Category Archives: Spend Analysis

Managing Indirect Spend: An In-Depth Review, Part III

In our last post, which ended the review of Part II of Managing Indirect Spend, a new book by William (Bill) Dorn and Joe Payne of Source One that takes you on an excellent adventure through the world of indirect sourcing (that they have been living in for the past two decades, well before Strategic Sourcing and Supply Management became cool), we discussed the non-software tools at a sourcing professional’s disposal, Procurement Services Providers (PSPs), and the (common) mistakes that can kill a sourcing project. This wrapped up our discussion of the capabilities at a sourcing professional’s disposal. Today, we’re going to discuss Part III, Examples from the Field, and focus on some of the results that can be obtained when applying the best practices discussed in the section.

The examples focussed around the gains that can be achieved by collaborating with suppliers, leveraging supplier feedback, and analyzing data — which, as SI outlined in Spend Visibility: An Implementation Guide, we know to be significant even before the application of additional tools and techniques. We’ll start with supplier collaboration.

As Bill and Joe point out, collaborating with your suppliers can produce surprising and profitable results. In fact, collaborating with your entire supply chain (including your suppliers’ suppliers) can often produce sustainable results that equate to large cost savings opportunities. Plus, it encourages partnerships with your suppliers, which may lead to your company being the first in line for new product developments or other supplier benefits.

Consider these examples from the text:

  • specifying printer models and toner requirements, instead of brand name toner cartridges, generally leads to savings north of 50% when suppliers are asked to propose low-cost (non-OEM) solutions
  • the cost of a simple chemical compound was reduced 39% when the buyer worked with the supplier to jointly source expensive regulatory valves at a higher volume
  • the willingness to work with a new supplier that produced a required solvent at an insufficient level of purity (and guarantee them a reasonable amount of business under the right circumstances) if the supplier was willing to refine their manufacturing process to get to the required level of purity convinced the supplier to make the infrastructure investment and saved the customer a considerable amount of money now that a third, lower-cost supplier, had entered the market

In addition to collaborating with suppliers, you can use the information they provide to your advantage. By leveraging the information that your supply chain provides, you can actually achieve deeper discounts in the products or services you are buying, and improve the overall relationship and integration with each of your suppliers. This can lead to results like the following:

  • by working with suppliers to find out what was possible, the buyer was able to approach the incumbent and ask for a new type of telecommunications infrastructure that reduced organizational cost by 35%
  • by working with the supplier to find out when the supplier wanted to make a sale, and the supplier representative, who was quite eager to make a bonus target, the customer was able to get a software product (only available through resellers) at cost with terms of net 30 days, allowing it to delay the purchase to the following quarter (while still allowing the supplier, and the representative, to recognize the sale this quarter)
  • a buyer which needed specialized multi-million dollar computer equipment that could only be supplied by one supplier was able to reduce its costs and get millions of free marketing by allowing the supplier to use its logo in its advertisements (which the supplier promised to spend millions on if the buyer allowed the use of its logo)

Lastly, there are great opportunities to be had through data analysis, including:

  • a detailed line analysis that will often identify a significant number of (secondary) phone lines that are not required that are costing the organization hundreds (or thousands) each
  • the appropriate segregation of MRO spend into the right buckets that will allow suppliers to be more competitive on the categories they are strong in, as this will decrease overall cost significantly
  • the identification of non-compliant spend and the top offenders as a few choice words from the CFO to these individuals (or their superiors) will considerably decrease maverick spend quickly increase realized savings 20% to 30%

There are plenty more examples, but considering that SI essentially co-wrote a book detailing what they are and how to find them in Spend Visibility: An Implementation Guide (free download, no registration required), we’re not going to go into them any further in this post, especially since the important lesson is that you should be leveraging the information provided by the supply chain (for analysis) and then working with your suppliers to implement the best solution(s) you identify.

Stay tuned. After another break, SI will conclude it’s review of Managing Indirect Spend later this month with Part IV: How to Do It.

Series to date:

Managing Indirect Spend: An In-Depth Review, Part I.1

Late last year, Joe Payne and William (Bill) Dorn of Source One released their first book on Managing Indirect Spend (Amazon) which is a culmination of everything they have learned while doing nothing but Strategic Sourcing since 1992 — before it was cool. Clocking in at 422 pages, this is an incredible resource for anyone who wants to get a handle on indirect spend, which has increased significantly since outsourcing and right-sizing rose to fame in the 1990s.

This book, which should be on the desk of everyone looking to get a handle on indirect spend, is loaded with so much information that there’s no way SI could do it justice in just a post or two — so it’s not going to even try. Just like the book is broken down into four parts, our review, over the next few weeks, will be broken down into four parts — and then into sub-parts where there is just too much to comment in with a single post.

Today we’re going to review the first part of Part One – The Process, and, specifically, the chapters that cover the first three parts of their six part process, namely:

  • Data Collection & Spend Analysis
  • Research
  • The RFx Process

We’re all familiar with the basic process, and if you are a regular reader who has downloaded the free e-book, no registration required, Spend Visibility: An Implementation Guide, then you are very familiar with the data collection and spend analysis process. However, the chapter still makes some good points that need to be reiterated, particularly in regards to building sponsorship and understanding the category. Lack of sponsorship will kill your project faster than a minnow can swim a dipper, and to get it you need the end user’s support as well as senior management. As Joe and Bill state, this will require sitting down with the users and letting them know that they are not being singled out by your spend project, that your project’s success depends on them and is their success as well, and that your project is designed to tie to their objectives (as it should be). In addition, the following is a great checklist of information you will have to review with your users before starting a serious sourcing project on the category:

  • business relationship (with current suppliers)
  • product or service utilization specifics
  • location impact
  • financial implications
  • contractual obligations
  • reports, requirements and actual utilization
  • service requirements and expectations
  • supplier ranking

Joe and Bill also provide some great advice on how to handle the three different types of responses that you will encounter when requesting data from incumbent suppliers — acceptance, avoidance, and pushback — and questions to consider during supplier interviews.

Moving on to the research phase, they provide a breakdown of the eight (8) elements that need to be researched during any sourcing initiative (that you want to be lucky) as well as some great tips for collecting market intelligence through the RFI process. While modern tools, including Source One’s own WhyAbe, make the creation of RFIs drop-dead simple, getting responses and, in particular, the responses you want can be challenging for a variety of reasons. Suppliers might not think you’re serious, might not want to expose what they consider to be sensitive data, or might not be comfortable with the tool. A carefully constructed process has to be put in place, followed, and sometimes augmented by other approaches for the research phase to be truly successful. Joe and Bill lay out their advice, garnered from almost twenty years of experience dedicated to sourcing projects, in detail and offer a blueprint for your success.

Then they jump into the full RFX process, which might consist of an RFP and / or an RFQ/RFB and dive into the typical elements of a good RFP and RFQ as well as the evaluation process that should be followed and the response that should be provided if you want your suppliers to participate in the process again. One point that they make that most other resources miss is the need to include disclosure and liability sections in the RFx document. This is critically important when inviting new, unknown, suppliers to an open event. If these suppliers aren’t awarded the business, they may sue you on the premise that the invitation for bid was in fact an invitation to do business and that the RFx constituted an MOU to be replaced by a future PO or contract once the information was provided. Slimy and shady to say the least, but this has happened. They also discuss the reverse auction process and when it is preferable to an RFX. Finally, they end their discussion of the first half of the sourcing process with a discussion around the need for flexibility and creativity in the sourcing process, a discussion that’s often overlooked. Significant savings are never found by doing the same-old, same-old or just applying one or two sourcing technologies. They are found when the parties come to the table, broaden their horizons, and look for new, creative, and innovative ways to meet organizational needs. And, as Bill and Joe state, suppliers are often much more motivated and engaged when buyers take an alternative approach. So be flexible — and stay tuned. Part I.2 is coming!

Peter Smith Nails Why the doctor Does Not Do Predictions

Traditionally, the New Year is a time to think about how we can become better people … and of course, the chance for writers and analysts to sit at their keyboards with a cold beer and make a list of wild guesses, predictions and ill-informed comments, desperately pretending we have some particular insight into the world!
Peter Smith, Ten New Year Resolutions for 2012, BravoSolution.com

the doctor has insight into what you need to do today, but has no more insight into what the Supply Management world of tomorrow will look like for your company beyond what anyone else has. He can predict what is likely, but all it takes is one earthquake, political uprising, or stock market crash to turn everything on its end. Fortuntately, Peter’s paper is filled with advice for today and not tomorrow.

In particular, the doctor likes resolutions:

2. I will make sure we do proper risk assessment on our key supply chains – and that doesn’t just mean our “top ten suppliers”.
How exactly are you keeping track of your key suppliers’ financial situation, their accreditations or quality record? What is your mitigation strategy in case of supplier failure or natural disaster, for each of your critical raw materials / sub-components? Do you have any sense of which firms at second or third tier level in your supply chains could actually cause your organization severe problems? What about corporate social responsibility issues? the doctor would bet that you are not keeping track of key suppliers’ financials, not keeping an eye on the quality metrics, don’t know which 2nd or 3rd tier suppliers could bring your supply chain to a grinding halt, or know about the poor working conditions at the factory in Da Nang.

5. I will put the supplier closer to the heart of our process and technology strategy
As Peter says, if the supplier screws up, you have failed in the eyes of the IT / Marketing / Production VP. So look at your supplier information, risk, development, relationship management strategy — closely. If you don’t help your supplier to succeed, you ultimately won’t succeed.

7. I will move to the next level of Spend Analytics sophistication.
As per SI’s recent white-paper on Spend Visibility: An Implementation Guide, almost any attempt by an organization to analyze spending patterns is likely to be fruitful, especially if there hasn’t been a serious prior attempt. It is easy to find thousands of breathless testimonials about a particular product or method — independent of the quality of the product or method — because almost any product or method will find savings if a spend visibility initiative has never been launched before. “In the land of the blind, the one-eyed man is king“. But, what is not so obvious is that this initial burst of savings is short-lived; and that many of the “quick saves” that result are unsustainable. The key question is what to do next; in other words, how to implement a true strategic spend visibility initiative that will return value and keep returning value over time. There are too many spend visibility products that are lying unused or on the shelf, after the first burst of excitement has passed; and too many organizations who are tired of hearing a spend visibility message that has no further relevance to them. That’s why you have to take spend analytics to the next level and why you should download the FREE, no registraiton required, Spend Visibility: An Implementation Guide today (if you haven’t already).

Spend Rappin’ (4th RePost)

It’s Boxing Day! And you know what that means … at Sourcing Innovation, it’s Spend Rappin’ time! (It’s a very well-established holiday tradition!)


To the Tune of “Christmas Rappin'” by Kurtis Blow

Don’t you get me all that JIVE about code you used before I’s alive,
Cause this ain’t 1965 – ain’t even 1999!
Now I’m the guy named Lamoureux and Spend is one thing that I know.
So every year, just about this time, I celebrate it with a rhyme!

Gonna save it, gonna shave it, gonna make it good,
Gonna take it all down through your neighbourhood.
Gonna wring it, gonna sling it till it’s understood.
My rap’s about to happen, like the knee you was slappin;
Or the toe you been tappin’ on a hunk of wood.
‘Bout a two fisted dude, with a friendly attitude
and a sack full of savings for the people on the block.
He’s an old grey beard, maybe looks kind of weird,
and if you ever seen him he could give you quite a shock.

Now people let me tell ya about last year
when the dude came slicing spend through here.
Well the wit was out, the gloves on the ground,
folks stayed to watch him cut it down.
The beat was thumping on the block,
and they were glued to just one spot,
as the master cubed at a solid pace,
…
got a taste of the waste thrown in your face.
…
And this old spend slayer laid down a heavy layer
of his slicing dicing rhythm to a tree-mapped beat.
And the guy with the database started to participate,
and I could sure appreciate the spend roll up neat.

We were all in the mood so we had a little brood,
not a sound did abound, as he ploughed through the mound,
then I thought I heard a gasp as he sliced through the past,
and laid our mav’rick spend bare, as I flopped into a chair.
So I went to the attic where I thought about the static
that our last spending tool was programmed to always give.
And I threw up my arms at the industry yarns,
Just a trick, a nick, and I’d let the suckers in.

He was quick, he was sharp and always on the mark,
he had a lot of success on his chinny, chin, chin.
He avowed, he was proud of the savings he allowed
from the tip of the ‘burg he found the savings within.
He’s cool for a fool throwin’ out every rule
every hour of the day when the cold winds blow.
Though the beard was-a cleared, I still have never cheered
like I did in the storm when I was in the know.

I said you’re right, my spend’s a fright,
Can you stop for a drop before you have to go?
He said “Sure, Bill, if the wine is chilled
and I’ll stake a steak down at the Monaco”.
So we went out back and discussed the stack
of invoices that had all been over-paid
and every dollar spent off of the contract
and then we laid it all bare till we made the grade.

And before he went this fine old gent,
finding gifts went to sift through his spend reports.
From the top to the bottom he reached in and got ’em,
spend trends for me, and variances from torts.

And the higher-ups got presents too,
Banned suppliers and a stale contract.
A bloated pie ’bout as clear as the sky,
the best that money couldn’t buy.
Cause money could never ever buy the feelin,
the one that comes when there’s no concealin’
of your spend by a tool that’s new
and that’s what Strovink‘s does for you.

The dude ya read’s back at the keys,
up late till all’s where it should be.
But if he were right here tonight,
he’d say Truthful Spending and to all a good night!

P.S. For my new readers, this cheerful verse is the result of a sly comment by Eric over on e-Sourcing Forum back in 2007 on How Not to Get a Job.

P.P.S. For those of you who’d like to be spend rappin’ too, please download the new white paper on Spend Visibility: An Implementation Guide. No registration required. It’s the best boxing day gift your organization will ever get!

Christmas Rappin’


by Curtis Blow
mp3
 on YouTube

(Since it’s difficult to find complete and well-formatted lyrics on the web.)

Don’t you get me all that JIVE about things you wrote before I’s alive,
Cause this ain’t 1823 – ain’t even 1970!
Now I’m the guy named Kurtis Blow and Christmas is one thing I know,
So every year, just about this time, I celebrate it with a rhyme!

Gonna shake it, gonna bake it, gonna make it good,
Gonna rock shock rock you through your neighbourhood.
Gonna ring it, gonna sing it till it’s understood.

My rap’s about to happen, like the knee you was slappin;
Or the toe you been tappin’ on a hunk of wood.

‘Bout a red suited dude, with a friendly attitude
and a sleigh full of goodies for the people on the block.
Got a long white beard, maybe looks kind of weird,
and if you ever seen him he could give you quite a shock.

Now people let me tell ya about last year
when the dude came flying over here.
Well the hawk was out, the snow’s on the ground,
folks stayed in to party down.
The beat was thumping on the block,
and I was dancing in my sock,
and the drummer played at a solid pace,
…
and a taste of the base was in my face.
…
And the guitar player laid down a heavy layer
of the funky junky rhythm of the disco Beat.
And the guy with the 88 started to participate,
and I could sure appreciate it sound so sweet.

We were all in the mood so we had a little food,
and a joke, and a smoke, and a little bit of wine,
when I thought I heard a hoof on the top of the roof.
Could it be or was it me, I was feeling super fine.
So I went to the attic where I thought I heard the static

on a chance that the prance was somebody breaking in.
But the noise on the top was a reindeer clop,
Just a trick St. Nick, and I let the sucker in.

He was roly, he was poly and not the holy moly,
you got a lot of whiskers on your chinny, chin, chin.
He allowed, he was proud of the hairy little crowd
on the point of the door where the skin should’ve been.

Get’s cool for a fool throwin’ out every yule
for a day on the sleigh where the cold winds blow.
So the beard maybe cleared, but I never have a-cheered
’cause it’s warm in the storm when it’s ten below.

I said you’re right it’s cold tonight,
Can you stop for a drop before you go?
He said “Why not if the music’s hot
and I’ll chance a dance beneath the mistletoe”.

So he went downstairs and forgot his cares
and he rocked the spot and danced like a pro.
And every young girl tried to rock his world,
but he boogie oogie oogied till he had to go.

And before he went this fine old gent,
finding gifts went to sift through his big red bags.
In the top for the bottom he reached in and got ’em,
toys for the boys, and for the girls flat rag.

And the grown-ups got some presents too.
A new TV and a stere-u.
A new Seville ’bout as blue as the sky,
the best that money couldn’t buy.

Cause money could never ever buy the feelin,
the one that comes from not concealin’
the way you feel about your friends
and this is how the story ends.

The dude ya read’s back at the pole,
up north where everything is cold.
But if he were right here tonight,
he’d say Merry Christmas and to all a good night!

Why You Should Download The New Spend Visibility Implementation Guide Today!

Last Wednesday, Sourcing Innovation released it’s new white paper on Spend Visibility: An Implementation Guide. Clocking in at over 130 pages, this is the first white-paper to be released that not only defines what spend analysis and spend visibility really is, but that also offers a step-by-step, vendor-free, implementation guide that demonstrates how an organization can achieve substantial year-over-year savings.

One could argue that you should download it today because:

  • It’s chock-full of information that many spend analysis service providers don’t want you to know.
    The information within could result in many service providers losing a good chunk of their business if you found out that many of the “challenging” analyses they do for the organization (and charge thousands for) are, in fact, quick and easy for any analyst to do herself with the right package in a few hours.
  • It’s already been called the The Definitive Book on Next Level Performance (Spend Matters, December 8, 2011)
    by the author of the only independent (non-vendor) blog that’s been around longer than Sourcing Innovation in the space
  • It’s 100% FREE.
    No pay wall, no registration wall, and not even a cookie crumb is tracked!
  • It saw hundreds of downloads in its first week.
    Many sponsored white papers, even by leading analysts, top out at just a few hundred downloads over their lifetime behind a registration wall!

but the doctor is not going to make any of these arguments. Today, he’s going to make only one argument as to why you should download Spend Visibility: An Implementation Guide if you haven’t already. Simply put:

  • This White-Paper Could Lead To 100 Million Plus in Savings.
    Spend Analysis is one of only two sourcing technologies that has been repeatedly found to generate double-digit percentage savings year after year. (Typically 11%.) If a supply management department is sourcing 1 Billion dollars annually, this says it has a cost-reduction opportunity of approximately 110 Million before it. An opportunity that will only be realized with a proper spend analysis and visibility effort — which goes well beyond bringing in an automated spend analysis service that’s not going to go beyond your Top N categories, commodities, and suppliers.
    A typical supply management organization knows about 70% to 80% of its Top N categories, commodities, and suppliers already, focusses 80% of its effort on these categories, commodities, and suppliers and, as a result, typically only has, at best, 20% of its savings opportunity on these Top N categories, commodities, and suppliers. The biggest savings are often in the “Next N” categories which have not been strategically analyzed and sourced as the average organization often doesn’t know what they are or where the biggest opportunity lies. For example, a manufacturing centric organization might not realize just how much is spent on temporary labor in preparing for holiday seasons around the globe to get shipments out on time and ignore the spend which could be in the tens of millions. Unmanaged and unleveraged, this spend often contains a 30%, or more, savings opportunity the first time it is strategically sourced. If the organization was spending 50 Million on temp labor, that could be an instant 15 Million savings opportunity.
    Not only does this white paper cover the full ten step process required to do proper spend analysis and visibility, but also provides numerous examples of the types of analyses an organization needs to do to find all of the different opportunities available to it — and realize the year-over-year savings, which average at 11%, that are available to it. To the best of the authors’ knowledge, no other guide has ever done that.

So download Spend Visibility: An Implementation Guide today. The time and effort you put into learning the knowledge contained within will pay off one hundredfold, if not one thousandfold, as you apply the knowledge within.