real world sourcing - making spend analysis work

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Searching for Clues - Making Spend Analysis WorkGuy AllenApril 18th 2012

Spend Matters UK/Europe


Making Spend Analysis Work

Agenda

1. Sources of Spend Data

2. Turning Data Into Information

3. Identifying Opportunities and Prioritisation

4. Spend Analysis and Managing Categories

5. Identifying Actions



Searching for Clues - Making Spend Analysis Work

Part 1 – Introduction

The Real World Sourcing Series is a series of 6 sessions covering hot topics for procurement professionals.

The Real World Sourcing Series is promoted and supported by BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (4C Associates).

Guy Allen started his procurement career with Ford Motor Company, moving through IBM, SmithKline Beecham and GSK before becoming CPO for Abbey National and VP Global Sourcing at Fujitsu. He took up his current position as Managing Partner at 4C Associates at the beginning of this year

Spend Matters UK/Europe Spend Matters UK/Europe Spend Matters UK/Europe



A Core Requirement for all Procurement Professionals:

Know Your Numbers!




Sources of Data

• Make the most of what is available

• If you can’t get data, nor can anyone else

• Lack of data cannot be an excuse for inaction



Sources of Data

• AP File – downloaded into Excel• AP Audits• Budgets (past and present) • P Card• 3rd party website• Suppliers

Whatever the source, the most effective Spend Information comes from a dedicated Spend Diagnostic tool, refreshed regularly






DataA collection of text and numbers

InformationCoded data, with relevant reporting

ActionDecisions based on the information



Data into Information

• Coding – Must code the supplier at least, ideally the transaction

• Parent Child relationships

• Assumptions

• Build the data into ways of working



Dat

a Av

aila

bilit

y

InvoiceDescriptions

InvoiceLine

Descriptions

PODescriptions

POLine

Descriptions

Suppliers

GeneralLedgerCodes

CommodityCodes

High

LowHighLow

Making Spend Analysis WorkEven with a Spend Diagnostic Tool, the usefulness of the information will depend on quality of the data going in , GIGO

Categorization Data Quality



Do all that and you will end up with something like this



Task 1

Work on your tables, and list what uses you might make of well coded information




Tail Leverage

Category Planning

Compliance Tracking

Pricing Variance

Opportunity Analysis

Fraud Detection

Selecting priorities for the Procurement Function

Measuring actual prices to budget or contract prices, on previous year’s prices

Measuring conformance to preferred suppliers or processes

Preparing the strategy for your category

Managing a supplier reduction programme

Monitoring Key Supply Base information, ie Diversity

Identifying possible fraudulent (or inaccurate) activity

Supplier Base Management



Taking on a New CategoryA Typical Category Management process

Develop, implement and embed category management

Understand internal

requirements &

stakeholders

Stage 1

Define scope and category

structure

Stage 2

Understand market and

suppliers

Stage 3

Develop category

strategy and plan

Stage 4

Select supplier(s)

Stage 5

Implement contracts

Stage 6

Contract and supplier

management

Stage 7

Iterative process


Tail Leverage

Category Planning

Compliance Tracking

Pricing VarianceOpportunity

Analysis

Fraud Detection

Supplier Base Management


Setting Your Functional Priorities

Kraljic Matrix (adapted)

Low High

High

Magnitude of spend

Supp

ly ri

sk

Critical Strategic

Acquisition Leverage

Collaboration - close supplier management:• detailed contract• collaborate• market awareness

Drive for value:• market pricing• aggressive approach• use leverage

Minimum attention:• price formula• call-off contract• look to rationalise

Ensure availability:• long-term contract• price indexes• contingency planning


Making Spend Analysis WorkOpportunity

Analysis


Spend By Supplier / DivisionOpportunity

Analysis



Home Care Personal Care

Food Medical Products

Print

Marketing

Lab Equipment

Lab Supplies

Review the common categories across the company’s divisions

Opportunity Analysis





• Are we paying what we should be paying?

• Are there different prices for different suppliers for the same product?

• Are there different prices from the SAME supplier for different locations?

• What's the Price Variance Index? (ie are we beating budget prices)?

• How has pricing changed since last year?

Pricing Variance



Making Spend Analysis WorkPricing Variance



Pricing Variance



• How much leakage is there from the preferred supplier?

• Are some divisions more compliant than others?

• Why is this the case?

• Are there areas of spend that are not being well covered?

Compliance Tracking



Making Spend Analysis WorkCompliance

Tracking


Contract Spend By SupplierMaking Spend Analysis WorkCompliance

Tracking



• Preparing complete spend profile of category

• Analysing which divisions use which suppliers

• Prepare Category Strategy

• Negotiation strategy, including eAuction if appropriate

Category Planning




• How long is it?

• Are there opportunities to consolidate by category?

• Can you introduce a supplier reduction programme?

• Do you have appropriate controls to ensure the tail isn't growing?

Tail Leverage



Volume Consolidation SummaryMaking Spend Analysis WorkTail Leverage



• Analyse the profile of orders and invoices– Are there multiple orders just below approval limits?– What proportion of orders are after the event?– Are there duplicate invoices?

• Monitor significant changes in order and payment profiles

• Understand the reasons for the differences

Fraud Detection



Making Spend Analysis WorkFraud Detection



Task 2 - Searching for Clues

In your workbook there are 4 graphs. Have a look at them and discuss with the people next to you what actions they might lead you to take.



Example 1


Spend by Supplier and Organisation

(Colours represent the different business units)


Example 2



Example 3



Example 4


[Annoymised Business Units]



Some Final Thoughts

• Just providing the system isn't enough

• Build usage of your spend system into your reviews

• Expect to see regular analysis of compliance, price variance etc

• Provide simple dashboards to your internal customers



Real World Sourcing Scholarship

• £2500 towards any procurement based training• Log on to the BravoSolution Education Network with the

details you’ll receive tomorrow• Complete the certification programme• Check your ranking!• The winner will be announced at the Sourcing Experts

dinner on 19 December




THANK YOU!

Please feel free to contact me on [email protected]


mailto:[email protected]

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