Category Archives: Spend Analysis

The Vendor in Black Comes Back

Editor’s Note: This is the sequel to The Vendor in Black which originally ran here on SI on February 17, 2007. And just like the sequel to The Cat in The Hat (appropriately titled The Cat in the Hat Comes Back) was even more esoteric and radical than the first, so is this sequel. Plus, it’s also quite symbolic, analogic, and terse* in a manner that is meant to obscure the deeper meaning and criticism. It is supposed to be this way. If you think about it long and hard enough, you should understand why. (And if you do not want to think deeply about it, just enjoy the rhyme. It will permeate your subconscious and one day you will have an epiphany.)

This was no time for play.
This was no time for fun.
This was no time for games.
There was work to be done.

All that deep,
deep, deep data,
all that data had to fit a schemata.

When the big boss went
out to a meet for the day,
she said, “somebody has to
clean all this away.
Somebody, somebody
has to, you see.”
Then she picked out two somebodies.
Sally and me.

Well …
there we were.
We were working like that
and then who should show up
but the Vendor in Black!

“Uh-oh!” Sally said.
“Don’t you talk to that Jack.
That Vendor is a bad one,
that Vendor in Black.

He plays lots of bad tricks.
Don’t you let him come near.
You know what he did
the last time he was here.”

“Play tricks?” laughed the Vendor.
“Oh, my my! No, no, no!
I just want to go in
to get off of the road.

Keep you mind on your work.
You just stay there, you two.
I will go to the servers
and find something to do.”

Then the Vendor went right in!
He was up to no good!
So I ran in after
as fast as I could!

Do you know where I found him?
You know where he was?
He was installing an app on the server!
He was!

The disc drive was spinning
and the hard drive heads, too.
And I said to the Vendor,
“What a bad thing to do!”

“But I like to install apps
on the server,” laughed the Vendor.
“You should try it some time,”
laughed the Vendor with splendour.

And then I got mad.
This was no time for fun.
I said, “Vendor! You get out!
There is work to be done.

I have no time for tricks.
I must go back and cube.
I can’t have you in here
installing apps like a rube!

You get out of this office!
We don’t want you about!”
Then I removed the CD
and let the timer run out.

The timer ran out.
And then I saw the tab!
A tab on the screen!
And, oh boy! What a tab!

An obnoxious cleansing tab!
It looked out of sync!
And I said, “Will this ever
work right? I don’t think!”

“Have no fear of that tab,”
laughed the Vendor in Black.
“Why, it will clean your input data.
Just like that!”

Do you know how he did it?
With old spending rules!
Now the data was mapped,
but our reports were April fool’s!

Then Sally looked in.
Sally saw the mess, too!
And Sally and I
did not know what to do.

We should work with the data.
But that mess! What a rot!
“It may never be fixed!”
Sally said. “It may not!”

But the Vendor laughed, “Ho! Ho!
I can clean the mess.
The way I fix report mappings
is express!”

“See here!” laughed the Vendor.
“It is not hard at all.
The way to clean up
a big mess is rule sprawl!”

Then we saw the Vendor code
more rules in the app.
Now the reports were all clean.
But the rules! What a frap!

“Oh, rule sprawl!” He laughed.
“Let me tell you some news.
The way to stop rule sprawl
is to create some more views!”

Whose views did he use?
I looked and saw whose!
And I said to the Vendor,
“This is very bad news.

Now the data is split
between S A P views!”
“But your boss will not
know about that,”

the Vendor did ack.
“She will never find out,”
Laughed the Vendor in Black.

“Her spending reports will have
no need for SAP.
I will clean up those views
with the embedded map-app.”

“But now we have too many views!”
I yelled. “What a day!
Map apps! What next?
Can you take them away?”

“Don’t ask me,” he laughed!
“Why, you know that I’m able!”
Then he popped up a dialog
and the Vendor he tabled.

“I can clean up these new views
before you count three!
No views are too hard
for a Big Vendor like me!”

He ran to the servers
and then the Vendor did twitch,
“It is good that your techs
have the right kind of switch.”

Then he mirrored the SAN!
Whoosh!
Now the views were in twos!

And all I could say was,
“Now what, Vendor?
What do I do?”

But the Vendor just stood still.
He just looked at the rack.
“This is NOT the right kind of a switch,”
the Vendor did ack.

“To axe views with this switch
will be hard, I take it all back.
I can’t do it alone,”
said the Vendor in Black.

“It is good I have someone
to help me,” he said.
“Outside in the van
at the back near the shed!

It is good that I have him
here with me today.
He helps me a lot.
This is Vendor Rep A.”

And then Vendor Rep A
took his Hat off his head.
“It is good I have some one
to help me,” he said.

“This is Vendor Rep B.
And I keep him about,
and when I need help,
then I let him come out.”

And then B said,
“I think we need Vendor Rep C.
These views are too much
for the A Rep and me.

But now, have no fear!
We will clean them away!
The three of us! Vendor Reps B, C, and A!”

“Come on! Take it away!”
Yelled Vendor Rep A.
“I will cleanse the new views
just like this! I avow!

It comes off the old SAN!
It goes to the web cloud.”
And then Vendor Rep B
cleaned up the web cloud

He cleaned it with SaaS,
put the views on dot net!
And then C replaced
all the views with ancient Vignettes!

“But look where it went!”
I said. “Look where it blew!
You blew the mess
off of the SAN. That is true.
But now our views are all free!
What are we to do?”

“Let us think about that now,”
said C, B, and A.
“With some help, we can do it!”
said Vendor Rep C.
Then pop! From the van
emerged Vendor Rep D.
Then, pop! Pop! Pop!
Vendor Reps E, F and G!

“We will clean up those views
if it takes us all day!
If it takes us all night,
we will clean them today!”
said Vendor Reps G, F, E, D, C, B, A.

They ran to the servers
and we ran to them too.
And the big Vendor laughed,
“Now you will see something new!

My Reps are all clever.
My Reps have the muse.
My Reps have good skills.
They will clean all those views!”

But this did not look
very clever to me.
Seven reps to clean views?
That just could not be!

“All those reps do is make more views!”
We yelled at the Vendor.
“Your Vendors are no good.
Take back those pretenders.”

“Take your Vendor Reps G,
F, E, D, C, B, A.
Shove them back in your van
And you take them away!”

“Oh no!” said the Vendor.
“All they need is more help.
Help is all that they need.
So keep still and don’t yelp.”

Then Vendor Rep G
took the phone off his hip.
“I’ll call Vendor Rep H
here to help us, ” he quipped.
“Vendor Reps H, I, J,
K, L, and M.
But our work is so hard
we must have more than them.

We need Vendor Rep N.
We need O. We need P.
We need Vendor Reps Q, R, S, T,
U, and V.”

“Come on! Kill those views!
Kill the mess!” yell the Reps.
And they jumped at the servers
with SQL and greps.

They coded in basic
on terminals Citrix!
Green and black! DOS attack!
The views were transfixed!

Oh, the things that they did!
And they all worked so proud,
It was all one big mess now
all over the cloud!

But the big Vendor stood there
and he said, “this is good”.
This is what they should do
and I knew that they would.

“With a little more help,
all the work will be done.
They need one more Rep.
And I know just the one.”

“Look close! In the back
You’ll see Vendor Rep V.
By his side are Reps W, X, Y, and Z.”

“Z’s a Rep you rarely see.
Don’t ask why. Or what’s up.
But Z is the Rep
who will clean the views up!”

“Now here is the Z
you will see,” said the Vendor.
“And I bet you can’t guess
where he gets all his splendor!”

“He has something called Voom.
Voom is so hard to get,
you never saw anything
like it, I bet.

Why, Voom cleans up anything
clean as can be!”
Then he yelled,
“Time to get going,
Vendor Rep Z!

Do your job, use the Voom!
Time to put on a show!
Hurry! Now Vendor Rep!
One! Two! Three! Go!”

Then the Voom …
It went Voom!
And, oh boy! What a Voom!
Now, you know what the Voom did?

It put everything back!
The views were deleted.
The reports were unhacked!

“So you see!” laughed the Vendor,
“Now your screens are all tight!
Now your work can be done!
Your reports are put right!

And you know where my Vendor Reps are?”
asked the Vendor.
“They all went back to the van
services tendered.

And so, if you ever
need views, now and then.
I will be very happy
to come here again …”

“… with Vendor Reps A, B, C, D …
E, F, G …
H, I, J, K …
L, M, N …
and O, P …

… and Q, R, S, T …
and Vendor U and Vendor V …
and Vendor Reps W
X
Y
and Z!”

* It’s so much more esoteric, radical, symbolic, analogic, and terse than the first, partially because of the forced meter, that the editor sat on it for almost a year while deliberating whether or not the time had come to post it!

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Want Savings? Stop Ignoring Indirect Spend!

Procurement leaders recently summarized a new study by A.T. Kearny that found that “CPOs [are] slow to focus on indirect” categories such as IT, Marketing, Professional Services, Facilities Management, and MRO. This is worrying when you consider that not only do some of these categories represent an organization’s biggest savings opportunity, but that indirect spending accounts for up to 50% of spend in many manufacturing organizations, 60% of third-party spend in non-manufacturing companies, and 90% of spend (or more) in the financial services industry.

This is doubly worrying when you consider that:

  • IT savings can be double digits across multiple categories10% to 15% on PCs and Laptops is normal; and 20% to 40% on consulting and integration
  • Marketing savings can be 20% to 25%and even higher on print spend
  • Legal spend can also be cut by over 20%with appropriate AFAs and negotiation

There are ample savings opportunities where indirect spend is concerned, and they can all be uncovered with good visibility and analysis. To find out how, start with the recent Sourcing Innovation Illumination on Strategic Spend Visibility.

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Good Supplier Performance Management Starts With Performance Analysis

As per a recent article over on ChainLink Research, a diversified international manufacturer discovered that real improvements happened once it made performance information available quickly and easily to both buyers and suppliers, and then based buying decisions on that data. This was accomplished through a centralized tool that supported real data analysis. Every week the tool pulls all of the relevant data from the manufacturer’s various systems (ERP, MRP, factory management, etc.) into a single repository where it is mapped against a common data structure that can be sliced and diced as required by a commodity manager that needs to see productivity, quality, delivery performance, and spend data for the supplier by site, part number, or business unit, etc. This allows the commodity managers to see if they have been rewarding suppliers who were easy to work with but performed below par, or not rewarding suppliers who were perceived as not being easy to work with, but performing above par. As a result, behaviour changed quickly.

And once you have all of the relevant data available in an analysis tool, you can find unconventional uses that can benefit the organization. One example given in the article is when the CEO of the diversified manufacturer was negotiating with a senator. The tool allowed the CEO to quickly find out how much business was being done in the senator’s state and put together an argument regarding the firm’s contribution to the economy and local business. This is powerful information when lobbying for loans, tax breaks, or other economic incentives, which are often necessary when trying to expand the business in a rough economy.

When You’ve Got to Cut Costs

You can follow the advice in the HBR article that outlines some things you can do “when you’ve got to cut costs”, but only if you do it very carefully. In short, the practical guide to reducing overhead offers up six tips that will reduce your costs, but only if implemented properly as a couple of them will actually increase costs if implemented incorrectly. This post will discuss the six cost savings ideas offered up by the article and the right way to go about them.

  1. Consolidate IncidentalsBy the time cost-cutting becomes a must, the company has already done away with most discretionary spending and non-critical perks and activities and further cuts would be difficult, if not dangerous. (Such as slashing the training budget when you need highly capable staff.) In this situation, look for further savings through the consolidation of incidental spending. For example, hold training events and trade shows on the same day(s) and cross-schedule the use of outside resources across departments.
  2. Take Overdue Personnel ActionsRestructure the jobs of any individuals who are not fully engaged, confront under-performers, and eliminate the dead-weight or problem personnel. Be careful not to overburden already fully engaged resources, assign responsibilities that the resource isn’t trained for, or eliminate too many positions at once. Not only can each of these actions can cause resentment, but the latter can have those who remain fearing for their job security and looking elsewhere.
  3. Reduce Spending on Department ManagementMany administrative departments will use as much as 20% of their budgets on supervision and coordination. If staff are competent and capable, and if responsibilities haven’t changed much in a year, supervision and coordination is probably costing more than it’s saving. In this case, supervision can be reduced by at least 10%, if not more. Just be careful to appropriately re-assign duties or confusion will set in.
  4. Gain Control of “Miscellaneous” SpendingGiven that even the best organizations tend to max out at 75% to 80% of Spend Under Management, it’s almost always possible to find 15% to 20% of spending that hasn’t been managed closely which is ripe with savings opportunities. It could be supplies, telecom, or electronics devices.
  5. Hold Down Pay IncreasesSpecifically, limit pay increases to top performers and award additional compensation based on performance, giving the top performers the bigger cut. Cutting pay increases across the board or eliminating bonuses will alienate top performers, the 20% of staff who are responsible for 80% of the bottom line contribution.
  6. Repropose Rejected Cost-Savings IdeasChances are that a number of good cost savings ideas were rejected over the past few years because of constraints, other priorities, or required investment. Review them and select those with a short-term ROI.

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Finance Needs Spend Analysis and e-Procurement, Part II

In our last post, we noted that Basware recently released its annual “Cost of Control” study for 2010 and pointed out that Finance’s top 10 challenges could be easily solved with good, modern, spend analysis and e-Procurement solutions. The study also outlined the top 10 strategic finance priorities for 2010 … which can also be addressed by the adoption of good spend analysis and e-Procurement systems. For example:

Spend Analysis would address:

  • Increasing Profits and Top Line PerformanceProfit = Cash In - Cash Out

    Spend analysis reduced cash out.

    Therefore, spend analysis improves profit margins.

  • Maintaining or Improving Profit MarginsSpend analysis allows you to consolidate spend among fewer suppliers and fewer SKUs. This reduces overhead and increases profit margin.
  • Planning, Budgeting, and Revenue ForecastingOnce you know your actual year-over-year spend, volume trends, and market trends, your forecasts and budgets improve greatly.
  • Risk AnalysisAugment the data with (financial) risk information and quality/performance metrics, and you can quickly see which suppliers likely pose the greatest risk to your operations.
  • Regulatory ComplianceYou know what suppliers you’re spending on and how much is going to socially responsible suppliers and how much isn’t. Augment the product data with carbon emissions spending and you know if you’re within limits or not. Etc.

E-Procurement would address:

  • Reduce Overall PurchasingA modern e-Procurement system with approvals, checks, and balances would insure nothing is bought that isn’t approved, on-contract, and within-budget without managerial exception.
  • Cash Flow and Working Capital ManagementYou can see how many purchase orders are outstanding, how many invoices are upaid, what discounts are available to you if you pay early, how much cash is actually free, and even take advantage of receivables financing.
  • Improving Short and Long Term Operational EfficiencyYou can cut DPO and DSO in half, eliminate paper processing, and make your team 80% more efficient. Over the long term, you can reduce the headcount devoted to tactical “paper pushing” and increase the headcount dedicated to strategic spend analysis and sourcing, which increases organizational savings per employee.
  • Environmental PracticesNo paper. Spending to environmentally irresponsible suppliers can be denied. Etc.
  • Accessing CreditIf you know what you have, and you can demonstrate the reliable payment history, even if the banks turn you down, you can get receivables financing.

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