Category Archives: Spend Analysis

Cross Blog Challenge: (Supply Chain) Anti-Trends for 2009

A week and a half ago I alerted you to Vince Kellen’s Technology Duds for 2009 which highlighted five “anti-trends” for 2009 that stand out as a brilliant counterpoint to the rose-colored predictions of the laissez-fair wannabe analysts that tend to dominate the technology landscape.

After writing the post I started thinking about how great it would be if there were more voices like Vince’s that spoke the truth and opened our eyes to reality and not marketing fantasy. Thus, I have decided to make anti-trends the focus of the next Sourcing Innovation Cross-Blog series, which I will kick-off with this post.

My first two and a half trends echo Vince Kellen’s. My last two and a half diverge into the space.

1. Social Networking Will Unravel
As Kellen says, “at the risk of offending Web 2.0 enthusiasts, most firms, especially those hardest hit in this recession, consider social networking speculative and in some cases frivolous. And as I said in my last post, there’s a reason why “facebooked” has become an urban slang slam, “myspaced” has become a synonym for a late-night booty call, and why the blogger elite (including the doctor and Loren Feldman of 1938 Media) slam Twitter on a regular basis (as the only thing you can do with it is say nothing in only 140 characters). There’s no real value in these technologies, and no commercial value to a productive business. Businesses will drop these efforts to focus on projects with value.

2. Web 2.0 will soon be Web 2.Done
Similarly, mash-ups, fancy portals, and other web 2.0 projects are going to be axed because speculative ROIs or projects not directly assisting with significant savings are going to be difficult for IT leaders to advance. While mashups can be a useful component of B2B 3.0 platforms if they focus on enhancing content, community, and connectivity, on their own they are just useless eye-candy.

3. Traditional “Spend Analysis” will Lose Luster
Although a sound spend analytics package (you know the one) in the hands of a true expert (you know who they are) will find you limitless savings opportunities, the reality is that most of the offerings on the market are just static data warehouses with static reports in the hands of recent grads with little real-world experience and almost no training. As a result, as early adopters come to the end of their maintenance agreements, which came with six figure (plus) maintenance fees, you’ll see a lot of movement towards modern low-cost B2B 3.0 data analysis packages or spend analysis as-a service offerings.

4. Home Country Sourcing finally comes back in vogue
Regular readers will know that I’ve been pushing not just for best-cost, but home-cost country sourcing for a while now. Giving the skyrocketing transportation costs from mid 2007 to mid 2008, the repeated product safety scandals with imported products, the current recessionary environment, the low dollar, and fears of protectionism with the new US administration, more companies will finally start looking for strategic sourcing opportunities close to home — which will also come with more predictable costs, and savings, over the long term.

5. Sustainable green catches on, despite the recessionary environment
Although green initiatives that cost more than they return will be scrapped faster than unburied copper cable, as my fellow bloggers on Supply Excellence and 2 Sustain are pointing out, more and more companies will be looking at sustainable initiatives to save them money, and those green initiatives that save money as well as improve the corporate social responsibility image will catch on.

Now it’s time for my fellow bloggers to join in with their anti-trends in and help you understand where supply and spend management is headed.

Working with Your Users III: (Spend Analysis) Reports keep changing — and that’s a good thing.

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

Several years ago, I was involved in a data warehouse project. At one point in the design phase, the discussion turned to the creation of the initial reports. We discussed a number of different things we wanted from the system and explained how each report was likely to change once it was populated with data. At this point, the Programmer became frustrated, “Why can’t you guys just figure out what you want? Get those specs right and we can be done with the reports once and for all.” In his mind, Procurement was doing a horrible job because it couldn’t make up its mind about what it really needed.

This story of the frustrated programmer sticks with me as an important lesson because it highlights one of the key challenges facing users of procurement data — there isn’t one perfect report! And, even if there were, it would only be ‘perfect’ for a brief time. One observation leads to another, which leads to another, and so on. A good report should lead to questions — and the need for another report. Reports are forms of communication and they are tools for users to get their jobs done. As such, they should be dynamic not static. Once they become static, chances are good that no one is using them — either because the format doesn’t work for them or it’s no longer relevant to the current situation.

Let’s take the example of the preferred vendor within a category. Let’s pick on temporary labor for this example.

First Report: You produce a report which shows the overall spending for temporary labor by month with two columns, one for preferred vendors and one for non-preferred vendors. This gives the overall status that spending with preferred vendors has gone from 50% in January to 75% in June. Good work!

Second report: The data you provided in the first report needs to be distributed to the business units. The report now has to have the summary and the detail by business unit. Easy change, you’ve already built it into the initial specification.

Third report: The business units want to pass this report down to their managers. The report now needs to be done for each business unit. Again, a change you’ve planned on, so it’s easy.

Fourth report: The business units report that they have existing contracts which can’t be changed, so they need to tag certain vendors as “legacy contracts” so they can show that they are complying with the program and using the preferred vendors. All the reports now need a new category – “Legacy Contracts”

Fifth report: The commodity manager wants to estimate the incremental cost of using the bypass vendors. The report now needs to show this estimate for each business line based on their savings model. This needs to be done at the top level and for each business unit.

Sixth report: One of your business reports that the preferred vendor can’t supply a certain type of specialty services. You need to add a category for “specialty vendors”.

Seventh report: A manager in one division wants to eliminate the “legacy” category for her spending, “All this spending is bypass. I want my team to move more quickly to the vendors with whom we have contracts. Don’t show me any legacy or ‘specialty’ vendors”

Eighth report: The business lines are changing one of the preferred vendors. The report now needs to show the first 6 months with the original vendor, then the following months with the new preferred vendor making the spending with the original vendor as bypass.

Ninth report: The head of processing operations like the reports, but wants to make two sets of changes. He wants to change the categorization of vendors into “Primary”, “Secondary”, “Non-Group Contract” and the tagging needs to be done differently for each major production location. A vendor can be the primary in location 1; the secondary in location 2; and, non-group contract in a third location.

And the sago continues, but you get the picture. Each report was useful as it was created, but needed to be modified as users worked with it. And this is a great news story. People are using the information and acting on it. You company is saving money and the reports are highlighting the savings achieved and the actions necessary to achieve more savings. But the reports keep changing and that’s the reality of procurement information.

Working with Your Users II: Creating Commodity Structures (in Your Spend Analysis System)

A few basic rules makes it easier than you think.

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

A key framework for your spend analysis system is your commodity structure. Making decisions about that commodity structure is the perfect opportunity to begin working with users. The process will get them engaged with the system, and give you the information you need to improve the quality of your structure.

Inevitably, there will be different ideas about what makes sense when building the commodity structure. Making decisions is easier if you filter the alternatives through three criteria: increased buying leverage, improved controls, and better user communication. Generally, if the first two criteria aren’t compromised, it won’t hurt to give users what they want. Let’s look at a typical example.

There are basic templates for the structure of commodities in each industry. These will give you a starting point, but they need to be modified for your organization. For example, in banking, the top level structure might look like:

  • Facilities
  • Information Technology
  • Marketing
  • Professional Services
  • HR
  • Travel
  • Office Support
  • Exempt (taxes, intercompany, etc)

This sounds reasonable at the start, but it still requires decisions on where certain items should go. For example,

  • Should IT Labor go under “IT” or “Professional Services”?
  • Should Commercial Print be under “Marketing” or “Office Support”?
  • Should there be a separate top level category for “Operations”?
  • Should the outsourcing arrangement for your student loan processing be in “IT”, “Operations” or “Professional Services”?
  • Should market data go in “IT”, “Office Support” or “Professional Services”?

For each of these questions, there are bound to be disagreements because there is no absolute right or wrong answer. When you reach a decision point, it’s important to ask:

  • Will doing it this way increase or diminish Procurement’s leverage with internal users and /or the external market?
  • Will doing it this way make the management of major spend areas more or less difficult?

If the changes don’t hurt Procurement’s objectives, you will probably come out ahead by doing it the way the business line wants.

From a procurement point of view, the key concern when building a commodity structure is that the commodity exists (e.g. “IT Labor”) and it brings together all the vendors for this type of spending. Where it is within the hierarchy is not as important as having the spending for IT labor consolidated. If the Technology Group wants the “IT Labor” spending in the IT category, put it there. It may move over time to “Professional Services” or it may not. It really doesn’t matter. The more Purchasing engages with the business lines, and gets them to start caring about the quality and organization of their purchasing information, the more Purchasing will ultimately succeed.

Working with Your Users is Key (to Spend Management Success)

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

Getting key people involved with the design of any system is good advice. This is especially true for the design and usability of your spend analysis system. The key users for any single commodity include the sourcing manager and the business line owners who drive demand for the commodity. These business line owners may include multiple people from different divisions with different responsibilities. For example, for PCs, the users could include someone from technology who ensures the machines conform to corporate IT standards, as well as someone from a major business line that drive the demand for a specific unit.

Rather than thinking of working with users as a burden, think of it as an opportunity to engage and educate your users and refine the work process. Collaborating with users will help you:

  • create a better commodity structure,
  • demonstrate that you value their input,
  • get user buy-in by incorporating their feedback,
  • find out what’s important to them, and,
  • establish a process for working with each type of user going forward.

A working meeting should cover the existing spending – showing users their spending by commodity, vendor, cost center, and GL codes – both summary and over time. You should ask for input on the commodity structure, the vendors used, the preferred vendors, and any vendors they think are missing. You should ask how they use the data; what value they get from the data and what they would like to have in the system or reports that they don’t have now. If you are doing category cubes, you should review spending patterns, contract compliance and ways to improve the information that exists. The meetings can be formal sit-down sessions with new users, or can be done by email / telephone with users who regularly work with the data and are already providing feedback.

These meetings will probably involve a lot of give and take, but they are essential to improving communication and producing a structure that makes sense to the people who have to live with it. Don’t assume everyone fully understands why these working sessions are important to the company. Let them know why their input is critical. And don’t be concerned if users initially resist these meetings. Their resistance will drop once they have an “a-ha!” moment and start getting value from the data.

In addition to an initial meeting, other milestones that may warrant follow-up meetings are:

  • When someone new takes over responsibility for a commodity. The more they know about their new position, the better they will perform. If you start out providing value, they are more likely to come back for more.
  • At the end of a sourcing event. Ensure that all the learning and changes in the category is properly reflected in your spend cube.
  • On a regular basis, say every 6 to 12 months, ensure that the key users are actually using the data. If they aren’t, why not?

This may sound like a large number of meetings, but, when all is said and done, these users are your “clients”. Is there a more productive way to spend your time than meeting with your client and making sure the service you provide is valuable to them?

Spend Rappin’ (Repost)


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

Don’t you give 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 this rhyme!

Gonna save it, gonna shave it, gonna make it good,
Gonna take it all down through your neighborhood.
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 plowed 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!

This post originally ran a year ago today.