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©ALL RIGHTS RESERVED - Confidential 1
Searching for Clues - Making Spend Analysis WorkGuy AllenApril 18th 2012
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential 2
Making Spend Analysis Work
Agenda
1. Sources of Spend Data
2. Turning Data Into Information
3. Identifying Opportunities and Prioritisation
4. Spend Analysis and Managing Categories
5. Identifying Actions
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential 3
Searching for Clues - Making Spend Analysis Work
Part 1 – Introduction
The Real World Sourcing Series is a series of 6 sessions covering hot topics for procurement professionals.
The Real World Sourcing Series is promoted and supported by BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (4C Associates).
Guy Allen started his procurement career with Ford Motor Company, moving through IBM, SmithKline Beecham and GSK before becoming CPO for Abbey National and VP Global Sourcing at Fujitsu. He took up his current position as Managing Partner at 4C Associates at the beginning of this year
Spend Matters UK/Europe Spend Matters UK/Europe Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential 4
Making Spend Analysis Work
A Core Requirement for all Procurement Professionals:
Know Your Numbers!
Spend Matters UK/Europe
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Making Spend Analysis Work
Sources of Data
• Make the most of what is available
• If you can’t get data, nor can anyone else
• Lack of data cannot be an excuse for inaction
Spend Matters UK/Europe
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Sources of Data
• AP File – downloaded into Excel• AP Audits• Budgets (past and present) • P Card• 3rd party website• Suppliers
Whatever the source, the most effective Spend Information comes from a dedicated Spend Diagnostic tool, refreshed regularly
Making Spend Analysis Work
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential 7
Making Spend Analysis Work
Spend Matters UK/Europe
DataA collection of text and numbers
InformationCoded data, with relevant reporting
ActionDecisions based on the information
©ALL RIGHTS RESERVED - Confidential 8
Making Spend Analysis Work
Data into Information
• Coding – Must code the supplier at least, ideally the transaction
• Parent Child relationships
• Assumptions
• Build the data into ways of working
Spend Matters UK/Europe
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Dat
a Av
aila
bilit
y
InvoiceDescriptions
InvoiceLine
Descriptions
PODescriptions
POLine
Descriptions
Suppliers
GeneralLedgerCodes
CommodityCodes
High
LowHighLow
Making Spend Analysis WorkEven with a Spend Diagnostic Tool, the usefulness of the information will depend on quality of the data going in , GIGO
Categorization Data Quality
©ALL RIGHTS RESERVED - Confidential 10
Making Spend Analysis Work
Do all that and you will end up with something like this
©ALL RIGHTS RESERVED - Confidential 11
Making Spend Analysis Work
Task 1
Work on your tables, and list what uses you might make of well coded information
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential 12
Making Spend Analysis Work
Tail Leverage
Category Planning
Compliance Tracking
Pricing Variance
Opportunity Analysis
Fraud Detection
Selecting priorities for the Procurement Function
Measuring actual prices to budget or contract prices, on previous year’s prices
Measuring conformance to preferred suppliers or processes
Preparing the strategy for your category
Managing a supplier reduction programme
Monitoring Key Supply Base information, ie Diversity
Identifying possible fraudulent (or inaccurate) activity
Supplier Base Management
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential 13
Taking on a New CategoryA Typical Category Management process
Develop, implement and embed category management
Understand internal
requirements &
stakeholders
Stage 1
Define scope and category
structure
Stage 2
Understand market and
suppliers
Stage 3
Develop category
strategy and plan
Stage 4
Select supplier(s)
Stage 5
Implement contracts
Stage 6
Contract and supplier
management
Stage 7
Iterative process
Spend Matters UK/Europe
Tail Leverage
Category Planning
Compliance Tracking
Pricing VarianceOpportunity
Analysis
Fraud Detection
Supplier Base Management
©ALL RIGHTS RESERVED - Confidential 14
Setting Your Functional Priorities
Kraljic Matrix (adapted)
Low High
High
Magnitude of spend
Supp
ly ri
sk
Critical Strategic
Acquisition Leverage
Collaboration - close supplier management:• detailed contract• collaborate• market awareness
Drive for value:• market pricing• aggressive approach• use leverage
Minimum attention:• price formula• call-off contract• look to rationalise
Ensure availability:• long-term contract• price indexes• contingency planning
Spend Matters UK/Europe
Making Spend Analysis WorkOpportunity
Analysis
©ALL RIGHTS RESERVED - Confidential 15
Spend By Supplier / DivisionOpportunity
Analysis
Making Spend Analysis Work
©ALL RIGHTS RESERVED - Confidential 16
Home Care Personal Care
Food Medical Products
Marketing
Lab Equipment
Lab Supplies
Review the common categories across the company’s divisions
Opportunity Analysis
Making Spend Analysis Work
Spend Matters UK/Europe
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Making Spend Analysis Work
• Are we paying what we should be paying?
• Are there different prices for different suppliers for the same product?
• Are there different prices from the SAME supplier for different locations?
• What's the Price Variance Index? (ie are we beating budget prices)?
• How has pricing changed since last year?
Pricing Variance
Spend Matters UK/Europe
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Making Spend Analysis Work
• How much leakage is there from the preferred supplier?
• Are some divisions more compliant than others?
• Why is this the case?
• Are there areas of spend that are not being well covered?
Compliance Tracking
Spend Matters UK/Europe
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Contract Spend By SupplierMaking Spend Analysis WorkCompliance
Tracking
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Making Spend Analysis Work
• Preparing complete spend profile of category
• Analysing which divisions use which suppliers
• Prepare Category Strategy
• Negotiation strategy, including eAuction if appropriate
Category Planning
Spend Matters UK/Europe
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Making Spend Analysis Work
• How long is it?
• Are there opportunities to consolidate by category?
• Can you introduce a supplier reduction programme?
• Do you have appropriate controls to ensure the tail isn't growing?
Tail Leverage
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential 25
Volume Consolidation SummaryMaking Spend Analysis WorkTail Leverage
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Making Spend Analysis Work
• Analyse the profile of orders and invoices– Are there multiple orders just below approval limits?– What proportion of orders are after the event?– Are there duplicate invoices?
• Monitor significant changes in order and payment profiles
• Understand the reasons for the differences
Fraud Detection
Spend Matters UK/Europe
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Making Spend Analysis Work
Task 2 - Searching for Clues
In your workbook there are 4 graphs. Have a look at them and discuss with the people next to you what actions they might lead you to take.
Spend Matters UK/Europe
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Example 1
Spend Matters UK/Europe
Spend by Supplier and Organisation
(Colours represent the different business units)
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Example 4
Spend Matters UK/Europe
[Annoymised Business Units]
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Making Spend Analysis Work
Some Final Thoughts
• Just providing the system isn't enough
• Build usage of your spend system into your reviews
• Expect to see regular analysis of compliance, price variance etc
• Provide simple dashboards to your internal customers
Spend Matters UK/Europe
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Real World Sourcing Scholarship
• £2500 towards any procurement based training• Log on to the BravoSolution Education Network with the
details you’ll receive tomorrow• Complete the certification programme• Check your ranking!• The winner will be announced at the Sourcing Experts
dinner on 19 December
Spend Matters UK/Europe
Making Spend Analysis Work
©ALL RIGHTS RESERVED - Confidential 35
THANK YOU!
Please feel free to contact me on [email protected]
Spend Matters UK/Europe