Category Archives: Spend Analysis

Are You Doing It Wrong?

If you’ve been following the media, you know that we have reached a point were most major business publications are now putting focus on Supply Chain as your top risk and your top opportunity.

You also know that these same publications, and the solution providers that follow, and reference them, have been preaching the following solutions to not only tame the risk but increase the opportunity.

Comprehensive Category Management

Spot buying individual categories at market lows or evening running reverse auctions at opportune times is not category management. And for that matter, neither is an event that covers the entire category. At this point you probably think that the doctor is losing it a little, because how could it not be category management if you are addressing the whole category?

It’s Simple. Category Management isn’t just about grouping all seemingly related items and running an event, it’s grouping items that have related characteristics that allow the items to be sourced effectively under the same strategy. For example, while it might make theoretical sense to group printers, ink, and paper together — because you use them together, from a sourcing point of view, ink and paper often go better with office supplies and printers with hardware. You can probably get them thrown in for free with a server purchase. But that’s just the start. If you source a lot of metal parts, you should probably group them by primary metal, since the price of steel, aluminum, etc. will largely dictate their prices and it might even make sense to not only source all of the parts from the same supplier but even buy the metal on behalf of the supplier with your better negotiating power and/or credit rating.

Supply Chain Risk Monitoring

Natural and Man-Made disasters devastate supply chains when they result in raw material or product unavailability for weeks or months. When a company doesn’t understand their dependence on a single source or the risks that single source is subject too, they can figuratively get caught with their pants down to say the least.

As a result, most leading companies in the Risk Management arena are now tracking and monitoring their tier 1 supply base for not only missed deliveries, but late shipment dates and inquiring immediately when something is late shipping. However, by the time a shipment is late, it’s often too late to go to another source if the reason for the lateness is the lack of an important raw material. So the smarter companies also ask their suppliers to let them know when their suppliers miss a delivery. This is better, but sometimes this is still too late. You need to track the primary sources of the raw material and their ability to produce. Not only the companies, but their locations. All natural and man-made disasters in the region and then evaluated for impact and if the producer of the primary raw material or part is potentially at risk, they make sure, or ask their tier 1 supplier to make sure, that the raw material or product can still be delivered on time and if it can’t, these leading companies immediately seek a secondary source (or lock up available supply pre-emptively) — not two weeks after the tier 1 supplier required the raw material to meet the commit date.

Big Data

The only buzzword on par with big data is cloud. According to the converted, or should I say the diverted, better decision are made with better data — the more data the merrier. This sounds good in theory, but most algorithms predict demand, acquisition cost, projected sales prices, etc. based on trends. But these days the average market life of a CPG product, especially in electronics or fashion, is six months or less, and the reality is that there just isn’t enough data to predict meaningful trends on. Similarly, every disruption impacts the cost, and these disruptions are as unpredictable as future sales predicted using trend models with insufficient data.

You use all of the data available to validate your operations, procurement, and financial situation. Not to blindly predict future sales or prices. An over-reliance on big data is often more dangerous than not having data at all.

Spend Analysis – How Do You Get It Right?

As an expert in optimization and analytics, I’m regularly asked, with respect to spend analysis, where do I start, which solution is best, how do I get fast savings, etc. All good questions, and as per the dozens of posts on this subject over the years, they all have multiple answers, highly conditional on the skill of the analyst, the solutions available, the data available for the solutions to act on, the categories that can be impacted in the short term (as some contracts are effectively unbreakable and some vendor contracts all but prevent cost recovery), etc.

More sophisticated analysts ask what built-in reports are necessary and the most useful, how much real-time slicing and dicing capability they really need, how much can be automated, etc. Also good questions, but questions which, depending on the particulars of the situation, also have multiple answers which are dependent on what the organization is buying, who the organization is buying from, where the products and services are coming from and going to, how much data is available with respect to the product and service cost components and composition, how powerful the data amalgamation and computation engines are, how variable their spend patterns are, etc.

Which leads many people to believe that it’s almost impossible to get it right, when the reality is that, with the right type of tool and the right mind set, it’s easy to find success, but very hard to predict where and when you will find success. It’s like being a skilled professional during a market boom where the demand for individuals with your skills outstrips supply. While you don’t know who will offer you a job, if you have good references, work hard, and apply yourself to finding a job, offers will come. Spend analysis often works the same way – if you have the right tools, work hard, and apply yourself to finding opportunities, they will present themselves. It’s just a matter of digging until they materialize.

As I’ve said time and time again, you’re not likely to find your best opportunities in the canned top-N reports which for many years were the staple of spend analysis solution vendors. Because, as I’ve pointed out for years, if you go to manufacturing and ask a handful of buyers who the top 10 suppliers are, you’re going to get a set of overlapping lists which will easily allow you to identify the top 7 or 8 suppliers. The same for categories and commodities. And the AP system tells you who the top departmental and individual spenders are. You may not know the exact spends or exact volumes, but you can quickly get a pretty good idea and focus your negotiation efforts on those categories while you work towards improving your data. The net result is that these reports will only identify a few opportunities that you missed, which you will quickly identify, attack, and capture within 6 to 18 months. That’s why the year-over-year return of most spend analysis efforts falls flat within two years. The biggest opportunities are not in what you know, they’re in what you don’t know. They’re somewhere in the next 20 or 30 suppliers or the next 20 or 30 commodities that can be consolidated into moderately high spend categories that when effectively rationalized and sourced can deliver 10%, 20%, and even 30% savings as well as process efficiencies that deliver further organizational savings still.

A consolidation that will only happen if you can define category groups and supplier families and analyze collective spend and compare it to market rates and identify patterns of overspending not detectable using only top n spend reports or traditional organizational categorizations and supplier codes (where the same supplier has four different entries in the vendor master because, as a non-top n supplier, no one bothered to make sure all spend associated with that supplier was with a single vendor entry in the ERP). And you can only do this if you can slice, dice, and rearrange the data on the fly in non-traditional ways only you, as a creative intelligent being, can do. A rule-based system can only check for previously identified transgressions. It can’t check for unknown transgressions or future transgressions by organizational buyers.

So if you want a short answer to the question of how do you get spend analysis right, you make sure you buy a tool that gives you a lot of different flexibility in the amalgamation, organization, and analysis of the data available to you. It should let you build, in technical terms, “multiple cubes”, allow you to create multiple roll-ups and reports on these cubes, using multiple analysis techniques. It should let you build a cube, appropriate roll-ups, and reports that answer any question you care to ask. If you see a spending pattern or trend that is not in line with what is expected, you need to be able to dive into the data and find out why. That’s how you save money. Flexibility, a toolkit of techniques, and the creativity to apply them in different ways until you stumble on the big savings or value generation opportunity that everyone else has missed.

Analyzing Indirect Spend … The Key To Success is to …

Over on Purchasing Insight, your blog-master extraodinaire, Pete Loughlin, recently ran a two part series on Analyzing InDirect Spend (Part I and Part II) from Michael Wydra of REL Consultancy.

In his two-part series, Michael correctly notes that it is often the case that indirect spend areas provide higher improvement potential that is often easier to realise. For most companies, this is non-strategic spend that is easy to overlook, but the lack of oversight often results in these categories not being managed in a professional manner, resulting in a lack of visibility and control. This can be very costly to a company as indirect spend typically accounts for 13.5% to 22% of revenue, depending on the industry. (If indirect spend is 20% of revenue, and the savings opportunity is 10%, the organization can quickly shave 2% off of the top by tackling indirect spend. If direct spend has been carefully managed for years, chances are the direct spend savings opportunity is only 3%. Even if direct spend is 50% of total spend, that indicates that the total savings opportunity on direct spend is a mere 1.5%, making indirect spend more valuable.)

According to Michael, the first step on getting a handle on indirect spend is a proper spend analysis — which might indicate that the spend is spread over thousands of suppliers with a high number of different payment terms, which adds an additional layer of complexity (that is often not necessary). One of the reasons this is important is that, on average, 12% of negotiated savings on indirect spend categories is lost because contracted rates were not adhered to.

This spend analysis should identify opportunities for cost reductions that are sustainable and that facilitate monitoring spend, improve supplier relations, lower transaction costs, and align service levels. If the right opportunities are identified, and the right programs are put in place, a company can become world-class in indirect spend management — and realize, on average, 45% lower indirect procurement process costs than its peers in addition to lower product and service costs.

Sometimes savings opportunities will be obvious — a dozen different suppliers across the country for janitorial supplies when one will suffice, no contract for toner cartridges and no standardization on office printers to allow bulk buys, and temp labour not measured against standard rate cards. But some opportunities will be less obvious — such as two of twelve offices, in the top four spenders, not switching to the new cell plan and overspending by tens of thousands, not matching invoices to rate cards for IT services, and not capturing the annual rebates from the office supply vendors. To find these opportunities, you have to dig, dig, dig — just like an archaeologist.

Iasta: Smart-Source Style! Part III

It’s been a while since Part I, where we covered the inclusion of native analytics capability, improved native contract management capability, and better integrated SIM & SPM capabilities in the Iasta platform and Part II where we covered extensive support for third party data feeds, P2P integration capabilities, and customizable reporting, but that doesn’t mean Iasta has been sleeping. Since then they’ve had a new major release, and a few minor releases, of their platform, which have included the following improvements:

Extended and Streamlined Project Management
One of the big changes was the ability for an organization, and a user, to define configurable project fields with whatever information they want to track — and all of the user-defined fields can be included in scorecards and analytics. So, in addition to name, start date, end date, etc. you can have custom sub-types, budget codes, execution hours, etc. The project team can be defined by role, with as few or as many roles as you like, and each role can have the user assigned, and re-assigned, as necessary.

Furthermore, setting up a project is a quick 5-step wizard-driven process:

  1. Basic Project Metadata
  2. Project Team and Customized Fields
  3. Project Classification and Value
  4. Bid Type, Display Settings, and Additional (Optional) Project Properties
  5. Lots and Items

Executive Analytics

In addition to the standard Smart Analytics module that was introduced in version 8, Iasta has added a new Executive Analytics module built on top of the Smart Analytics module that includes a set of dashboards with the most commonly requested executive reports and requests split into sourcing, scorecard, contract, profile, and trending dashboards.

In addition, each user can define their own dashboards with their own reports on any data fields associated with any data element from any project, supplier, contract, scorecard, etc. they have access to. New dashboards that can come pre-packaged with the solution include diversity and savings tracking dashboards. If you integrate an e-Procurement or Accounts Payable system feed (with a daily or weekly update), the reports on the savings tracking dashboard will compare actual versus projected spend and show you captured versus projected savings.

Excel Bidding & Embedded Optimization

Not only can bids be submitted in Excel, but Iasta finally added the ability to define individual bid fields in an Excel spreadsheet and upload complete bids broken down on all relevant cost dimensions – unit quote, shipping, tariffs, surcharges, etc. In addition, the optimization module, which used to be stand-alone (and which required projects to be imported to build models), is now embedded in the main suite and it’s easy to switch to the optimization tab and pre-populate a model with bids collected in an RFX.

Streamlined Supplier Portal

One thing Iasta has learned is that, even if a supplier makes a claim to the contrary, they are never as technical or proficient with the tool as the buyer and the best way to not only get a supplier to use a tool, but to minimize the supplier management and support time required as well, is to make that tool as easy to use as possible from the perspective of the supplier. As a result, they have completely redesigned their supplier portal so that when a supplier (rep) logs in, they can quickly see their current tasks in a front-and-center task list that breaks down their task by type, their active projects by status, their most recently completed tasks and projects, and quick links to their profile, training, and scorecards. Each project has a clear and succinct timeline and status for each of their requirements, bid and award history is available for each lot, and outstanding surveys are on the main page as well.

Survey navigation is greatly improved, with the user being able to quickly jump to specific pages and see the status of each page that is her responsibility. She can also assign pages to other team members if their input is needed or they are better able to provide the information. Everything is fully indexed and searchable and it’s designed to be just as easy for a supplier to manage her bidding and survey completion projects as it is for a buyer to manage his RFX and survey creation projects.

Session Sharing

In their newest version, Iasta has implemented a screen-share technology where a user can send her colleague or superior a link through an email that they can use to enter a screen-share with the user within the Iasta application, see what the user sees, and even take over the mouse and drive if need be. The Iasta platform is providing a great, easy, way to get multiple users on the same page.


Sourcing platform for users and bosses too. Sweet.
SaaS on the cloud, always on, real-time reporting complete. L33t.
Analyze this. Auctions, Performance. Real time data.
Optimize It. Contracts, and vendor schema.
One. Two. Smart-Source Success!

 


Sourcing Smart-Source Style.
Smart-Source Style.

Basware: P2P for the Global “E” Part IV

In today’s post, we continue our introduction to Basware, a Finnish provider of enterprise finance solutions that serves the global e-Commerce, P2P, and AP Automation marketplace with over 2,000 international customers that collectively do business with over 1 Million companies in over 100 countries. In Part II we discussed the AP Automation and Invoice Processing solutions, the full Purchase-to-Pay process coverage from the Procurement and AP perspective, and the full compliance with e-Commerce, Taxation and Digital Signature Requirements that they offer in over 50 countries. Then, in Part III, we discussed the Basware Commerce Network (BCN). An open commerce network that connects almost 1 Million companies in over 100 countries through 170 partner networks, the BCN currently delivers over 60 Million e-invoices per year with a combined value in excess of $420 Billion and Basware expects to be processing over 150 Million e-invoices a year by the end of 2015 with a combined value in excess of $1 Trillion dollars. Part of this increase will be as a result of Basware’s new partnership with Mastercard, which provides suppliers’ a guaranteed payment once the invoice has been approved, and an early payment option as well. In addition, buyers can have extended payment time if they need it. In addition, cross-border payments, which take over a week on average, are simplified and generally executed at a reduced cost to both parties.

Today we are going to focus on their analytics capability, called Basware Analytics. Basware built their analytics platform on top of Tableau Software‘s Data Visualization Engine, a high-performance data engine designed to allow for real-time data analysis, visualization, and reporting. Using this engine as a foundation, they focussed on designing an analytics application that was useable by the average Spend Management professional and that presented that professional with over 80% of the information across the P2P cycle that a Spend Management professional needs immediately upon log-in.

Over time, Basware has built a suite of package reports that cover 80% of a Spend Management and Finance organization’s need for process and spend visibility to drive process efficiency. In addition, they provide a suite of templates that can be easily altered in such a way that, in most organizations, users are able to build reports that quickly cover most of the reporting needs not covered out-of-the-box within a few hours of deployment, and gradually build reports, possibly with the help of Basware’s services organization, that will let them achieve the remaining 20%.

The solution was designed from an AP and Procurement perspective and in addition to standard procurement reports which include, but are not limited to, total spend, geographical spend by organization or cost centre, top suppliers, top products, invoices received, procurement KPIs, and maverick spend, there are accounts payable reports which include, but are not limited to, invoices received, invoices received with or without a contract or PO, cash flow analysis, spend by supplier analysis, AP KPIs, AP Process and Cycle Times, and AP Financial metrics. Each report allows for real-time drill down and filtering on any dimension. Because the underlying analysis engine has been built to sit on top of all invoiced spend and related P2P data, the platform can address spend visibility, supplier performance, procurement performance, contract compliance, catalog coverage, cash forecasting and management, accounts payable and invoice management. With the visibility provided, you can dive into opportunity identification, process optimization, and rationalization.

Users can access the template behind any report and quickly customize it by adding or removing available dimensions, customizing filters, and tweaking the layout. A user can select which of the available data sources1 (which have been mapped to a common schema) she wants to use, specify the dimensions of interest (to build the cube), define the default ranges and allowable filters, choose the graph types, and modify the layout. The application supports all of the standard graphs and charts, including cloud charts (which is great for looking at search term history or the most common products and/or services being bought) and tree-maps, which give a quick visual representation as to which supplier, cost centre, product, etc. is accounting for the most (maverick) spend. It’s one of few, and most effective, implementations of cloud charts and tree maps that SI has seen to date.

The user does not require any technical skills to modify the templates to adjust or create new reports. This solution is optimal for giving more people within the organization real-time access to spend and process metrics, and allows the Procurement and Finance organizations to begin their spend analysis journey immediately. (In addition, if the user needs help or wants to add custom data sources, Basware has professional services personnel in North America, Europe, and Asia Pacific and offers a broad suite of support services, including supplier activation/onboarding, in 10 languages: English, Finnish, Swedish, Norwegian, Danish, Dutch, German, French, Spanish, and Portuguese.)

1 Even though reports are limited to Basware’s data sources out of the box, the customer has an option to extend the reporting solution to other data sources through the use of other Tableau Software tools leveraged by Basware.