Category Archives: Spend Analysis

Do You Know How Much Your Trash Costs You?

An average organization is filled with cost-savings opportunities. One big opportunity is cleaning services — and the savings go beyond manpower savings by identifying those third parties charging above market average rates for unskilled janitorial services and replacing them with third parties charging market average rates.

For example, trash removal often represents a considerable savings opportunity in a large organization, and one that can be identified and executed in a matter of hours. Typically, the cost of emptying your dumpster out back is a function of two factors:

  1. Hauling Fee
    The cost to obtain a dumpster and to have it removed; driven by the frequency of the pickups.
  2. Tipping Fee
    The cost to ‘tip” the dumpster into a landfill. Driven by the local landfill costs.

Assuming the organization does not change the amount of trash it is generating, it can look at the size of the dumpster it uses. If it has a bunch of small retail locations with mostly non-food trash, it may be able to reduce its costs by increasing the size of the dumpster it uses and reducing the number of hauls.

For example, let’s assume the organization has a 2 cubic yard dumpster and that the hauling fee is fixed at X for dumpsters between 1 and 8 cubic feet. If the tipping fee for a 2 cubic yard dumpster is X and this is emptied every week, the total cost for a month is going to be:

Two Cubic Yard Picked Up Every Week:

Monthly Pickups 4 once per week
Tipping Costs X X for 2 cubic yards
Hauling Costs X fixed
Total 8X 4 * (X + X)

If the organization replaces the 2 cubic yard dumpster with a 4 cubic yard dumpster, while the amount paid to tip will stay the same per cubic yard, the hauling fee will effectively be halved (as it does not increase for a 4 cubic yard dumpster).

Four Cubic Yard Picked Up Every Other Week:

Monthly Pickups 2 every other week
Tipping Costs 2X twice the 2 cubic yard
Hauling Costs X no change
Total 6X 2 * (2X + X)
SAVINGS 25%

This is just one of the many savings opportunities detailed in Spend Visibility: An Implementation Guide — the newly released white-paper from Sourcing Innovation that is, to the best of our knowledge, the first white-paper 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!

Download your FREE – No Registration Required – copy of Spend Visibility: An Implementation Guide, which is already being called “The Definitive Book on Next Level Performance” (Spend Matters), and find out what other, significantly larger, savings opportunities await you!

New White-Paper! Spend Visibility: An Implementation Guide

Sourcing Innovation is excited to announce the release of Spend Visibility: An Implementation Guide. Clocking in at over 130 pages, this is the first white-paper 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. Truth be told, it’s chock-full of information that many spend analysis service providers don’t want you to know. In the past, many organizations would pay tens of thousands of dollars for the information contained within its pages, which would be gathered incrementally during projects with third party experts, but it is now free for the taking as Sourcing Innovation wants everyone to understand what Spend Analysis and Spend Visibility is, and is not. As per the introduction, it’s important to understand that:

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.”

However,

This simple fact has confused end-user organizations and analysts for many years. In fact, it has convinced most spend visibility vendors (and most analysts) that spend visibility is a fundamentally simple process of mapping Accounts Payable spend, and then drilling for dollars. This is why many spend analysis products have remained largely unchanged for years; there is no perceived need to do anything “more”.

And this is a BIG problem. The savings come from doing more. Much more. As the introduction continues:

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.

The reality, as advanced organizations understand, is that:

Strategic spend visibility is much more than building a simple Accounts Payable cube, and that analysis of spend requires deep thinking on many dimensions, along with many different analysis cubes.

And the real question is:

How is this to be accomplished? Although much of the strategic spend analysis “lore” has been locked up inside consulting organizations, this is starting to change. The hope is that this Guide will help to promulgate some of the key ideas around strategic spend visibility, and ideally point organizations toward strategies that can result in sustainable savings through a continuous succession of intelligent spend control initiatives.

And that’s why it’s being made available to you completely free. No pay wall, no registration wall, and no restrictive distribution license. In order to advance spend analysis and spend visibility to the next level, you need to understand what it is. So download your copy of Spend Visibility: An Implementation Guide today. It will be worth the time it takes to read it.

Caught Now In A Bind

To the tune of Caught Somewhere in Time by Iron Maiden.


If you had the time to lose
An open mind and time to choose
Would you care to take a look
Or is your data an open book?

Time, it’s never on your side
Time, it’s never on your side

If I tempt you, come with me
And maybe you will fulfill your dream
Because I will take you there
Will you come, or are you scared?

Time, it’s never on your side
Time, it’s never on your side

Don’t be afraid, you’re safe with me
Safe as any soul could be … honestly,
Don’t let yourself be

Caught somewhere in time
Caught somewhere in time
Caught somewhere in time … oh, oh

Like a wolf in sheep’s clothing
Your systems hide your deepest sins
And all the things that you’ve done wrong
Do you know where your money’s gone?

Time, it’s never on your side
Time, it’s never on your side

I’ll make you an offer you can’t refuse
You’ve only got your shirt to lose …
Eternally … Just let yourself see you’re

Caught somewhere in time
Caught somewhere in time
Caught now in a bind!


And Sourcing Innovation, with the forthcoming release of The Ultimate Guide to Spend Visibility: An Implementation Guide, which is the first e-book, to the best of the authors’ knowledge, that actually gives you practical advice on how to implement a multi-year spend visibility and analysis effort that will generate year over year returns — complete with detailed guidance on how to identify over a dozen different kinds of savings opportunities — will get you out of that bind.

Plus, you do not have to drop transactions on the floor, you do not have to sell your soul to any vendor, and we will even tell you how to insure that your numbers are accurate to the level required to even pass SOX scrutiny — something that will make your CFO jump for joy.

Stay tuned.

Recovery Audits – Are They Worth It?

According to one vendor:

AP departments face daily challenges, including fraud, data decay, product returns, and errors — resulting in transactional errors and [lost] credits with suppliers. An ongoing, comprehensive review of your suppliers’ AR records, known as a statement audit, recovers these dollars for your company. If you’re not performing a statement audit, you’re leaving money with your suppliers.

And this is true, but is there enough money being lost to make a recovery audit worth it? Some statistics state that, for an average Fortune 500/Global 3000, a traditional average recovery audit will only uncover 50,000 to 100,000 in vendor credits for every 1,000,000,000. That’s a best case savings of only 0.01%. I can march into an office supply vendor and demand 10% off the top (before I take my business across the street), get it, and probably save you that much from 10 minutes of negotiation. Considering that the average company will spend well over 1,000,000 on office supplies, taking 10% off of that is well over 100,000 dollars, and quicker than a traditional recovery audit (where a team of “analysts” pour through transactions hoping to find duplicates you don’t know about).

However, using technology and analysis, some companies are able to recover an average of 600,000 to 1,000,000 in vendor credits for every 1,000,000,000 in a recovery audit, and even though this is still only 0.1%, that’s enough money to make it worth while if it doesn’t cost you very much. And in some cases, the leaders are able to recover 5,000,000 for every 1,000,000,000, and that’s always worth it no matter how big you are. Especially if you can get a good contingency-based arrangement.

And it’s even better if, in the process, the vendor, using SIM-powered technology, can identify problems with your supplier records that you need to fix to prevent such errors from happening again in the future. So where do you look for such a vendor? Stay tuned!

How To Increase Spend Compliance

A recent item over on the CPO Agenda addressed “How to Increase Spend Compliance” because, as we all know, procurement organizations still face opposition to initiatives to channel indirect spend through preferred suppliers. The article chronicled advice from Carrie Ericson, VP of Procurement and Analytic Solutions, at AT Kearney. This is what she had to say.

Treat it like an opportunity.
It might be a problem, but it’s also an opportunity to cut considerable cost. There’s a chance for procurement to deliver greater value by driving standardization to existing contracts through preferred suppliers.

Focus on the right thing.
A mature organization with quality contracts with preferred suppliers can focus on compliance, but an immature organization without quality contracts with preferred suppliers who can provided products and services that meet organizational needs cannot. This organization must first focus on vendor identification, supplier selection, strategic sourcing, and contract observation.

Procurement must be good at arbitration.
Where you have a category that a lot of different functions within the organization buy and use, you get a lot more perspectives on which is the right supplier or the right contract. It’s Procurement’s challenge to not only get them to align, but get them align in a way that meets corporate needs.

Procurement must understand that buyers think their needs are special.
Even if a user understands that a contract is good for the company, the buyer may still think they need something just a little bit different for their needs. Or they may have developed a relationship with a certain supplier over years and feel that no other vendor can provide the same level of service to them. Or they may feel that it will take too much time, and cost too much money, to transition to a new supplier because their needs are special.

Focus on thresholds, not 100% compliance.
A broad compliance initiative across all contracts and preferred suppliers is risky because it assumes that all the contracts and preferred suppliers procurement has in place actually meet the business users’ needs. If care was taken, this may be the case, but if there are a large number of diverse business units with (seemingly) diverse needs, it may not be feasible, or cost conscious, to meet all the needs with one supplier. Sometimes, it’s cheaper to let low spend business units (on that category) do their own thing. Procurement should establish a spend threshold where anyone having to spend over a certain amount needs to use the Master Contract or get Procurement involved. (And if a proper analysis is done, the Threshold can always be designed to insure that at least 80% will be on contract by default.) Then, the Procurement organization isn’t wasting dollars chasing pennies and if a unit’s needs truly are different, they can still get the right product (at the best value with the help of Procurement).

Visibility into what’s going on is a huge obstacle.
Much of the data CPOs can get their hands on is historical and the money has already been spent. (And that’s why there is no real-time spend visibility and it makes no sense to require that the central data store / spend analysis cubes get updated in real time. Even a spend cube for your fastest moving category doesn’t need to be updated more than once a week. Put the resources into analysis, not updates.) That’s why the biggest challenge for the CPO in driving benefits to the bottom line is influencing that spend before it actually occur.

And


Compliance is typically achieved through stakeholder alignment and outreach by Procurement.
This is the most important point in the article and, unfortunately, it’s buried at the bottom where you are likely to miss it. If the stakeholder’s aren’t aligned, they won’t buy in, and the only way you get buy in is to insure they are part of the process from day one. All of the key stakeholders should be part of the vendor identification, supplier selection, and strategic sourcing; every stakeholder who is affected should give a chance to provide their input up front, and before a contract is signed, the sourcing team should hold a session to explain why a supplier / contract selection is best for the company and each affected stakeholder should be given one more chance to provide their input. Stakeholders who feel they are part of the process are much more likely to accept the results than those who are ignored and have a contract forced on them. While it’s true that there are those whom you’ll never be able to make happy, this will get you to compliance faster (even though it’s more work up front) than any other effort you care to undertake. Work with your stakeholders, and they will work with you!