Session Code: DG
Spend Analysis: First Step in Strategic Sourcing
Rip Greenfield
Vice-President of Global Alliances
and Business Development
Austin-Tetra, Inc.
Monday, May 9th
10:40 – 11:40
1
Topics
• Spend Management Defined
– Why does enterprise spend analysis matter?
• Benefits
– What are the reasons for doing it?
• Approach
– How do I do it?
• Results
– What are the deliverables/output to expect?
• Solutions
– Who can help me?
Why The Need to Manage Your Spend Data?
"Few enterprises know what they spend, on
which products, with which vendors ...
Spend Data Management is critical for
supply management and business success ...
Insufficient visibility into spending is a
corporate epidemic."
- Tim Minahan, The Aberdeen Group
Spend Data Management Defined
More simply, can you answer these questions?
• Which suppliers provide the greatest value to the
enterprise?
• How does total spend roll-up in corporate families create
increased leverage to reduce supply costs?
• Which commodity and service areas represent the
greatest sourcing opportunities for spend reduction?
• What is my total spend by industry classification?
• Where is spend occurring with non-preferred suppliers?
“How Can You Manage What You Don’t Measure?
Fact Based Decision Making
Example
Maverick Spending as a Key Performance Indicator
To measure it, you need to know
whether a purchase for item
specification A in commodity B, placed
by person/department C in geography D,
properly used contract E that hopefully
existed for supplier F, to be used given
these conditions.
The Opportunity
Three key reasons for planning and implementing best
practices in spend management are:
– Baseline spend to establish visibility to current enterprise
purchasing and identify cost savings and sourcing
opportunities
– Support compliance initiatives to meet internal savings
targets, Federal government regulations, SOX 404, and
socio-economic initiatives
– Implement process improvement to meet the dual goals of
sourcing savings and best practices in compliance
Spend Data Management Business Drivers
Strategic
Sourcing
• Identify non-preferred
supplier spend in
contracted categories
• Identify disparate terms
and conditions across
unidentified duplicates
and related companies
• Identify categories that
are potentially overrepresented with
suppliers
Procurement
• Identify spend with
contracted suppliers at
various locations to
establish transaction
counts and consider
restructuring payment
plans
• Combine A/P and
P-Card transactions to
identify opportunities to
migrate PO spend to
P-Card where
appropriate
Supplier
Management
• Evaluate supplier
performance via financial
and operational metrics
• Collect and manage key
supplier documents in
order to meet contractual
and social obligations
• Evaluate supply base
for risk (denied/debarred
parties)
Each step in the sourcing process has an element of data
management – starting with the Opportunity Assessment
Opportunity
Assessment
1. Profile Sourcing Group
Sourcing Steps
2. Sourcing Strategy
3. Supplier Portfolio
4. Selection of
Implementation Path
5. Competitive Supplier
Selection
6. Operational Integration
with Suppliers
7. Continuous Benchmarking
of Supply Market
• Data extraction
• Baseline spend visibility
• Sourcing group definition
• Sourcing group analysis
• Supplier RFIs
• Supplier analysis
• Supplier RFPs
• RFP evaluations
• Savings measurement system
Spend Analysis Steps
1.
Extract, Cleanup and Validate the Data
–
–
2.
Rationalize your Suppliers
–
–
–
3.
–
–
–
Categorize spend data to a sourceable commodity structure
(e.g. United Nations Standard Products and Services Code® or UNSPSC)
Does your system capture good descriptions?
Do you use them to allocate to the right category?
Identify and Act
–
–
–
5.
Get all the supplier spend linked to the corporate parent
Categorize supplier spend
Understand supply base risk, dependencies, and socio-economic breakdown
Code for Insight & Assess the Details
–
4.
Standardize, Normalize, and Enrich your spend information
Identify Exceptions
Uncover strategic sourcing opportunities for immediate savings
Improve internal controls
Comply with government controls
Implement Process Improvement
–
–
–
Standardize on commodity framework across the company
Capture intelligence closer to the transaction for higher compliance
Supplier on-boarding & detail coding
Solid Spend Data Management Delivers
• Data Quality
–
–
–
–
–
–
Standardized – consistent formatting
Cleansed – identify duplicates, fix errors
Consistent – data represented in the same manner
Current – ongoing updates to manage business change
Grouped – categorized and classified
Granular – detailed data available
• Knowledge Enrichment
– Completeness – fill in missing data for master information, hierarchies,
demographics, relationships
– Expand – provide new insight
– Risk – identify possible disruption in supply or supplier support
• Process Improvement
– Spend Visibility – access to enterprise view of corporate expenditures
– Supplier Evaluation and On-boarding – pre-qualification of suppliers
– Policy Compliance – exception handling, workflow and monitoring
Spend Analysis allows many cuts of
the data and can take many forms
Transaction
Data Stores
Data
Preparation
Data
Management
Spend
Analysis
Analysis Tools
• Analyzers
—Drill Down 1
—Drill Down ...
• Queries
• Reports
• Spreadsheets
Manual
Data Entry
A/P
Strategic
Procurement
Database
Categories
G/L
Extract
Data
Cleanse
Master
Files
Cleansed
and
Staged
Data
Individual
RDBMS**
Intellectual
Capital
**Relational Database Management Systems
Final Deliverable Formats
• Raw Database
POs
Desktop Tool
• Database with end-user
interface
• Data-ready for Spend
Analyzer or OLAP* tool
Others…
*On-Line Analytical Processing
If repeatable data capture processes and data cleansing capabilities are created,
the spend analysis solution can be maintained over time
Categorizing 100% of Spend
A combination of top-down and bottom up spend categorization is required
Categorization
Method
Use A-T #, G/L
Use Supplier, G/L
Use Item Description, Item Master
Confirm with Supplier, G/L
P-Card Spend
% of Total Spend
~1-20% of Total
Data
Characteristics
Non-PO A/P
Spend
~30-40% of
Total
PO A/P
Spend
~50-70% of
Total
• By Transaction
• By Invoice
• Supplier Name, G/L,
Cost Center
• Aggregate Total Only
• Unit Price
• High Volume, Low $
• All expenditures including
non-inventoried materials
and services
• By Line item # &
Description
• Quantity
• Unit Price
• Direct/COGs material
Supplier Normalization
Link the same supplier, and customer, businesses to all representations of
that business.
Benefits:
• Identifies, and links, duplicate
records allowing supplier
normalization
• Opens the door to a wealth of
information on your trading
partners
• Links suppliers, and customers,
across various business units
or source systems
Home Shield Corporation
123 Main Street Ste 512
Memphis, TN
supplier ID 12882A
Spend – $75,500
Source – Western Division
Oracle
AHS Corp
Main Street Ste 512
Memphis, TN
supplier ID 76620GFT
Spend – $100,000
Source – Eastern – Legacy
American Home
Shield Corporation
123 Main Street
Suite 512
Memphis, TN
A-T #: 14000647
Sales: $1.27 B
Primary SIC: 6351
Surety Insurance
Spend Analysis Examples
Supplier
ID
Supplier Name
602127
STERLING
MANUFACTURING
COMPANY
Supplier Address
Supplier City
Supplie
r State
Supplier
ZIP
Spend
(2004)
640 STERLING STREET
(RT 62)
SOUTH
LANCASTER
MA
01561
$172,312.96
100768
STERLING
MANUFACTURING
COMPANY
ROUTE 62
SOUTH
LANCASTER
MA
01561
$33,110.48
100249
STERLING
MANUFACTURING
COMPANY
640 STERLING STREET
ROUTE 62
SOUTH
LANCASTER
MA
01561
$132,023.50
Four different company codes and three
different purchasing organizations
Company
Code
Purchasing
Org
Vendor
Number
3510
P550
100249
STERLING MANUFACTURING
COMPANY
ZINV
$2,724.25
3550
P560
100249
STERLING MANUFACTURING
COMPANY
ZINV
$107,568.86
1000
P300
100768
STERLING MANUFACTURING
COMPANY
ZINV
$24,082.98
1400
P450
602127
STERLING MANUFACTURING
COMPANY
ZRMT
$114,023.95
Vendor Name
Account Group
Spend (2004)
Spend Analysis Examples
Supplier
ID
Supplier Name
602127
STERLING
MANUFACTURING
COMPANY
Supplier Address
Supplier City
Supplier
State
Supplier
ZIP
Spend
(2004)
640 STERLING STREET
(RT 62)
SOUTH
LANCASTER
MA
01561
$172,312.96
100768
STERLING
MANUFACTURING
COMPANY
ROUTE 62
SOUTH
LANCASTER
MA
01561
$33,110.48
100249
STERLING
MANUFACTURING
COMPANY
640 STERLING STREET
ROUTE 62
SOUTH
LANCASTER
MA
01561
$132,023.50
These Three Records match to:
AT Number: 46768
AT Name: STERLING MANUFACTURING CO
AT Street Address: 640 STERLING STREET RT 62
AT City, State, ZIP: SOUTH LANCASTER, MA 01561
Corporate Linkage
Establishes supplier and customer parent and child ownership
linkages.
Benefits:
• Compare key terms extended by different
suppliers owned by the same company
• Aggregates spend by supplier and parent
company to enhance sourcing leverage
and negotiating power
• Consider balance-of-trade in customer
pricing and procurement sourcing
decisions
• Enables “dependency” analysis
The ServiceMaster Company
Downers Grove, IL
A-T #: 17138484
Sales: $3.3B
SIC:
• 0782 Lawn and Garden Services
• 1711 Plumbing, Heating, and A/C
• 1731 Electrical Work
TruGreen-Chemlawn
Memphis, TN
A-T #: 03567354
Sales: $880M
Primary SIC: 0782 Lawn
and Garden Services
TruGreen-Chemlawn
132 North Street
Dallas, TX
• How much of a vendor’s business do you
represent?
Rescue Rooter
Memphis, TN
A-T #: 12691513
Sales: $550M
Primary SIC: 1711 Plumbing
Heating and Air Conditioning
TruGreen-Chemlawn
5551 Lamar Street
Chicago, IL
Spend Analysis Examples
Corporate Family Spend
AT Ultimate
Number
Supplier Name
# of Records
Spend (2004)
13974153
MARRIOTT INTERNATIONAL, INC.
52
$1,349,801.23
16115316
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
27
$3,113,594.17
GENERAL ELECTRIC COMPANY
27
$1,460,603.69
21173372
UNITED STATES, GOVERNMENT OF
24
$386,107.15
5597502
HILTON HOTELS CORPORATION
20
$241,868.71
18340971
TYCO INTERNATIONAL LTD.
19
$979,731.84
18343355
WOLTERS KLUWER NV
18
$1,080,728.23
3567301
FEDEX CORPORATION
17
$40,401,234.08
12527573
AMERICAN HEART ASSN
17
$145,012.56
14166301
H GROUP HOLDING, INC.
16
$687,262.17
10669694
ARKANSAS BEST CORPORATION
15
$443,018.44
30882246
DEUTSCHE POST AG
13
$3,437,699.88
18310528
BUHRMANN NV
13
$1,712,750.39
18344116
INTERCONTINENTAL HOTELS GROUP
12
$1,064,144.11
492553
Spend Analysis Examples
Tyco ~ Family Example
Supplier ID
Supplier Name
Spend (2004)
604246
UNITED STATES SURGICAL
$465,267.25
600085
MALLINCKRODT MEDICAL INCORPORA
$208,891.97
600003
ADT SECURITY SERVICES
$78,629.45
600975
MALLINCKRODT INCORPORATED
$65,409.40
104127
TYCO HEALTHCARE GROUP LP
$47,975.76
600876
SIMPLEX GRINNEL
$32,690.20
100043
TYCO MALLINCKRODT HEALTHCARE
$29,547.12
607430
SIMPLEXGRINNELL LP
$24,831.38
603485
MALLINCKRODT INCORPORATED
$13,402.41
101779
MALLINCKRODT MEDICAL
$6,057.82
302799
SIMPLEX
$5,255.76
317413
SIMPLEX GRINNELL LP
$1,330.00
608168
ADT SECURITY SYSTEMS
$443.33
304106
ADT FIRE AND SECURITY LIMITED
$0.00
713316
ADT SECURITY SERVICES INCORPOR
$0.00
737481
ADT SECURITY SERVICES INCORPOR
$0.00
102987
MALLINCKRODT BAKER
$0.00
Commodity Categorization
Enterprise Spend Visibility
Analyzing spend along any combination of dimensions
Simplified Illustration of Spend Cube
Supplier Dimension
 Resolution of redundancies and
corporate linkage
 Siemens  Siemens Dematics
Commodity
Dimension
Organizes
expenditures
into
sourceable
commodity
buckets
Ground
Fleet Fleet
Goods &
Services
Spare parts
Spend Visibility
Examples
•
Organization
•
•
•
Geography
•
•
•
•
Spend Figures can be viewed at
the intersection of any
combination of cube dimensions
Location/Org. Dimension
 Organizes expenditures along
geographic or business lines
 N America  US  Texas
 Total Co.  Division 2
Supplier  Siemens Dematic
Product Category
•
•
•
•
Region  North America
Country  United States
State  Texas
Supplier
•
•
Entity  Total Company
Sub-Entity  Division 2
Cluster  Ground Fleet
Category  Fleet Goods & Services
Sub-Category  Spare Parts
Time
•
Year  2003
• Quarter  2nd
• Month  April
Analysis Dimensions
Spend cube can be analyzed across its dimensions which provides a comprehensive
view of purchasing
Types of Analysis
Level
Purpose
Examples
Overall
Provide a top-level picture of
spend
• Spend and Number of Suppliers by category
• Spend and Number of Suppliers by location
/ business unit
• Spend to Sales ratio by location/ business
unit
Category
Compare categories to identify
sourcing opportunities
•
•
•
•
Supplier
Identify supplier base and
fragmentation issues
• Top suppliers by spend
• Pareto analysis overall and by location/
business unit
• Supplier overlap
Item
Isolate item discrepancies and
prepare category baselines for
sourcing
• Number of items by category
• Number of suppliers by item
• Price variance of an item across locations/
business units
Top categories by spend
Spend to supplier ratio by category
Pareto analysis by category
Supplier overlap by category
Spend Visibility Options
Transactional &
Master Data
Transformation
Presentation Alternatives
Output
Files
Data
Data Mapping/
Sources Categorization
Operating Co. 1
(A/P data mart)
Output
“The Spend Cube”
Standard Reports/Views
Operating Co. 2
(A/P
systems)
Operating Co. 3
(A/P
systems)
Analytics Platform
Organization
Spend Categorization
Segment high priority spend categories, identify savings
opportunities, and evaluate business risk.
Total Overall Spend
Total Spend by
Each Supplier
Total Spend by
Each Category
Total Spend by
Each BU
Total Spend by
Each Entity
Spend Ranked by
Supplier Dependency
Supplier Spend
by Category
Category Spend
by Supplier
BU Spend by
Supplier
Region/Country
Spend by Entity
Deep Dive in Selected
Categories/ Suppliers
Supplier Spend
by BU
Category Spend
by BU
BU Spend by
Commodity
BU Spend by
Entity
Supplier Spend by
Diversity Groupings
Supplier Spend
by Entity
Category Spend
by Entity
BU Spend by
Entity
Spend by
Supplier Parent
across Entities
Spend with at Risk
Suppliers
Spend Analysis Solution
The Basic Elements:
• Web delivered reporting and analysis
• Global corporate family linkage
• Supplier master cleansing and rationalization
• A repeatable and refreshable update process
• Supplier data enrichment with unique tracking ID
• Diversity spend identification and classification
• Supplier portfolio risk assessment including
denied/debarred party identification and balance of trade
assessment
• Item level spend classification to UNSPSC taxonomy or
other enterprise defined standard that takes advantage of
internal and external coding routines
U.S. Procurement and Sourcing Space
Source: AMR Research 2004
SCM/PLM:
SRM/
Spend Management:
Ariba, Emptoris,
Frictionless, i2,
Ketera, VerticalNet
Applications
Content / Data
Services
Professional
Services
Spend
Analysis
Boutiques:
Analytics,
Ariba
(Softface),
Zycus
Supplier Data
Management:
Austin-Tetra,
D&B
A/P Audit:
PRG-Schultz,
Apex Analytix
Deep Niche
i2, UGS
Business
Intelligence:
SAS, Cognos,
Business Objects
Sourcing Services /
Technology Hybrids:
Ariba (FreeMarkets),
Silver Oak, UGS,
VerticalNet (Tigris)
ERP:
SAP,
Oracle,
PeopleSoft
Management
Consultants:
ATKearney,
Accenture,
CGE&Y, Deloitte,
IBM GS
Broad Suite
Spend Analysis Benefits
•
•
•
•
Baseline for strategic sourcing initiatives
Enabler for process improvement
Measurement device for cost reduction programs
Comprehensive spend visibility across direct and
indirect commodities and services
• Significant cost-savings opportunities through
supplier and commodity consolidation
• Enhanced compliance through effective spend and
supplier monitoring
Austin-Tetra Company Profile
•
Established in 1993, privately held, management controlled,
headquarters in Irving, Texas
•
Supplier & Customer intelligence domain expertise
•
Best-of-class global business content
• Coverage of 50 million active global businesses available
• Up to 220 data elements for each business
• Data aggregated from over 320 seed sources including infoUSA,
Experian, LexisNexis and Bertelsmann AG
• Data is updated daily – an average of 10% of records experience
business changes monthly (management, address change, change
in ownership, linkage, diversity certification, etc.)
•
Provider of outsourced business information management
•
Content and web based solutions
•
200 blue chip customers
• 115 of the Fortune 500
• All three major credit card associations
• Horizontal across all markets
comprehensive
data
solutions
Austin-Tetra Clients
(Representative Listing)
n
n
n
n
Automotive and Transport
Burlington Northern Santa Fe
Ford Motor Company
General Motors Corporation
International Truck & Engine
n
n
n
n
n
n
n
n
n
Business Services
Cendant Corporation
FedEx
Premier
Novation
n
n
n
n
n
n
n
n
Chemicals
Dow Chemical Company
Eastman Chemical
Monsanto Company
Scotts Company
n
n
n
n
n
n
n
n
Financial Services
American Express
JPMorgan Chase
MasterCard International
Morgan Stanley
Visa USA
n
n
n
n
n
n
n
n
n
n
n
n
n
Consumer Products
Archer Daniels Midland
ConAgra Foods, Inc.
General Mills
Kellogg Company
Nestle USA
PepsiCo, Inc.
Energy
ConocoPhillips
Duke Energy
El Paso Corporation
Exxon Mobil
Shell Oil Company
Xcel Energy
n
Healthcare
Memorial Health Systems
Owens & Minor
Premier, Inc.
n
n
n
n
n
Hospitality and Travel
American Airlines
Delta Air Lines
HMS Host
n
n
High Tech and Telecom
AT&T Wireless
Cox Communication
EDS
Motorola
Sun Microsystems, Inc.
SBC
Manufacturing
Eaton Corporation
International Paper Company
W.W. Grainger, Inc.
York International
Media
Time Warner, Inc.
New York Times Company
Pharmaceuticals
GlaxoSmithKline
Pfizer
Schering-Plough
Retail
n
n
Kroger Co.
Target Corporation
Contact Information
Rip Greenfield
Phone: 512.695.7999
Email : rip.greenfield@austintetra.com
www.austintetra.com