend Transactions Cost CentresTEMPLETON CONSTRUCTION 5,027,173.76 11 1SCHNEIDER ELECTRIC BUILDINGS AMERICAS 842,517.88 8 2NRG ENERGY 542,754.04 12 2ELLUCIAN 300,782.37 23 3DELL MARKETING LP 284,094.66 95 44RICOH USA 235,159.48 64 1AT&T 234,866.47 263 22TANDEM PETROLEUM MARKETERS 213,648.93 74 4CALDWELL COUNTRY CHEVROLET 131,962.00 3 1AMERICAN EXPRESS 119,036.13 280 65TRANE 117,611.99 18 3CBORD GROUP 114,374.96 6 1Keith Company Ben E 107,358.37 28 1RIO GRANDE ELECTRIC CO-OP 106,869.11 12 1SYSCO FOOD SERV SA LP 98,605.42 37 2ZOGO TECHNOLOGIES LLC 96,293.82 3 2ATI 88,173.00 13 2Gulf Coast Paper Co. Inc 86,950.71 56 5INX LLC 86,662.88 22 10OFFICE MAX 80,496.20 200 63

•Which categories do I have too many suppliers in where aggregation could drive costs and prices down?•Which departments are spending with which

suppliers in the category?•What contracts are coming up for renewal

where I could rationalize or extend my supplier base?

CATEGORY RATIONALIZATION

The data can be used to identify categories of expenditure with too many suppliers in them – good opportunities to aggregate

demand and push prices down.

CATEGORY RATIONALIZATIONvCode Vendor Category Total Suppliers Total SpendProfessional Associations 14 68,642.58Hotels and Motels 12 68,044.64Other Information Service Providers 11 148,296.84Software Developers 10 346,610.06Software as a Service Providers 7 120,529.30Automobile Parts Suppliers 7 73,641.10Plumbing, Heating & AC (HVAC) Contractors 6 139,346.57Plumbing, Heating & AC (HVAC) Equipment Suppliers 5 56,100.73Other Training Providers 5 75,537.75Laboratory Equipment Suppliers 5 13,356.34Computer Systems Integrators 4 387,573.12Printers, Copiers & MFD Suppliers 4 244,753.08Television Broadcasters 4 18,440.78Printing Service Providers 4 24,263.66Property Management & Real Estate Agents 4 112,825.67Other Food Suppliers 4 211,408.30Other Educational Equipment & Supplies Providers 4 15,060.64Book Distributors 3 9,086.62Trade Associations & Regulatory Bodies 3 6,935.18Electrical Wiring & Parts Suppliers 3 48,145.41

•Which departments aren’t using the preferred/ contracted supplier in a given category?•Which categories of spend don’t have any

contracts in them?• Are there instances where we spend more

than was on the original contract?• Is my data source up to date enough to deal

with off-contract spend quickly?

MAVERICK EXPENDITURE

Spend analysis can be used to track spend over time and find out whether the contracts that the organization has in place

are being used.

MAVERICK EXPENDITURE

•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?

COLLABORATIVE OPPORTUNITIES

REACTIVE COLLABORATION

I’m about to source office furniture –

anyone else?

We are, but we won’t be ready

until December.

We just finished our new office furniture contract.

We went with ABC Company

We’re using a cooperative

contract.

Ok thanks anyway. We’ll make sure it has a piggyback clause in

it for you later.

PROACTIVE COLLABORATION

I’m about to source office furniture –

anyone else?

From looking at the numbers, out of the 12 of

us, we’re using 58 different furniture companies.

And it looks like there are piggybacking clauses in 5 existing contracts, plus there are a couple of coop contracts you could use.

And our group’s spend is pretty concentrated in 8 vendors at the top – they are getting about 75% of our group’s business already.

CONSISTENCY ENABLES COLLABORATION

DATA

DATA

DATA

DATA

DATA

pCARD AP E-Proc

Org 1

pCARD AP E-Proc

Org 2

pCARD AP

Org 3

pCARD AP E-Proc

Org 4

Across 24 colleges, over 62% of their expenditure was with common suppliers.

COLLABORATIVE OPPORTUNITIES

Where aren’t we using common vendors and we might be able to do so because we already all spend money in the same

categories?

COLLABORATIVE OPPORTUNITIES

What contracts are available to use, either from within our group, a GPO, or a state contract?

COLLABORATIVE OPPORTUNITIES

• Spend Analysis is really the first step– Get the data in shape first– Start thinking about problem

areas• Using tools to analyze the data – Let the data guide you

• Decide what spend management projects are worth undertaking

CONCLUSION AND NEXT STEPS

If you would like more information about spend analytics, a copy of the presentation

sent directly to you, or would like to provide feedback on this session, please drop off a

business card at the front or fill in out a 3 question survey here:

https://www.surveymonkey.com/s/SpendTACCBO

Jonathan White: (571) 527 - 8310

jonathan.white@spikescavell.com

CONCLUSION AND NEXT STEPS