Category Archives: Spend Analysis

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.

On the Eighth Day of X-Mas … (Supply Chain Trends in 2009)

On the eighth day of X-Mas

my blogger gave to me
thoughts for a shilling,
strategies for winning,
tactics for saving,
five golden rings,
four little words,
tri-focal lens,
two boxing gloves
and a lesson in strategy.

Hot Technologies in 2009 Will Be Spend Analysis and Decision Optimization

Given the current economic climate, organizations will start to adopt these technologies despite their concerns that they are too complicated (which has not been true for years) or too expensive (which is also not true). The emerging leaders in low-cost self-service optimization, like Iasta and Trade Extensions, will take off, as will services companies, such as Lexington Analytics and Opera Solutions, that use leading spend analysis software like BIQ.

Emerging Technologies in 2009 Will Be Specialized Marketplaces and Focussed e-Sourcing Offerings

You’ll not only see an emergence of vertical specific marketplaces like MFG and Co-exprise Energy, but commodity specific marketplaces like cBoxBid.

Sustainability Will Be a Component of Every Sourcing Event

Thanks to Walmart, customers are demanding sustainability, and thanks to the EU, many nations around the globe are in the process of defining and implementing environmental regulations like RoHS and WEEE.

Your Favorite Vendor Will Not Be Around in a Year

This year has seen a couple of big vendors, with credit lines cut off due to bank failures, lost lawsuits, and VC belt-tightening, go through a number of layoff rounds. Two of the largest vendors in the space, despite claims of “regrouping”, are in serious trouble and could soon be on the block … along with a dozen small companies that took too much VC money, and sold too little product, in the last few years. Some have great products, and will be sorely missed if they don’t get sold and close their doors, but it’s a harsh reality when you don’t manage for frugal growth, don’t continually focus on innovation not just in products but internal operations as well, and don’t bring in outside expert help when you need it. (It’s too bad that some of these companies don’t understand that consultants are cheap. Unfortunately, many of these same companies are being run by first-time entrepreneurs — who don’t really understand the difference between a start-up, a small company, and the mid-size or large company they came from.)

You Get More Thoughts for a Pound Than You Do for a Shilling

Twenty times more, to be precise.

On the Seventh Day of X-Mas … (Strategic Sourcing Success Strategies)

On the seventh day of X-Mas

my blogger gave to me
strategies for winning,
tactics for saving,
five golden rings,
four little words,
tri-focal lens,
two boxing gloves
and a lesson in strategy.

Seven strategies you can use to increase your sourcing success are:

  • Spend Visibility
  • Supplier Performance Monitoring
  • Smart Country Sourcing
  • Collaboration with Strategic Partners
  • Innovation on Demand
  • Empowerment
  • End-to-End E-Procurement

Spend Visibility

It’s not how much you spend, how you store it, how you cube it, or how you report on it – it’s how much you get, how you profit from it, and how you improve on it. (Remember, Spend Matters Not.) It’s all about value, profit, and continual improvement. And that requires visibility — otherwise, you don’t know what you’re getting, whether you’re profiting from it, and what you need to be improving on.

Supplier Performance Monitoring

Supplier Performance Management (SPM) is a business practice that is used to measure, analyze, and manage the performance of an organization’s performance in an effort to cut costs, alleviate risks, and drive continuous improvement. The ultimate intent is to identify potential issues and their root causes so that they can be resolved to everyone’s benefit as early as possible. It’s critical because companies with formal performance measurement programs greatly improve supplier performance across the board. Consider the recent Canada Post case study which found supplier improvements across the board, even in a public sector organization where past performance can’t be used to disqualify future bids in public competitions.

Smart Country Sourcing

It’s not low cost, best cost, or near cost – it’s smart cost country sourcing, which includes home cost country sourcing whenever there is a justifiable value proposition to doing so. Don’t go half-way around the world for something you can get down the street when a single fluctuation in raw material costs, transportation costs, or exchange rates can wipe out a year’s worth of savings and lead to significant losses in the long term.

Collaboration with Strategic Partners

Remember, Collaborate, Collaborate, Collaborate, Collaborate (I, II, III, IV, and V) because two heads are better than one.

Innovation on Demand

Innovation-on-Demand, as summarized in my post on e-Sourcing Forum, is a great way to increase your sourcing success. Enable it by way of collaborative PLM technologies that integrate design-centric technologies like those offered by Akoya, Apriori, and Co-exprise.

Empowerment

And I mean real empowerment, not just lip service. If you’ve focussed on hiring real talent with real EQ, you’ll do better letting them take the initiative than limiting them to only that which you know.

End-to-End E-Procurement

End-to-End e-Procurement, the implementation of e-Procurement technologies that support each step of the various procurement cycles of your organization in a tightly integrated fashion, enables the benefits that early procurement technologies promised, but never delivered, which include:

  • elimination of invoice overpayments
  • transparent organizational costs
  • regulatory compliance
  • increased visibility into supplier performance
  • significantly reduced maverick spending

and 15 more! So, if you haven’t already, download the jointly-authored Sourcing Innovation Whitepaper today!

Buying Spend Analysis Systems: Test Drive Case Study

Today’s guest post is from Bernard Gunther of Lexington Analytics who recently brought you Buying Spend Analysis Systems: Taking a Test Drive. He can be reached at bgunther <at> lexingtonanalytics <dot> com.

A client who read my recent SI post, “Taking a Test Drive“, thought that relating the experience of their own test drive might help other readers who are investigating spend analysis approaches.

In this case, the company already had a spend analysis system, but the contract was about to expire. The test drive was intended either to provide ammunition for switching to another system that had been identified as a alternative, or justification for renewing the contract for the existing system. The company wanted to evaluate whether there were advantages with the alternative system, and whether or not the alternative system could improve performance for users whose buy-in was essential. A financial case either for making a change or for maintaining the status quo was also a deliverable.

As a result of the test drive, the company ended up changing systems, and believes that user needs are better met because of that decision. Data are cleaner, because vendor groupings and commodity mapping are more accurate, and analysis capability has improved greatly. The company reports spending less time supporting the new system. The company also added external consulting resources to work with their users each month to help extract additional value. Best of all, the monthly expenditure for the system — including the cost of the incremental external resources — dropped by more than 25%.

The Test Drive Process

To perform their test drive, the company focused on how each system would:

  1. Meet the existing user needs: “must haves”
  2. Deliver on known needs that users don’t have today: “wants”
  3. Deliver additional value that may not be understood today: “didn’t know I wanted, but after seeing, can’t live without”

The business case needed to describe how each system would deliver on these three items at either a lower cost or, if the costs were higher, how the selected system would deliver an incremental return on investment.

The test drive for the new system occupied a few days over a three week period. Since the evaluation team understood their current system thoroughly, they focused on learning where additional value might be delivered, as follows:

  1. Understand the current users of the system.
    The team interviewed users to see what they valued and what they were currently doing with the existing system, e.g. did they have features or data that they would like to see in the system, did they understand the value they were currently getting from the system, and did they know what they wanted the system to deliver in the future.
  2. Understand the “non-users” of the system.
    Individuals were identified who were not current users of the system, but who the team felt could or should be users of the system. The team worked to understand what these potential users would need to see, and the value that they would receive.
  3. Provided a sample of current data and reports to the supplier of the new system.
    Since the core data required for the demonstration was already available in the existing system, the supplier was able to produce a working spend cube for review with minimal effort.
  4. Review with the suppliers how they would meet all the “must haves”, “wants”, and “future wants”.
    Evaluate the suppliers’ offerings to determine how each element generates savings and/or adds value. Users were involved with this part of the evaluation, as they were considered to be the best judges of how a new feature compared to an existing capability.
  5. Put together the business case.
    The test drive showed that the new offering would both reduce costs and increase value, so it was not difficult to achieve internal agreement on a decision forward.

Survey Results

  • User Must Haves
    • Users said that they obtained the most value from basic visibility to the spend data. However, other than the advantage of having all the AP spend data in one place, most users felt the existing system was just a “warehouse of data” that didn’t really help them do their job much better than data extracts directly from AP. They were unhappy with the vendor grouping and commodity mapping.
    • Users had the basic ability to filter data via point and click interfaces, but were unhappy with the speed and limited complexity supported.
  • User Wants
    • Users expressed a desire for the ability to create and modify reports inside the system, without external support. The existing system had limited reporting, so in order to create all but basic data extracts, users had to dump raw data to their desktops and build custom reports and models outside the system.
    • Users were unhappy with vendor grouping and commodity mapping in the existing system. Getting changes made to groups and maps was awkward, required committee decisions, and took a long time. Users wanted to make changes to the commodity structure, commodity mapping, or vendor grouping, and immediately see the results.
  • New Features
    • Users wanted the ability to make private and arbitrary changes to a spend dataset, to see if a change in data organization could improve their understanding of the data.
    • Users wanted the ability to build new data sets from scratch, on their own, as well as the ability to analyze many different kinds of data, such as commodity-specific invoice-level data.
    • Users wanted the ability to build complex reports inside the system.

In summary, the client believes that the test drive process was very useful. The value delivered by the spend analysis system has been increased, user satisfaction with the data and the system has gone up, and the cost of the system has gone down. The client also believes that if a decision had been taken to stay with the incumbent vendor, the test drive would have provided significant leverage for renegotiation.