Monthly Archives: December 2008

Buying Spend Analysis Systems: Test Drive Case Study

Today’s guest post is from Bernard Gunther of Lexington Analytics who recently brought you Buying Spend Analysis Systems: Taking a Test Drive. He can be reached at bgunther <at> lexingtonanalytics <dot> com.

A client who read my recent SI post, “Taking a Test Drive“, thought that relating the experience of their own test drive might help other readers who are investigating spend analysis approaches.

In this case, the company already had a spend analysis system, but the contract was about to expire. The test drive was intended either to provide ammunition for switching to another system that had been identified as a alternative, or justification for renewing the contract for the existing system. The company wanted to evaluate whether there were advantages with the alternative system, and whether or not the alternative system could improve performance for users whose buy-in was essential. A financial case either for making a change or for maintaining the status quo was also a deliverable.

As a result of the test drive, the company ended up changing systems, and believes that user needs are better met because of that decision. Data are cleaner, because vendor groupings and commodity mapping are more accurate, and analysis capability has improved greatly. The company reports spending less time supporting the new system. The company also added external consulting resources to work with their users each month to help extract additional value. Best of all, the monthly expenditure for the system — including the cost of the incremental external resources — dropped by more than 25%.

The Test Drive Process

To perform their test drive, the company focused on how each system would:

  1. Meet the existing user needs: “must haves”
  2. Deliver on known needs that users don’t have today: “wants”
  3. Deliver additional value that may not be understood today: “didn’t know I wanted, but after seeing, can’t live without”

The business case needed to describe how each system would deliver on these three items at either a lower cost or, if the costs were higher, how the selected system would deliver an incremental return on investment.

The test drive for the new system occupied a few days over a three week period. Since the evaluation team understood their current system thoroughly, they focused on learning where additional value might be delivered, as follows:

  1. Understand the current users of the system.
    The team interviewed users to see what they valued and what they were currently doing with the existing system, e.g. did they have features or data that they would like to see in the system, did they understand the value they were currently getting from the system, and did they know what they wanted the system to deliver in the future.
  2. Understand the “non-users” of the system.
    Individuals were identified who were not current users of the system, but who the team felt could or should be users of the system. The team worked to understand what these potential users would need to see, and the value that they would receive.
  3. Provided a sample of current data and reports to the supplier of the new system.
    Since the core data required for the demonstration was already available in the existing system, the supplier was able to produce a working spend cube for review with minimal effort.
  4. Review with the suppliers how they would meet all the “must haves”, “wants”, and “future wants”.
    Evaluate the suppliers’ offerings to determine how each element generates savings and/or adds value. Users were involved with this part of the evaluation, as they were considered to be the best judges of how a new feature compared to an existing capability.
  5. Put together the business case.
    The test drive showed that the new offering would both reduce costs and increase value, so it was not difficult to achieve internal agreement on a decision forward.

Survey Results

  • User Must Haves
    • Users said that they obtained the most value from basic visibility to the spend data. However, other than the advantage of having all the AP spend data in one place, most users felt the existing system was just a “warehouse of data” that didn’t really help them do their job much better than data extracts directly from AP. They were unhappy with the vendor grouping and commodity mapping.
    • Users had the basic ability to filter data via point and click interfaces, but were unhappy with the speed and limited complexity supported.
  • User Wants
    • Users expressed a desire for the ability to create and modify reports inside the system, without external support. The existing system had limited reporting, so in order to create all but basic data extracts, users had to dump raw data to their desktops and build custom reports and models outside the system.
    • Users were unhappy with vendor grouping and commodity mapping in the existing system. Getting changes made to groups and maps was awkward, required committee decisions, and took a long time. Users wanted to make changes to the commodity structure, commodity mapping, or vendor grouping, and immediately see the results.
  • New Features
    • Users wanted the ability to make private and arbitrary changes to a spend dataset, to see if a change in data organization could improve their understanding of the data.
    • Users wanted the ability to build new data sets from scratch, on their own, as well as the ability to analyze many different kinds of data, such as commodity-specific invoice-level data.
    • Users wanted the ability to build complex reports inside the system.

In summary, the client believes that the test drive process was very useful. The value delivered by the spend analysis system has been increased, user satisfaction with the data and the system has gone up, and the cost of the system has gone down. The client also believes that if a decision had been taken to stay with the incumbent vendor, the test drive would have provided significant leverage for renegotiation.

the doctor’s 10% Blogger Sustainability Challenge Update

Back in September, I issued a challenge to all bloggers who generate advertising or sponsorship income off of their sites to donate 10% off the top (off the gross for you financial types) to sustainable charities of their choosing from all advertising and sponsorship income they receive, and to do so at least yearly (with quarterly donations being preferred).

Although, to the best of my knowledge, no one has taken the doctor up on his challenge yet, I am happy to report that I have inspired at least two of my fellow bloggers to be more charitable in their endeavors.

First of all, Jason Busch of Spend Matters, decided to “Give Thanks for Spend — and Give Back” and has started to ask some investors and consultants that he advises in lieu of a fee that they give a donation to a local Chicago organization that distributes food to needy families and individuals in his North-side neighborhood. (I just hope he asks for a copy of a tax receipt! That way he knows he’s making the difference he wants to make.)

Secondly, Charles Dominick of The Purchasing Certification Blog and Next Level Purchasing will be kicking the New Year off with a “Charity Challenge” that could see a substantial amount of money directed to worthy charities. I can’t release any details at this time, but I can say that it sounds really cool and that you should keep your eyes peeled for it!

As for the doctor, this quarter saw three $525 donations to the David Suzuki Foundation, Medicins Sans Frontieres  — also known as Doctors without Borders, and Water for People, respectively. The David Suzuki Foundation, which works to find ways for society to live in balance with the natural world that sustains us, is one of the leaders of the sustainability movement; Medicins Sans Frontieres continually endeavors to find ways to respond rapidly and effectively to public health emergencies, with complete independence from political, economic, and religious influences and developed Plumpy’nut — a very simple food that does wonders in keeping young children in third world nations healthy; and Water for People funds sustainable water projects and sanitation systems built by local communities in developing countries — sustainability at a basic level.

I hope that our efforts continue to inspire more bloggers to follow us in our cause because we can only make so much difference on our own. Let’s face it, green computing (which means ditching the printer), fluorescent light-bulbs, high mpg cars and public transportation, only buying products in recyclable containers and packaging whenever possible, and smart energy use in the home are all worthwhile endeavors, but when it gets right down to it, individuals are not the biggest threat to the environment — corporations are. For starters, corporations utilize most of the energy … and waste most of it as well. (Some estimates are that energy usage in North America could be reduced by as much as 25% — or more — if corporations just invested in more energy-efficient buildings!) They also waste most of the water, etc. And it’s our need for energy that causes us to burn coal and oil … and pollute the environment. And the only way to take on corporations, and especially those whose products we can’t boycott on a massive scale, is with action groups, that we can join and support. In other words, alone we are weak, but together we are strong — and together we can make sustainability and corporate social responsibility standard operating procedure.

What are The Drivers of Procurement Excellence? Part II

Yesterday’s post discussed the recent article in the Supply Chain Management Review on “The Drivers of Procurement Excellence” that discussed seven megatrends that are currently exerting their impact on the global procurement function which the authors claimed to be driving procurement excellence by way of the pressures they are exerting on procurement departments across the board. While I agree that all of the megatrends are driving the need for a greater procurement function, and while I believe that each of the five elements that they listed as being core to a procurement transformation are necessary, I do not think that megatrends drive procurement excellence.

As far as I’m concerned, procurement excellence is driven by one thing — and one thing alone. Talent. People drive excellence — and although this excellence generally needs to be supported by kick-ass processes and kick-ass technology, excellence is driven by people first, process and technology second, and external influences third.

Face it, as the SCMR article deftly notes, the skills and capabilities required in today’s procurement function are vastly evolved and nearly unrecognizable from those of 10 to 15 years ago and no technology or process is going to come close to meeting a fraction of the requirements, or deliver the results today’s procurement functions need, without a very talented individual at the helm. An individual that is an experienced, collaborative, customer-focused market zen master team player who is driven to succeed. An individual that is adept at analysis, skilled at strategy, and focussed on sustainability and who will seek out the knowledge she needs, consult with experience, and innovate all the while. A new breed of professional who is a jack-of-all-trades and master of one — spend and supply management!

Of course, given that there’s a talent crunch, and maybe even a talent war, for A-level procurement professionals that has already progressed to the point that only 11% of executives are confident that they will be able to recruit and retain the needed talent they need, attracting the talent you need might be easier said than done. That’s why true leaders will take their intelligent, hard-working, driven B-level players and provide them with the training (possibly through industry-leading certifications such as the SPSM offered by Next Level Purchasing) and job experience they need to become A-level players and kick ass. (And when you consider that, as pointed out in this Supply Excellence piece, A players, who only cost 40% more, often deliver an overall return of 100% or more in a given year, the payback on talent acquisition and development is almost exponential!)

So hire the best, train the best, and retain the best … and you will achieve procurement excellence, because the best will accept nothing less.

The Resource Site Rocks

This is just your friendly reminder that the Sourcing Innovation Resource Site [archived in 2017 and removed in 2024], always immediately accessible from the link under the “Free Resources” section of the sidebar, is a supply manager’s best friend. It collects all of the on-line resources you need as a supply management professional into one place. As of today, it has links to:

  • over 175 Event Listings including over
    • 105 Conferences,
    • 60 Seminars, and
    • 10 Workshops
  • over 125 Blogs, Wikis, and Communities in the supply management and enterprise technology space
  • over 45 Publications that will keep you abreast of today’s global supply management issues
  • over 50 Societies where you can find people with the same needs and interests as you
  • over 15 Centers of Excellence which publish ground-breaking and thought-leading research on a regular basis
  • over 20 Analyst Firms which explore the vendors, technology, and issues that populate our space
  • over 590 Vendors for all of your supply management needs
  • over 310 Linked-In Groups for all of your supply management networking needs
  • and over 15 Job Sites when you’re ready to take that next career step

When you combine it with the e-Sourcing Wiki that has almost 35 wiki-papers on all of the relevant global supply management subjects (co-)authored by the doctor, the integrated PurchSearch procurement search engine (powered by Google Custom Search and brought to you by Next Level Purchasing), the Sourcing Innovation Illuminations, and the free Iasta-sponsored e-Sourcing Handbook, you’ve got everything you need. So check it out!

Don’t forget that the resource site is only as good as you make it. If you have an event (conference, roundtable, seminar, training program, workshop, or webcast), blog (wiki, or community), publication, journal, center of excellence, society, analyst firm, linked-in group, or job site that your fellow supply management professionals would benefit from, you can always submit it for inclusion on the resource site! This will insure that the site continues to meet all of the supply management needs of the sourcing nation!

And while you’re at it, don’t forget to Subscribe to the Sourcing Innovation Mailing List and join the Sourcing Innovation Linked-In Group!

What are The Drivers of Procurement Excellence? Part I

The Supply Chain Management Review recently ran an article on “The Drivers of Procurement Excellence” that discussed seven megatrends that are currently exerting their impact on the global procurement function. More specifically:

  1. Managing Extreme Competition and Pressures for Deep Cost Reduction
    There’s a widespread sense of incessant urgency to take steps that help reduce prices for end consumers. This is challenging in an era of rising energy and commodity prices. Oil and certain metals categories (that had reached ridiculous highs) may have dropped recently, but energy production costs from non-renewable sources have increased across-the-board and many commodity categories are still climbing.
  2. Addressing the Accelerating Pace of Globalization
    Globalization has multiple impacts. It drives some organizations to expand markets, others to move closer to their customers, and others to improve their global sourcing capabilities.
  3. Addressing the Proliferation of Unique & Dynamic Relationships with Customers, Supplies, and Outsource Partners
    Profound shifts are happening with respect to supply. Some suppliers are customers while others are strategic suppliers for direct competitors, and in both cases the supplier might be strategic or critical. It’s not enough to consider a supplier just as a source of supply anymore.
  4. Coping with the Rapid Advance of Technology in Products and Services and (in) Procurement Operations
    Technological advancements arrive now so quickly that the right technology for any given product or service may change dramatically nearly overnight. Procurement organizations have to constantly deal with the obvious technology-driven dichotomy: a strategically focused sourcing function must simultaneously pursue both closer collaboration/partnership and yet maintain greater flexibility.
  5. Assisting with Revenue Growth and Innovation
    New products and services, key drivers of revenue growth and innovation, directly relate to technological innovation and similarly, companies are pursuing revenue growth through globalization and new markets. Procurement is smack-dab in the middle of both of these trends.
  6. Managing Constantly Changing Customer Demand
    Customers want the newest and most effective products possible and customers want companies whose products and services seem responsive to their individual needs.
  7. Dealing with Complex Regulatory, Environmental, and Ethical Requirements
    Procurement functions take the lead in helping their organizations navigate an ever more complex web of issues such as corporate responsibility.

In response to these challenges, the article notes that many procurement departments are:

  • beginning to rethink their business and organizational models to deliver organizational break-throughs, including center-led procurement.
  • considering outsourcing or off-shoring non-critical procurements, or transactional processes (which free staff up to focus on more strategic initiatives that offer greater savings opportunities)
  • rethinking global sourcing strategy and global supply chain structure
  • brushing up on current, and upcoming, global regulatory requirements and refining product lines for global acceptance
  • considering innovative supply configurations to simplify production, distribution, and supplier relationships
  • thinking differently about materials, commodities, components and/or services that they’re buying and throwing sustainability, green, and CSR requirements into the mix
  • realigning with business strategy with a focus on product/service development and IT
  • streamlining processes on a channel-by-channel basis, optimizing the mix of methods by category, and not relying on too few or too many options for sourcing, buying, and paying
  • implementing well-defined balanced scorecard for the internal procurement organization
  • partnering with the business at-large to find relevant sources of supply to enable these growth strategies
  • spending more time identifying who their current and likely future customers are and what they are most likely to buy
  • collaborating with engineering and suppliers to optimize packaging, reduce shipping weight and size, use low-environmental impact materials, and design for sustainability
  • beginning to develop the talent they’ll need internally using formal training, rotational assignments, and international appointments

This is because, as the article points out, the era of incremental improvement is passed and companies need to focus on the megatrends of global procurement to identify and extract breakthrough performance. The game is no longer simply about better sourcing strategies or merely greater efficiency in transaction processes. Today, the goal is an end-to-end approach featuring optimized business models, metrics, people, and organizational structures — a program of strategic transformation.

And at the heart of such a transformation is, according to the article:

  • Attaining closer alignment between procurement and overall business strategy.
  • Where necessary, redefining operating and business models.
  • Improving policies and procedures, methods, and controls.
  • Improving technology, data collection and interpretation.
  • Developing and leveraging talent.

But are these truly the drivers of procurement excellence? That’s the topic of tomorrow’s post.