CIPS Northumbria Branch 21 October 2010 Duncan … Event...Oct 2010 Duncan Olive – CIPS Spend Analysis Spend Analysis CIPS Northumbria Branch 21st October 2010 Duncan Olive Commercial

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•Sophisticated Financial Management Systems•Nominal Taxonomy Orientated to Managing Funds•Chart of Accounts out of date (Business Restructures)•Limited Reporting and Analysis Tools•Evolving Contract Registers•Disparate Data Sources, partial data sets•Business Intelligence (Suppliers, Procurement Taxonomies)•Accounting Practices and Behaviours•Data Quality


Investment Justification“Selling 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 Savings•VFM Contracts

•Improved Supplier Perf.•Reduced Supply Risks

•Reduced Compliance Risks

•Standardised processes•Standardised systems

•Improved Capacity Mgmt•Improved Capability

•Improved Productivity•Reduced 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


“Transactions”Invoice Lines

PO Lines

“Where”Creditors

“Who”Cost Centre

COAHierarchy“what”

Nominal Hierarchy

“what”ProcurementTaxonomy

“How”ContractRegister 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 Year’s Spend


One Model does not fit all…….Category specific data sources

TravelProf.

Services Postal

OfficeSupplies

ICT“Transactions”Invoice 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 ID’s– 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 Handling•Rapid Development•Repeatable

Data Modelling

•Graphical•Adhoc, Production Reports•Multi Dimensional•Slice and Dice between dimensions•Drill Down/Drill Up

Data AnalysisSpend Analysis

•Classification, EnrichmentData MappingManagement

•Validation, Normalisation, CorrectionData CleansingData

•Accept Data in multiple Formats•Store 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 savings•a workflow for realising savings potential•a new comprehensive contracts programme•a business case for additional resources on an invest to save bas•a view of local business and the potential contracting impact•an opportunity for improved budget management•the basis for a considered approach to E-Procurement•an opportunity for improved supplier database management•reporting of meaningful data for collaborative contracting possibilities•a 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

CIPS Northumbria Branch 21 October 2010 Duncan … Event...Oct 2010 Duncan Olive – CIPS Spend Analysis Spend Analysis CIPS Northumbria Branch 21st October 2010 Duncan Olive Commercial