ISM Silicon Valley Webinar Spend Analysis Key to Purchasing Success

ISM SV BILL KOHNEN JULY 21 2015

CPO CHALLENGES UPDATESPEND ANALYSIS DRIVES SUCCESS


INDIRECTSUPPLYCHAIN.COM

A Cloud Based Digitally Native Application To Locate World Class Corporate Social Responsibility (CSR),Sustainability-minded & Diversity Suppliers For The Worlds Broadest Range Of Indirect Spend Categories


SPEND ANALYSIS IS THE TOP TOOL FOR A CPO

CPO CHALLENGES

•MORE•SPEED•GROWTH

SAVINGS

•2% NOW•10% MONTHS•30% POTENTIAL

BENEFITS

•TRANSPARENCY•BASELINE•ORGANIZATION

TECHNOLOGY

•HELPS•CLOUD SaaS•ROI of 10X

IN PRACTICE FEW ORGANIZATIONS HAVE THE CAPABILITY TO CONDUCT A COMPREHENSIVE SPEND ANALYSIS EVEN AS A SINGLE EVENT.


EXAMPLE

Immediate Savings• $10,000,000

Achievable Savings In 12 Months• $50,000,000

Longer Term Savings Opportunity

A Company with a Billion Dollars of Revenue would typically spend $500M

• $ 150,000,000


REAL LIFE EXAMPLES UK Health Systems $500,000,000

Health Services Organization $ 20,000,000

Multinational Semiconductor Company $ 7,000,000


CPO CHALLENGES ARE THE SAME AS THOSE SHARED ACROSS AN ORGANIZATION

COSTLEGACY

SYSTEMS

GLOBALTRANSPAR

ENCY

More than anything the CPO needs real visibility to global spend to:set a baseline, manage operational needs and determine a path forward.


SPEND ANALYSIS WILL SHOW

Opportunities Current State BaselineImmediate

Savings

WHICH LEADS TO ACTIONABLE STRATEGIC AND TACTICAL RESULTS


WHY AFTER OVER 100 YEARS OF CORPORATE PURCHASING IS SPEND ANALYSIS NOT WIDESPREAD

•HARD TO GET•DISPERSEDDATA•PEOPLE•TOOLSRESOURCES•SHARING DATA•REVIEWINGCOLLABORATION

PROJECT • NON REPEATABLE EVENT • STATIC RESULTS


TECHNOLOGY TO THE RESCUE - NOT SO FAR

TECHNOLOGY CONSTRAINT

MAINFRAME Access to DataNo User Interface

CLIENT SERVER/NETWORK Data Further Dispersed

ERP Access to DataPoor Analytics

MS OFFICE SUITE Start to Analyze DataDriven by Strategic Sourcing

CLOUD SOLUTIONS SecurityProcess and Capability

EVEN WITH IMPERFECT DATA YOU CAN START THE PROCESS AND GET IMMEDIATE VALUE FROM SPREADSHEETS


SPEND ANALYTIC CLOUD SOLUTION

What Does this Mean:

• You will provide raw spend data in any format to the solution provider who will transform the data into meaningful views.

• Solution provider delivers the service via an internet connection so no hardware is needed• Implementation is measured in weeks• Complete ROI should be achievable in 6 months or less• Repeatable Process


QUESTIONS TO ASKData Acquisition

•Formats•Data Prep

Data Processing

•Automated•Proprietary

User Experience

•References•Configurable

Product

•Standalone•Information Security

Implementation

•Time•Professional Services• ULTIMATELY USER EXPERIENCE WHICH IS VIEWING MEANINGFUL

OUTPUT IS MOST IMPORTANT • TO BEST DETERMINE CAPABILITY HAVE PROVIDERS RUN A DEMO

USING A PORTION OF YOUR DATA


BUSINESS TERMS FROM PROVIDERS

•Higher Value Solution as part of total spend process•No Cost Upfront Options with Value SharingCost•Subscription•If Event Based Typically Would Be Via ConsultantTerm•Legitimate Initial Set Up Costs•Most Do Not Provided Spend Consulting•Solutions With Embedded Industry IntelligenceServices


CONCLUSION

SPEND ANALYSIS IS THE MOST POWERFUL TOOL AVAILIBLE FOR PURCHASING

• Most Organizations are NOT capturing full value of Spend Analysis• Immediately focusing on Spend Analysis process even if it is not optimized will deliver

results• Emerging Cloud Based Spend Analysis solutions are secure, are easy to start up and have a

near immediate ROI and a 12 month ROI of 10X or more

Next Steps• Make Evaluating options for Spend Analysis an immediate

priority

• Before the end of 2015 engage with a Cloud Spend Analysis provider for a trial


START WITH A FREE SPEND ANALYSIS Contact ISM – Silicon Valley and they can connect you with world class providers that will work with you at no cost to do a spend analysis for your company.

There are similar opportunities if you are interested in other purchasing solutions such as sourcing, auctions, contract management, transactional systems, catalog management and supplier management.

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QUESTIONS AND ANSWERS

Please elaborate on how a spend analysis helps with organizational development?

Done well a spend analysis will give a complete picture of what is being spent by the organization and also will identify opportunities for improvement. With this information purchasing leaders can demonstrate how constraints are limiting the ability to deliver better results.

Purchasing leaders can identify current areas of strength and also show where added resources, people or training will result in better performance. Conversely it can also help show the broader organization what goals are achievable with the current process and protect against focusing on goals which are not as important or unlikely to be obtained.


DISCUSS IN MORE DETAIL THE "PEOPLE SKILLS" NEEDED FOR SPEND ANALYSIS AND HOW THEY RELATE TO CLOUD BASED TOOLS

The first “people” challenge is simply finding time in busy schedules to conduct the spend analysis whether it is manually or with a cloud based tool.

Then there is definitely a skill set for someone to be able to gather and develop formats for the information. It includes Project Management, Ability to persuade others organization to provide information, technical information about how the information will be processed and enough experience across the company and commodities to make decision about when enough information has been gathered. (Not letting perfection get in the way of progress)

Once you get the spend analysis it takes a different set of skills to interpret the information and transform it into actins that capture savings or other improvements.

In both cases you are talking about people that are likely your top performers.

If a cloud based tool can automate spend analysis and move it more from a project to a process where the focus is getting the information to the Commodity experts and Leaders for action then you can improve performance more efficiently and faster.


Can you tell me more about IndirectSupplyChain.com?

The site is in development by the ISM Silicon Valley and is scheduled to officially go live in early August.

The directory's mission is to assist indirect sourcing organizations to identify spend category knowledgeable suppliers. The directory features suppliers that are diverse and sustainability minded.

There was a recent article on Spend Matters website about artificial intelligence and spend analysis. Is this something that will improve things?

Certainly the leading solutions have strong algorithms for sorting and classification of data. Whatever method is used there needs to be some level of “learning” to be able to classify data in a meaningful way and deliver it to users in formats they want. UNSPC and other data classification schemes have attempted to do this with very mixed results.

Certainly AI and machine learning with help all kinds of data analysis and deliver view on a near real time basis as the result of the expansion of the Internet of Things.

However, in the meantime until a review by the client there is almost no solution out their that still can account for things as simple as multiple naming of suppliers (IBM, I.B.M, International Business Machines etc.) or that for a particular supplier that can distinguish on a first pass details where a supplier may provide multiple types of goods and services.


Comment how the Internet of Things might impact spend analysis and purchasing? Ultimately will enable more real time reporting. I think it is more likely to impact the direct materials to customer supply chain rather than Indirect good and services. In the healthcare field especially group purchasing organizations are popular as consolidators of spend to create leverage. Is this a way of outsourcing of spend analysis and what is the future of GPOs? Group Purchasing Organizations (GPOs) are certainly a way that organizations in a specific field have been able to gain leverage and obtain better pricing and service. However, participation in a GPO does come with tradeoffs regarding control and really does not give any individual member greater visibility regarding their total spend. Certainly there are some very good success stories of GPOs and I think in the right circumstances they add value but generally the GPO takes in data just to leverage spend across its members. One thing to watch in this space is for transaction platforms which help connect manufacturers directly with buyers of all sizes which will offer benefit of lower cost by elimination of distribution layers and also will allow a more direct relationship between producers and end users.


Our CFO really wants us to use the ERP system we have had in place for many years. It seems like a difficult fight to try to add anything else. What should I do? Certainly a common challenge that many purchasing professionals have encountered. I would recommend still trying to show via a demo the real difference in capability between options. If the alternatives are not really that much better than what you have it would be hard to argue for a change. However, it is very likely that there are better options that would deliver better results. If your organization still will not move forward at least you have identified options for better performance and generally as business cycles change what may have been a “NO” this quarter may turn to “YES” in the future. Way back I remember ERP system startup was expensive, time consuming and risky. Are today's cloud based spend analysis and purchasing solutions really a risk I should consider suggesting? Of course any change has some element of risk. However, the wide spread acceptance of cloud based solutions such as Salesforce and Netsuite in other areas has demonstrated that many organizations have accepted the “risk reward” proposition for critical Sales and Finance process and systems. The key is to identify a solutions that is the right match for you not one that has captured the latest industry buzz and might be viewed by the “herd” as a safe choice. Take advantage of the numerous options that still exist when deciding. Also if it is just a spend analysis solution you are considering there is little chance that a failure or delay what have any impact at all on your ongoing operations.


It seems line my organization just really does not want to make a change at least for several years. Ultimately do you think we will and what can I do in the meantime? While since the dawn of purchasing cost seems to have been the primary measure of purchasing it seems that alone still has not been able to create demand to the point where robust spend analysis capability is common place even at the “top performing” organizations.

However, I think it will ultimately be continue demand for Purchasing and Supply Chain CSR accountability and transparency that will ultimately make better spend analysis solutions much more common place. It might be that this takes the form of a platform that collects all relevant digital information for organizations and is not focused on just a single function like Purchasing, Sales, Finance, Operations etc…. In the meantime there are low risk high potential reward ways to move forward which include proceeding the best you can with a manual attempt and engaging with a provider for a demo with a clear understanding up front of your likelihood to purchase a solution and the criteria for doing that. It might actually turn out that even the most reluctant organization can find a provider that has a technical and business solution that will meet its needs. This is still a market space crowded with solution providers and even the big names still have barely tapped the potential. All the providers have a big incentive to help clients capture value and turn that success into case studies they can publish.


Are there options to obtain tools and solutions to conduct spend analysis internally? Certainly you can try to create your own process and system using excel and other MS products and maybe also with general use business intelligence tools and big data analytics. The problem especially when joining purchasing needs with other company wide data projects is purchasing almost always is not the highest priority. Also the level of effort put into it often is near what the cost of a cloud solution would be anyway. Also an internal solution would not incorporate latest purchasing features or remain current without significant allocation of internal resources. In the end you just want the results to enable savings and supplier performance and do not really want to develop deep purchasing software data expertise. However, if your company is very sensitive about sharing its information and is big enough to support an enterprise deployment (not in the cloud) it is possible that you can persuade a solution provider to license their product as an on premise deployment. Certainly they will charge significantly more than the annual cloud subscription rate. However, things may be negotiable and depending on the timing I have seen some cloud providers in other applications offer an enterprise license to customer they really wanted where there were actually saving in 3 or 4 years relative to the subscription. However, most of these options are based on a set # of users so the provider is hoping to be able to increase price down the road based on added total users.


What are some examples of the benefits that spend analytics can provide?Reduced supplier spend, improved procurement productivity, greater transparency obtain a P-card rebate based upon the amount of your company’s annual supplier spend

What categories of supplier spend can be reduced?

All – The system will show you how much overspend by category/vendor/BU/buyer.

Including services for both direct and indirect spend

How many users can use the system at any given time?Generally Unlimited – Any employee that is trained can use the system. Depending on solution provider may charge fee per user. The spend analysis should be considered sensitive information and great care given with access and sharing of passwords absolutely discouraged. Most suppliers are able to configure multiple access process to restrict information access as needed.

Can the system be integrated into my ERP system (SAP, Oracle, MS, etc.?)

Yes general systems are ERP agnostic and compliments your ERP system. However, for most use cases for spend analysis the ERP system is just a data source and the spend analysis work takes place outside of the ERP system.

This is basically true even when you try to use a spend analysis tool from an ERP provider


How many suppliers can use the system at any given time?

Generally unlimited as just additional data points. For spend analytics the suppliers are not using the system as this is for the Purchasing organization to plan strategy and goals. As such should be considered sensitive information and great care given with access and sharing of passwords absolutely discouraged. Does the system support both product and service purchases?Yes - and this becomes increasingly important as many items once viewed as goods are transforming into service and/or product life cycle buys

Where did you see the biggest savings once the system was deployed?

It really crosses all categories and depends on a given companies spend profile and would be proprietary to each company however some general categories include MRO, Fuel, Travel, Transportation, Shipping, Office Supplies, Capital Equipment

How long does it typically take to run a spend analysis?Generally the biggest constraint is getting information to the solution provider. If the vendor is not reviewing your spend data manually it should not take more that (1) week to obtainyour spend analysis results once you have provided them with your spend data.

What data does the spend analysis vendor need in order to run a spend analysis?Ideally they would like to have the past (12) months of data including your AP, PO, P Card, Expense Reporting and contract data. If you do not have access to all of this information you may be able to provide data for a shorter period of time. You will need to check with the vendor to see what specific information they are requesting.


Once we have our spend analysis completed, are their organizations that can assist me in negotiating contracts with my suppliers?

This is a challenge many organizations face. Certainly you can hire consultants to help or tap into organizations such as ISM to find temp help. However, often it makes sense to use the spend analysis as the basis for additional people or reorganization of roles.