Category Archives: Spend Analysis

Today’s Spend Management Priorities ARE Today’s Spend Management Priorities

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This spring, Ariba conducted a survey across 225 Procurement and Finacne executives across a variety of regions, industries, and company sizes to determine the spend management strategies and approaches that companies are adopting to cope with the global economic recession. What they found, as chronicled in their white-paper on “The Return to Profitability”, shouldn’t be surprising:

  • Identifying savings opportunities faster is the #1 focus for most companies
    Companies are looking for a quick ROI and immediate savings to demonstrate the value of spend management before seeking executive support and funding for a wider roll-out.
  • Increasing spend under management is a key initiative for most companies
    Companies are recognizing the advantages of more spend under management.
  • Automating procurement processes is becoming a top priority for many companies
    Almost two thirds of respondents listed the need for automation across the entire source-to-settle process in their top five priorities as they are feeling the pain of depending on paper and people-intensive processes.
  • Mitigating risk and managing supplier performance is critical
    Concerns range from meeting customer demand if critical suppliers are interrupted to reduced supplier innovation to deteriorating quality and service.

Ariba, which has adopted their own variation of the best-in-class, leaders, and laggards classification of Aberdeen with their pioneers, survivors, and stragglers classification, found that pioneers had over 75% of spend under management, made moderate to extensive use of technology, and had over 50% of suppliers under a formal management program while stragglers had less than 25% of spend under management, made low to no use of technology, and had less than 10% of suppliers under a formal management program.

As a result they made the usual recommendations that organizations should:

  • improve spend visibility NOW to help identify savings opportunities faster
  • make procurement automation a top priority to maximize savings and compliance
  • not be afraid to get outside help to capitalize on current market conditions

So what does this mean?

It means that you need to take action now to avoid falling further from the path of profitability and recovery. Because when software companies are spending tens of thousands of their own money to verify analyst results, which have been cross-verified by multiple analyst firms, it means the results are right and that you have to take action now.

Praise for Purchasing’s Paltry Precise of Payment Partitioning? Puh-leaze!

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I was going to just pretend that Purchasing never published its “guide to spend analysis”, but then a fellow blogger decided to praise it and now I just can’t keep my pen down (or, in my case, MacBook Pro off).

Now, don’t get me wrong. While I don’t read it very much, I do like Purchasing Magazine. They’ve been doing a fine job lately of covering the basics, and if you don’t know the basics, there’s no way you can tackle the more advanced and in-depth topics covered in the Supply Chain Management Review (which is personally my favorite traditional supply chain publication and home of one of my favorite supply chain bloggers, Robert Rudzki).

But this “guide”, which amounts to not much more than a screen scraping of 16 different vendor web-sites is pathetic. It doesn’t do an in depth review of any product. It doesn’t offer any meaningful apples-to-apples comparisons. It isn’t even “comprehensive”!

It only lists 16 vendors. Namely:

 

Ariba
Basware
Bravo Solution
CVM Solutions		 Emptoris
Enporion
Field Glass
Global eProcure		 Iasta
IQ Navigator
Insight Sourcing Group
Ketera		 Oracle
PNet Software
U.S. Bank (Access Online)
Zycus

 

What about?

 

AECsoft
BIQ
CODA		 IQ West
Moai Technologies
Ocean Software		 Oco
Perfect Commerce
Power Advocate		 SciQuest
Spend Radar
Synertrade

 

And that’s just off the top of my head!

And what about advice on how to evaluate, compare, and make a decision? And what about some background? Like the fact that the Emptoris product is still largely based on the defunct Zeborg offering? That the Ariba solution is still not a unified best-of-both worlds solutions (as they are still working on their “9S5” suite that takes the best of the Procuri offering, which was based on TrueSource). That Ketera is based on MicroStrategy. Or that four (4) of the above solutions are based on BIQ. And so on.

Basically, I think it would have been more useful if they’d just posted a complete list of vendors. Because you can’t trust what you rip off the website. Many of the solutions are good solutions … but the marketing spin they cut-and-pasted won’t tell you which solution is right for you!

Innovative Analytics & Training is Unleashing Strategic Sourcing 2.0 …

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But Will It Be Enough?

If you surf on over to the Innovative Analytics and Training website, you can download a white-paper on Strategic Sourcing 2.0. Focussed on automating networks and analysis in a more rigorous fashion, it’s a nice take compared to the standard sourcing methodologies that many big name consultancies have been putting forward, but, especially these days, sourcing is a multi-disciplinary exercise that requires a lot of inputs up front to get it right.

The model put forward covers five core capabilities that the author believes are key to successful global sourcing. Specifically, building on the core dimensions of information, people, technology, and infrastructure, these capabilities are:

  • Source Discovery
    Source discovery is the process of identifying the right partners, vendors, and suppliers. This phase starts with an information gathering phase that identifies the potential partners, vendors, and suppliers and gathers all of the factual and objective information that is available. This phase often involves web searching and crowdsourcing.
  • Source Evaluation
    Once potential sources are identified, a careful evaluation process begins. In this phase, the author recommends accessing a multi-cultural expert network to assist with a rigorous evaluation that considers a potential supplier’s capabilities, economics, resilience risks, responsiveness, strategic alignment, and other advantages or disadvantages to your specific situation.
  • Source Network Management
    Legacy IT systems are architecturally inadequate and unable to provide multi-company visibility, collaboration and flawless transaction execution across an ever-growing network of customers, suppliers, outsourcing providers and employees. State of the art systems, in comparison, support multi-enterprise sourcing networks with sensors that provide all parties near real-time insight into the network’s performance. A multi-enterprise sourcing network, built on an open-architecture delivered on a SaaS platform, provides real-time insight into all aspects of the sourcing network.
  • Sourcing Analytics
    Based on the philosophy that competitive advantage can be sustained in the future by advancing the quality of one’s insight anddecisions – the outcomes of analysis, sourcing analytics is an emerging analytic discipline focused on strategic sourcing that must be a core competency of any modern global sourcing organization, which must also have an eye angled toward optimization. At the very least, this platform must support the computation of the core metrics of perfect order, cycle time, supply chain flexibility, supply chain management cost, and cash-to-cash cycle time.
  • Sourcing Resilience
    A resilient network, at a minimum, includes:

    • acceptable levels of redundancy,
    • acceptable security,
    • insight into business, network, and risk,
    • rapid insight and response protocols for disruptions, and
    • continuity of planning.

It seems to address all of the core requirements for modern sourcing, but, and this is the biggie, does it support a comprehensive framework for risk management. Risk is the fifth dimension after people, information, technology, and infrastructure, and if you aren’t managing risk in a cohesive fashion across the process, it will be all too easy for something to slip through.

Getting Ready for the Recovery … Whenever It May Be

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Industry Week recently ran an article on “repositioning your business for the recovery phase” that noted that it could be years before volumes return to the near record highs of 2007 and that many companies will need to restructure their operations if they wish to return to profitability. Specifically, companies need to focus on activities that are not dependent on volume to be profitable. The article recommends the following:

  • Design Cost Optimization
    Focus not on the design process but on design changes that can reduce production costs. This will reduce costs across the board.
  • Make vs. Buy Decisions
    Rethink what you make vs. what you buy. Now might be a good opportunity to offload non-core product design, process engineering, and quality control activities that are inefficient and costly for you but more efficient and affordable for a (new) strategic supplier.
  • Fixed Asset Productivity
    Optimize the effectiveness of your fixed asset portfolio. Increase equipment utilization and effectiveness, decrease required warehouse space, and get rid of, or lease out, unused or unprofitable assets.
  • Reduce Working Capital
    Up to 83% of working capital in your supply chain is needlessly tied up longer than it needs to be. It will take you a while to identify and make the necessary improvements to make your efficiency, so start by making sure you’re not paying more interest and fees and working capital loans than you need to. If you’re not sure how good your bank’s offer is, try The Receivables Exchange and see if you can get a (much) better offer.
  • Re-Analyze Your Business Model
    What was your optimal business model last year might not be your optimal business model this year. Re-analyze your products, markets, and regions and change your strategy accordingly.

Which is a great start, but don’t forget the basics:

  • Analyze Your Spend
    Do a real spend analysis, possibly with the help of a leading spend analysis consultancy, to find out not just where you’re spending money (direct, indirect, operations, etc.) but where you have the biggest cost savings opportunities.
  • e-Source
    e-Source those direct and indirect categories with the biggest cost savings potential.
  • e-Procure
    implement e-Procurement to save time and money … a good solution can automatically insure that you don’t pay more than the contracted price or miss an early payment discount you intended to take advantage of

Optimizing Your Procurement Technology Investments

The Sourcing Interests Group recently ran an interesting article on “optimizing your procurement technology investments in 2009”. Although it had some good suggestions, my top five suggestions would be the following:

  1. Get Visibility Into Your Spend (Spend Analysis)
    If you don’t know how much you’re spending on each category, sub-category, product, and service, who you’re spending it on, in what amount, by unit, you need to get this visibility. Get a good spend analysis solution and dive in!
  2. Take Your Strategic Sourcing up a Notch (with e-Sourcing)
    Start with the most attractive savings opportunities that were outlined in step 1. This is your best bet to negotiate big savings in this downturn.
  3. Focus on Contract Compliance (adopt Contract Management)
    You need to enforce hard-won savings by insuring that internal staff and suppliers are compliant with contractual agreements.
  4. Implement e-Procurement
    Done right, this will make it easy for your buyers to buy on contract.
  5. Get a Grip on Global Trade (adopt Trade Visibility solutions)
    Chances are your global sourcing endeavors are needlessly costing you more than you think! As per my recent Illumination on why you need trade visibility, you’re probably paying more than you need to on duty, using costly inefficient processes, paying unnecessary document preparation costs, and making costly errors that are costing you million of dollars a year.