21 Oct 2010 Northumbria Event North_cips_20101021

Oct 2010 Duncan Olive CIPS Spend Analysis

Spend Analysis

CIPS Northumbria Branch

21st October 2010

Duncan OliveCommercial Efficiency Manager, NHS Business Services Authority

[email protected]


Spend Analysis What is it?

the process of collecting, cleansing, enriching, classifying and analysing expenditure data with the purpose of reducing procurement costs, improving efficiency and monitoring compliance

DataCollection

DataEnrichment

DataCleansing

DataClassification

DataAnalysis

Who procured it?What was procured?

When and how often did we procure it?With whom did we procured it?

How did we procure it?How much did we pay for it?


Spend Analysis Why?

Cashable Savings Process Efficiencies Maximise Leverage Spend under Management Supplier Rationalisation Compliance/Reduce Maverick Spend Strategic Sourcing Programme


Visibility is King

Cost Centre

ServiceArea

Service

Organ-sation

WhoDimension

Class L..

Class L2

Class L1

Classi-fication

What

Suppliers

Where

PostCode

Local

Sub-Region

Region

National

FootPrint

Where

Month

Qtr

Year

Period

When

Volume

Spend

Values

Metrics


A Strategic Base Line

Who procured it?Organisation Structure-Chart of Accounts

What was procured?Nominal Ledger Hierarchy/ Procurement Taxonomy

When and how often did we procure it?PO/Invoice Transactions

With whom did we procure it from?Creditors File

How did we procure it?Contracts Register

How much did we pay for it?Transactions


there are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know. Donald Rumsfeld, 2002

Starting Point

Sophisticated Financial Management SystemsNominal Taxonomy Orientated to Managing FundsChart of Accounts out of date (Business Restructures)Limited Reporting and Analysis ToolsEvolving Contract RegistersDisparate Data Sources, partial data setsBusiness Intelligence (Suppliers, Procurement Taxonomies)Accounting Practices and BehavioursData Quality


Investment JustificationSelling Spend Analysis


Business Case Outcome Focused

Service

Service

Service

Service

Service

Finance

3rd Party Spend

Organisation

HRWhy IT

Finance

Outcome

WhatIncrease % of Procurement Spend under Management current %?

Market Competitiveness/Value for Money current %?Supplier Rationalisation, Compliance

Realise Cost Savings, Reduce Supply Risks, Manage Markets

VFM Functions: Cost & Efficiency, Quality, Performance, Customer Satisfaction


Business Case Scope


Strategic

Risk

Value

Bottleneck

Leverage

Benefit Realisation

Be realistic Targeted approach Quick wins, Tactical, Strategic goals Supply Cost Savings, Process Efficiencies, Compliance,

Supplier Risk Management, Take account of culture of the Organisation

Spend Analysis Investment Realisation


Investing to Succeed


Introducing Change

Governance Culture, Behaviours and Practices New Technology Supply Model Procedures Organisation

Quick Wins, Medium Term Goals Challenge, Options Appraisal, Implementation, Measurement

Communication, Transparency, Ownership, Participation

>Change Management


Review 1

Review 2

Review 3

Review

Contracting Fast tracks

Contracting Programme

Delivery

Improvement

FinancialPractice

ProcurementPractice

Training

Data

Extraction

Cashable SavingsVFM Contracts

Improved Supplier Perf.Reduced Supply Risks

Reduced Compliance Risks

Standardised processesStandardised systems

Improved Capacity MgmtImproved Capability

Improved ProductivityReduced RisksIntelligence

Policy&Procedure

Data

Cleansing

Data

Classification

Data

Analysis

Target Programm

e

Strategic Approach


Stakeholder Engagement

Leadership Sponsorship Project Management Business Practitioners Business Need, Data Collection Finance Budgets/Savings Realisation Commercial Market Options, Procurement Approach

IT/Applications Specialist Data Extraction HR Workforce Legal


Organisational SupportProject Board

Review 1

Review 2

Review 3

Review

Procurement Action Group

Technical

Finance

Legal/HR

Commercial




Policy & Practice

3rd PartyCurrent

ProcurementModel

FutureProcurement

Model

Project Management


Project Methodology

Project Board


Establish PAG

Data Collection

Data Analysis

Current ModelOptions Appraisal

Future ModelOptions Appraisal

BenchmarkingMarket Testing

PAG DiscoveryWorkshop

PAG Consultation

Board Approval

PAG Consultation

Board Approval

Board Update

Board Update


Data Collection


TransactionsInvoice Lines

PO Lines

WhereCreditors

WhoCost Centre

COAHierarchywhat

Nominal Hierarchy

whatProcurementTaxonomy

HowContractRegister Supplier

MarketIntel

Core Data & MetricsPostal Data

Net Invoice Line Value

VAT Invoice Line Value

Transaction Line Count

Invoice Document Count

PO Document Count

Supplier Count

Contract Count

Minimum Full Years Spend


One Model does not fit all.Category specific data sources

TravelProf.

Services Postal

OfficeSupplies

ICTTransactionsInvoice Lines

PO Lines

UtilitiesVehicleUsage


Data Cleansing/NormalisationData Mapping/Classification

Data Enrichment


Data quality is poor Initially Intensive Remove pay related spend

Iterative process Express tolerances for accuracy

Invest in accuracy sufficient to achieve the required ROI

Improve use of keys within core application systems Company ID, VAT Reg No. DUNS, Charity No. Product IDs, Contract IDs General Application Data Housekeeping

Increase transaction full lifecycle throughput - procure to pay error reduction

Data Cleansing/Normalisation


Classification Taxonomy CPV, NSV, SIC, UNSPSC, PROCLASS, E-CLASS, PSPES

Ledger Taxonomy vs Supplier vs Spend Classification Sector Classification (influencable/Non Influencable Spend)

Public Bodies, Employee Payments Sector Visibility

Sole Traders, Charities, Voluntary Orgs, SME use of Factoring Orgs. Classify Top Down until meaningful Rule Based/Fuzzy Logic Mapping Buy in Supplier Classification Data Challenging Categories

Temp Staff / Interim Staff Legal Consultants

Eye Balling /Professional Interpretation

Align Nominal Ledger and Procurement Taxonomy !

Data Mapping/Classification


Enrichment

Organisation Structures Geographic Contracts Category Specific Data


Spend Analysis Toolkit


Spend Analysis Tool Characteristics

Define, Integrate Multiple Data Structure Schemas, Populate Model, Error HandlingRapid DevelopmentRepeatable

Data Modelling

GraphicalAdhoc, Production ReportsMulti DimensionalSlice and Dice between dimensionsDrill Down/Drill Up

Data AnalysisSpend Analysis

Classification, EnrichmentData MappingManagement

Validation, Normalisation, CorrectionData CleansingData

Accept Data in multiple FormatsStore Large Volumes of Data

Data Collection


Delivery Options

Outsource Spend Analysis Service

In-House Technology (Scalability)

RDBMS Oracle, SQL Server, Access Business Intelligence Tools MS Access Excel

Have you the Skills IT Skills Data Analyst Commercial (Market)

Buy in Data Supplier Cleansing, Normalisation, Classification

Obtain data from your supply base (category specific data)


Example IBM Cognos

Market Leading Business Intelligence Software ProviderScalable Desktop (7.0) to Enterprise (8.0)Easy to use - Limited specialist ICT skill needed Hugh number crunching capabilityRapid development and deploymentText, Graphical, Spatial presentationModel data from disparate systemsMulti-dimensional analysis

Who, Where, What, When, HowAdopted by OGC/BS

Time

Organ-isation

Spend

Suppliers


Measuring Impact

Needs to be a repeatable process

Incorporated into Business as Usual processes

Evolve into Business Intelligence


Application to Support Wider Outcomes

Sustainability Economic Development Carbon Targets


Why Do Spend Analysis Projects Fail?

Lack of Leadership Lack of Sponsorship Unrealistic Expectations/Unclear goals Data quality Wrong Tools Lack of Skills/Resource Support Change management not addressed


the setting of realistic efficiency targets the ability to capture savingsa workflow for realising savings potentiala new comprehensive contracts programmea business case for additional resources on an invest to save basa view of local business and the potential contracting impactan opportunity for improved budget managementthe basis for a considered approach to E-Procurementan opportunity for improved supplier database managementreporting of meaningful data for collaborative contracting possibilitiesa model that can be refreshed in future years

Feedback Received?


Does it work

Spend visibility 40 plus organisations Industry Case Studies Influenced technology adoption Carried out Strategic and Tactical Reviews during 2008-

09 realising efficiencies in excess of 1m 2009-10 across 12m in 5 categories

Developed Strategic Category Approach


Some Points in Summary Spend Analysis is invaluable to improvements within both Demand and

Supply Management Spend Analysis can be a significant investment

Time, Skills, Technology, Human and Financial resources Scale investment based upon the return

Be sure of your business objectives and outcomes before initiating Spend Analysis is an enabler not the Outcome

Incorporate into a Change Programme Spend Analysis is not a one off project

it needs to be incorporated into Business as Usual to evolve into Business Intelligence

Introduce greater alignment between Nominal Ledger and Procurement Taxonomy

Classification will never be 100%, it needs interpretation and tolerances are necessary

Improve collection and management of Supplier Intel within core system


Questions

Documents

21 Oct 2010 Northumbria Event North_cips_20101021