Scalue Wants to Scale Up Your Strategic Procurement with Strategic Spend Analysis

Scalue is a spend analysis company that was founded in 2018 by veterans of Procurement with two decades of experience in Düsseldorf, Germany to help companies identify various, immediate, areas of potential savings, improve their overall purchasing processes, and, most importantly get started quickly (as many large organizations can take between 6 and 24 months just to get their data foundation in order if they take the traditional route and start with a consultancy partner that starts with a data cleansing, classification and enrichment project before building the first cube and starting the opportunity analysis).

Scalue was built to be ready to use the minute that you loaded the starting data set from either

  • a set of flat files or Excel workbook (which are auto-mapped if you use their data model and/or standard field names) or
  • the ERP/MRP (AP) (for which they have a library of pre-built integrations to the majority of the major ERP systems; they may need minor customizations, but those are usually quick to accomplish, and if you need something custom, they do have certified ERP integration partners).

Of course, how ready it is will depend on how good your classification is in the raw data you import. For the majority of companies just starting on their data foundations and/or spend analysis, chances are their data classification is very poor. Fortunately, classification in Scalue is quite easy and can be done by supplier, material group, material, GL coding (if available), invoice (line), or a combination thereof. Scalue typically begins an engagement with a working session to help, and guide the users on creating/updating their categorization and doing the initial spend mappings.

Updates are on your schedule. Most customers prefer monthly (so they can share and do consistent analysis), but they can retrieve updates weekly, daily, or even hourly if you want with a direct (ERP/MRP/AP) system integration or as often as you update an incremental file without an integration.

While Scalue has experimented with multiple AI technologies for classification, they do not use any technologies across the board, and instead use specific instances on specific use cases (for initial classification rule creation, but all AI mapping rules can be deleted or overridden), because they have found, as the doctor knows all too well:

  • classification accuracy in direct, especially when dealing with a multi-national enterprise that sources in different countries that use different SKUs and coded product descriptions for the same product and do so in multiple languages, is poor. Maybe 90%, but you really don’t want 10% of your data misclassified, especially if it relates to high spend transactions
  • classification consistency with the black box is poor, while retraining from corrected classifications will correct some classifications, others that were right are now wrong
  • while it sometimes can produce starting rules, you can’t always trust the confidence and still need to verify all the rules manually
  • a good mapping process will get a spend analysis / data management team to fairly high accuracy (90 to 95% +) in just a couple of days at most (even in large organizations) and the rules are 100% accurate and reliable

When the average direct buyer enters Scalue, the first thing they see is the Cockpit Dashboard in the Management module which helps them understand their spend and drill in to find immediate opportunities. The cockpit, like any good entry dashboard, summarizes spend volumes, suppliers, spend by material group, supplier, and measure for a time period and allows a user to drill in by any (pre)defined dimension or measure in each of these drill downs, and order the drill downs in any order they like. Each drill down brings up a dedicated report screen, where the user can not only drill, but select a dimension/measure subset as well. When a user identifies a high spend (sub) area that they want to address, they can kick off an initiative, which we will discuss later.

Scalue promises a return of 1% on total addressable spend in your first 12 months and has consistently delivered across its customer base for the last few years. This might sound low compared to the numbers quoted by indirect spend analysis providers, but one should remember the following:

  • while the average return on an indirect category that is strategically sourced during non-inflationary times will be 5% to 10% with a modern sourcing solution and good insight,
  • and the average return in the tail spend will be 10% to 15%,
  • the average return in a direct category is usually in the 3% range (as it’s much more carefully evaluated and managed by a company that needs to invest millions in materials and goods to serve its customers)
  • and contracts are usually three (3) to five (5) years.

Thus, if you save 1% a year despite much of the spend being locked in by existing 3+ year contracts, with a average ceiling of 3% on savings on (re)sourcing. that’s actually quite good — and for a company buying 500M in direct, that’s 5M straight to the bottom line in the first year on direct spend alone!

The next step for most users is either the ABC Analysis or the Business Development overview, which is where they will typically go next. The Business Development screen summarizes purchasing volume, regions of origin, and ABC analysis (by country by default) which can also help an analyst dive in to find immediate opportunities (by focussing in on high volume categories where the spend trend is going up, categories that are being sourced from too many regions and present a consolidation opportunity [without increasing risk], and high spend material groups that might be going unmanaged).

The ABC analysis, that the user can drill into from the Business Development tab (or jump straight to), allows the user to see the material group or supplier split by the top 80%, next 15%, and final 5% (or 70/20/10 or however they want to define the A,B,C spend ranges under their interpretation of the Pareto Principle) and just drill into the spend that matters the most.

In summary, users usually start with these three Management Dashboards

  • Cockpit – an overall spend overview: volume, cumulative cost variance, top suppliers, top measures, etc.
  • Business Development – looks at price spreads across all of your products to find immediate opportunities (by consolidating to lower cost parts where possible)
  • ABC Analysis – the standard ABC analysis that groups material groups into high spend (A), medium spend (B), low spend (C) using the modified 80/20 rule into 80/15/5 (which can be modified as desired by the customer); this allows an analyst to focus into the high spend / critical material groups first and then see what groups or suppliers are out of control in the tail

Once the initial exploration is done, most analysts will move to the Structure dashboards:

  • Invoice Compliance – how much spend is billed not using contract rates
  • Contract Compliance – how much spend is off-contract that should be on contract
  • Payment Terms Optimization – looks at payment terms and early payment (cash) discounts across suppliers and helps you optimize payment terms and time-frames
  • Delivery Time & Performance – average delivery time, on-time, late, by supplier
  • Terms & Conditions – where they can analyze payment terms and delivery terms across a supplier (cluster) or material (group); keeping on top of this is very important if your suppliers provide early payment (cash) discounts or charge interest for late payments (and hold your critical orders until invoices past due are paid); includes a portfolio view of associated value with each material group-term pairing

From there, they will usually progress into the Control Dashboards:

  • KPI Dashboard – a customizable dashboard that centralizes your KPIs of interest
  • Material Cost Variance – summarizes the cost variances across materials and material groups
  • Report Builder – allows an end user to build a report on set of dimensions and/or measures in the system

Once they have completed their analysis, the users will probably want to set up initiatives (projects) to (re)capture savings and hit the 1% reduction on total spend Scalue can deliver within the first 12 months. To do this, they will move over to the Action Hub:

  • Tracking – the main dashboard that provides an overview of all (open) initiatives including [savings] type, forecast, and captured to date
  • Approvals – the approvals dashboard where an admin can accept, and lock, dates, forecasts, entered amounts (to date), etc.
  • P&L Savings – the savings against the P&L by month for a given time-frame
  • KPIs – allows for a deep cross-initiative analysis that computes averages and statistics across initiatives, categories, manufacturing groups, and other KPIs of interest by time periods of interest
  • Admin – allows for customization of initiative management — the admin can define the phases, the employees who can edit initiatives, the priority classifications, the savings types, the project statuses, and other dimensions upon which the KPIs will be based

As with all spend analysis systems, the end user administrator can setup and maintain the category tree, material groups, supplier, and invoice categorizations completely self serve and inspect it at any time through the module for Data Health:

  • Material Clusters – group material groups by product lines, related uses, or another common denominator you want to be able to do analysis by; see the allocation by spend or volume, and drill into the percentages
  • Supplier Clusters – group suppliers by parent company, region, or another common denominator you want to be able to do analysis by; see the allocation by spend or volume, and drill into the percentages
  • Category Tree – define the category tree and the overarching material groups
  • Material Group Categorization – dive into a material group and map materials
  • Supplier Categorization – classify suppliers by material category
  • Material Categorization – supports product/SKU level mappings
  • Invoice Categorization – define line level overrides where needed

Once a company has mastered the basics and taken full advantage of the standard dashboard and analysis that deliver almost immediate payback, they can do the more advanced portfolio analysis that allows them to analyze portfolios by buying power, supply risk, ESG/CSR, etc. as long as they have the data to do so (and have defined the appropriate supplier/material group clusters). Scalue can pull in the data from the ERP if it exists, and if it doesn’t, it can build (or the end user can build) questionnaires to collect the data from organizational users. This advanced analysis is accomplished in the Strategy Hub:

  • Questionnaire – used to collect baseline data to provide a foundation for portfolio analysis
    (around ESG/CSR, Organizational Buying Power, Supply Risk, etc.)
  • Supplier Portfolio Specifications – used to collect specific data for portfolio segregation by supplier (cluster)
  • Supplier Portfolio Analysis – analyze the spend by the desired portfolio breakdown, dashboard is customizable on implementation
  • Material Portfolio Specifications – used to collect specific data for portfolio segregation by material group (cluster)
  • Material Group Portfolio Analysis – analyze the spend by the desired portfolio breakdown, dashboard is customizable on implementation
  • Combined Portfolio Analysis – see the portfolio analysis by supplier (cluster) and material group (cluster), dashboard is customizable on implementation

Finally, for ERP customers that have multiple years of data in their ERP, they also have a ProcessView module:

  • Dashboard – a summary of the process analysis which focuses on process discovery, lead time analysis, and a breakdown by lead time cluster
  • Statistics – summarizes statistics related to the different steps of your process around average time in the step, which can be broken down by supplier, material (group), user, etc.
  • Query Builder – build queries to answer questions not answered in the dashboard
  • Modeler – adjust the process model as required
  • Impact – The statistics and KPIs are converted into easily understandable process descriptions based on intelligent models to aid the analyst in interpreting key figures and estimating the initial impact.
  • Comparison – The results of a process comparison across suppliers and product (groups) to highlight why one supplier or product is better (or worse) than another.

As with any good platform, you can drill into any data set on any dimension, reorder the dimensions, and drill right down to the individual transactions. Also, since they have a number of implementation partners certified on the major ERP systems (SAP, Microsoft, etc.), you can have it implemented quite quickly, and the partners can work with you to get your data properly classified in a very short time frame as well. You can also export all of your data at any time.

When it comes to user administration, an admin user can grant other organizational users access rights done to the record level (and may only see some modules, dashboards, and menu items as well) and define new measures for report building.

The platform is very useable, but to ensure that all of their users can make the most of it, they have an extensive on-line education library in German and English on their Training Site. These courses go beyond platform basics and even include courses on negotiation, supplier consolidation, strategic category assessment, and so on.

If you’re doing a lot of direct spend and looking for a best of breed spend analysis solution, it’s one to include on the short list.