Monthly Archives: January 2014

A New Year is Upon Us – Do You Have Your SpendHQ Ready To Go? Part IV

In the first three parts of this series, we introduced you to SpendHQ, a spin-off of Insight Sourcing Group (ISG), one of the strongest, but yet most overlooked, players in the spend visibility and analysis space from a software and services solution viewpoint. Introduced is the operative word here as we only reviewed the features of the product at a high level — each tab of each module has many more features, options, and capabilities than we reviewed, as our goal in this initial series was just to outline the capabilities of a solution that has been under development for close to a decade. Unlike most spend analysis solutions that were designed and built by sourcing solution providers, SpendHQ was designed by sourcing and spend experts and implemented by a development team experienced in the implementation, and integration, of sourcing and spend analysis solutions.

The solution, which so far consists of a spend visibility and category management module, soon to be accompanied by a contract (metadata) management module that will allow an organization to track contracts, associated prices, and expiry dates (and associate them with managed spend categories), as any expert in spend visibility and analysis knows, is only as good as the data it contains.

Fortunately, SpendHQ manages the entire process and has a good handle on the matter at hand. From consolidation through normalization, categorization, cleansing, and enrichment to cube building and release, the SpendHQ team is experienced at the end-to-end lifecycle.
And, moreover, they recognize that this process can take time. Even though a spend expert with analytics expertise can map 90%+ of spend by hand with the right tool in a week for even the largest fortune 500, most companies don’t have this spend expertise in a single person, don’t have all of the data available in a single merged instance, and don’t content themselves with 90% of spend when many providers promise 98%+ (even though this increased level of accuracy doesn’t make a difference during an initial spend analysis effort and initial project selection, as an organization always goes after the biggest cost savings opportunities first, which can always be identified with 90%+ mapping accuracy). As a result, while some spend analysis providers will promise to have you up and running in a week (and work their Indian data mapping team to the bone 24/7 in an effort to meet this goal), SpendHQ makes a more reasonable promise of six weeks from initial consultation to final deployment. The SpendHQ team knows it will take time to get data, create merge rules, cleanse, classify, review with the customer, create new rules, re-classify, enrich, get executive sign-off, and roll-out. Sometimes the process only takes a couple of weeks (with a smaller company that’s really on the ball), but, as a consulting firm, they know better than to make promises that are unrealistic (and it’s always better to beat a deadline than to miss it). Considering that they can get to full-deployment for even the largest multi-billion dollar companies with 60+ file formats and 20+ currencies in this timeframe, you don’t have to worry that they won’t be able to turn-around data and mappings as fast as you can get them the data and review the mappings.

ISG has been doing spend analysis engagements since it was founded in 2002 and started working on it’s own spend analysis toolset shortly thereafter (with the first commercialization of its spend analysis product in 2007) and, as a result, ISG and SpendHQ are quite familiar with the fragile data supply chain. Poor data input discipline leading to 200 different supplier names for FedEx in your system? Multiple AP Systems that fragment spend data across the enterprise in different file formats? Accounting oriented categorizations useless for spend analysis? Maverick spend gone wild? They’ve seen it all and can deal with it all. And before the cleansed and categorized data is presented to the customer, it is reviewed by North America and European Union based sourcing professionals — not by a low-cost data-entry tech in an outsourced Indian development shop.

And, as per recent posts, the SpendHQ product is extremely useable — one of the best UIs SI has seen yet for a vendor-managed spend analysis product that is designed to be comprehensible by even the most technology-inept. (SpendHQ believes their UI to be their competitive advantage, and SI agrees.) It’s a great entry point to spend analysis and a quick way to identify your top savings opportunities and get sourcing projects to address them underway. (And then, a few years down the road when you’re ready for do-it-yourself advanced spend analysis, it’s a perfect segway into a product like Opera’s BIQ — which supports multiple categorizations, multiple cubes, and the ability to re-define your own rules hierarchy on the fly — when you’re ready to dive deeper into tougher opportunities.)

A New Year is Upon Us – Do You Have Your SpendHQ Ready To Go? Part III

In the first two parts of this series, we introduced you to SpendHQ, one of the strongest, but yet most overlooked, players in the spend visibility and analysis space from a software and services solution viewpoint. As noted, the SpendHQ solution, which currently consists of a spend visibility and category management module that will soon be accompanied by a contract (metadata) management module, is a good starting point for a company which needs to get up and running with spend visibility quickly.

The category management product has five main components: dashboard, details, order analytics, pricing, and savings.

The dashboard summarizes the spend from spend visibility, the managed spend, the core list compliance, and the pricing accuracy as well as metrics related to company, supplier, item, buyer, location, and budget center, among other identifiers. If the user selects pricing tier, she will see the average order size, total orders, and wholesale spend for the relevant pricing tier. From the dashboard, the user can quickly drill into the top level categories. In addition to the total spend trend graph for the default time period, the user can also see the maverick spend by supplier, ordered by the suppliers who receive the most maverick spend. Or, the user can drill into the metrics.

The details section is designed to allow a user to quickly drill into a category and get the relevant subcategory and item, buyer, or location information related to that category. On the item screen, for example, the buyer can quickly see the total spend, the total unit, the most recent price, the price trend, MSRP (if known), and the date of last purchase.

The order analytics section is designed to allow a user to drill into the order patterns for a category or subcategory and see the average order size and how it changes over time. A user can drill into the components of an average order or into the detail of all orders in the time period.

The pricing section is designed to allow a user to analyze the price paid for an item, or set of items, over time, relative to the price that should be paid. The user can see the total overcharges and undercharges for the time period in question, the net result, and the overall pricing accuracy. This allows a buyer to not only figure out where overcharges are rampant, but where it makes sense to go after them. If the item, or category, also had a significant number of undercharges (because the retail price went down during the time period and the supplier charged retail instead of contract throughout the time period) and the net result is that the net amount lost was small, it might not be a good idea to go after the supplier on those items as they will insist the undercharges be recognized (and be applied against a category where they rampantly overcharged you).

The savings section shows the user how the organization fared on a category, subcategory, or item over time relative to a (set of) baseline price(s) for the category from the comparative time period (before the current prices were put in place).

The details component is broken down into overview, item detail, buyer detail, and location detail subcomponents, allowing a user to see, for the category or categories of interest, the relative spends and then dive in by item, buyer, or location. In the item detail, the buyer can drill down into full purchase history by buyer if she desires.

All-in-all, the SpendHQ solution gives the user great visibility into their category spend, and the drivers of that spend (be it a department, location, or rogue set of buyers) and helps the organization manage that spend.

Top 12 Challenges Facing India in the Decades Ahead – 11 – Energy

On July 30, 2012 a power blackout temporarily obliterated electricity from half of the country and wreaked havoc on the lives of over 620 Million people in 22 of the northern and northeastern states. (Source: Wikipedia) This was the worst power outage since the last major grid collapse in 2001. This wouldn’t be so bad if it wasn’t for the fact that major outages are not a rare occurrence. As per this recent Bloomberg article, the nation suffers from frequent power outages that last 10 hours. Persistent power failures, known as ‘load shedding’, are organized day in, day out in a great many places across the country by the power providers in an attempt to keep power production, and the grid, up. (Source: An Uncertain Glory) Nor would it be so bad if those 620 Million people who were affected had electricity. A third of the population in those regions, living in poverty (or, more accurately, squalor), never had power to begin with.

As it stands, peak supply, which was approximately 205,000 megawatts in 2012, fell short of demand by about 9%, and the situation is only getting worse. And it’s not being helped by the shift from predominantly a government-owned system towards one based on market principles, as this does nothing to insure that anyone who isn’t a large corporation or extremely wealthy or influential individual gets reliable power. As per the IEA’s (International Energy Agency’s) Understanding Energy Challenges in India, the huge blackouts that occurred in northern India in July 2012 could be seen as a consequence within the framework of incomplete market liberalization. Simply put, The goal of providing energy access to the entire population led to well-meaning policies designed to protect the poor, but resulted in a system of untargeted producer and consumer subsidies that prevent a more thorough implementation of a well-functioning and financially-sound energy sector.

And getting to a sound and reliable energy sector is no easy task. First of all, the six issues addressed in the IEA’s report need to be dealt with:

  • The core (production) capacities of the energy companies need to be improved in a financially viable way.
  • Pricing mechanisms must ensure commercial viability (but not price energy out of the range of the low-end consumer).
  • Significant investment is required to meet the growing energy demand and provide access to all citizens — and it must come from the government.
  • The effective implementation of policies is required and this must lead to the timely, on-budget, completion of energy projects.
  • The energy policy must be integrated and consistent as multiple objectives will undermine the policy and its implementation.
  • Strong political will is required as effective policy implementation will never materialize without it.

And then India will have to deal with:

  • Getting energy theft and transmission loss under control. It is estimated that 27% of energy generated is lost in transmission or stolen. This is intolerable considering the country can’t even meet demand at peak capacity.
  • Getting electronic payment and transfer mechanisms set up and in place. Money will need to flow from the federal government through the states to the districts who will have to then distribute the money to the private companies expanding the infrastructure. Considering that corruption is still rampant in India and administrative fees often at the discretion of the local officials, unless all money allocated to the energy infrastructure is electronically transferred and tracked, and the records made public, it can be assumed that at least 2% of this money will disappear due to corruption, which has cost India at least 345 Billion over the last decade. (Source: India Express)
  • Getting the population educated on safe and sustainable energy use. First of all, the country will need to invest in renewable options, which could be expensive when compared to, say, dirty coal. Secondly, the population and their government, which may want to spend the money elsewhere, will need to agree to the appropriate expenditure. Thirdly, they will make sure they are pugged into the grid safely and securely using modern, approved, legal technology. Otherwise, they may find that their meter bursts into flames when their power consumption is at its peak or their houses catch on fire because of unsafe, illegal hookups. (Unfortunately, neither of these situations is a rare occurrence in India.)

This is a tall order for a country that is faced with many serious problems, financial needs, and political divides, which are likely to get worse before they get better. If India can’t get its energy crisis under control, how will it continue to play effectively in global supply chains?

Supplier Innovation Can Bridge Finance and Suppliers, but Reverse Financing is Not Supplier Innovation!

Reverse factoring is definitely a finance innovation, especially when many finance departments still think squeezing the supplier on margin is a good thing, but it’s a buyer(-led) innovation (and one sophisticated buyers should be implementing). Needless to say I was hoping for more creative insights when I checked out this recent piece on Procurement Leaders that purported to be on Supplier Innovation – A Bridge Between Finance and Suppliers. Something on how the supplier’s involvement in NPD/NPI, process re-engineering, or product standardization efforts and its effect on finance would have definitely been preferred.

There are a large number of ways true supplier innovation can benefit finance which include, but are not limited to:

  • Production Process Redesign
    The supplier could utilize a solution such as aPriori‘s Enterprise Product Costing Platform with appropriately configured VPEs (Virtual Production Environments) to suggest alternate fabrication methods that could cut the cost of the part in half or more!
  • Material Substitution or Component Redesign
    Design locks in as much of 80% of the cost — maybe the supplier can identify alternate materials or design changes before the first part is produced that can deliver the same quality and reliability but yet reduce cost.
  • Deployment of Modern Punch-Out and Invoicing Solutions
    Nothing is more annoying then trying to integrate a supplier catalog that is still exported in an archaic FoxPro format on a weekly basis to an old-school FTP site into your modern e-Procurement platform or OCR and auto-correct invoices still delivered as fax into your modern invoice automation solution. A supplier that adopts state of the art CRM technology that plugs and plays with your system often does more for finance than anything you can do.
  • SaaS Information Management
    As per a recent Gartner study, a Billion Dollar company spends 1,000 hours every week managing suppliers and their information. This time is primarily spent on data entry and maintenance, contact requests for updated data, compliance monitoring, performance monitoring, accounts payable and invoice verification. At least one-quarter to one-half of this time is spent on supplier information management alone, which is the equivalent of 6 to 8 FTEs (Full Time Employees) for this one billion dollar company. A supplier that kept the information required by their buyers up-to-date in a central repository that could be easily accessed and read into standard Procurement SIM/SRM systems would be doing a big service to their customers and considerably decrease the buyer’s overhead costs, making the buyer’s finance department quite happy.
  • Fine-Grained Bid Information
    The buyer’s cost depends not only on what the supplier produces, but where it produces, what the inbound and outbound shipping costs are, and how much the supplier pays for raw materials. A supplier who provides fine-grained (should) cost data in detailed cost models helps the buyer decide what locations are most cost-effective for it, whether it should be buying raw materials on behalf of the supplier (and use its negotiating power), and who should be financing what for lowest overall supply chain cost.

These are just a few of the ways that suppliers can innovate a bridge between themselves and the buyer’s finance department. There are others. The point is, innovation is not limited to reverse factoring, which should not even be initiated by the supplier!