Strategic Sourcing Webinar Series

Spend Analysis – There’s always money to save!

Mar 14, 2015

Copyright © 2015 BCube Global Solutions All Rights Reserved

Agenda for Today
introduction
1 The presenter, Spend Analysis

Types of spend, data &

Spend analysis – the process

2 Data sources, categories & sub-categories
categories

3 Steps involved in performing a comprehensive analysis

4 Common types of analysis

Possible templates – limitless opportunities

5 Tools and technology

Introduction, tools, challenges

Summary, Question & Answ

Type in your questions or raise your hand.
session
Introduction

Ram Raghuraman is a skilled Supply Chain professional with an MBA degree

from the reputed Purdue University, USA. He has worked at Terex Corporation
(Forbes 500), a $ 10 Billion global manufacturer of earth moving equipment, Frost
& Sullivan, USA and has extensive global experience executing projects
successfully.

Managed over $ 100M of Global Spend across multiple categories spread

across Europe and North America
Deployed Global 3PL network involving 50 + plants/suppliers in Asia, NA &
Achievem Europe
Implemented lean manufacturing system at a plant that saved $48 million
ents
Trained peers on ERP implementation, lean manufacturing
Conducted seminars on Negotiation and Leadership within Terex
Corp
Learni CPSM Certified (held by less than 1% Supply Chain professionals)
ng
Director, ISM India – Chennai Chapter. The Institute of Supply
Management is the premier institution in the world for Sourcing
and Procurement Professionals.
Leaders
hip
Spend Analysis – The Basics

Copyright © 2015 BCube Global Solutions All Rights Reserved

 Types of spend
DIRECT SPEND (MATERIAL) INDIRECT SPEND (ENABLING SPEND)

Spend on Goods and Materials that directly Spend on Goods and Services that enable its
influence the product/service that the primary activity
company is selling. Easier to find and classify!
 Travel
 Commodities  IT
 Parts and Sub-assemblies ……  MRO & Utilities
 Capital Goods and Consumables…..
TAIL-SPEND

The bottom 10% of your Indirect spend is

known as Tail-Spend

 One-off purchases that fall below a certain

threshold (say $10,000)
 Purchasing done at the plant level by other
departments
 Data sources

ACCOUNTS PAYABLE DATA OTHER SOURCES

Quite possibly the most widely used source ofIf an organization wants to get close to 100%
data. Integrity of data cannot be questioned. understanding, they should look at other
Easily covers more than 95% of company sources. Very challenging and resource-
spending. intensive

 INTERNAL (Invoices, HR data)

 EXTERNAL (Supplier spend, Data in public
domain)
Input Data
Must Have’s Nice To Have’s

Field Description Field Description

Invoice No The unique identifier of the invoice Contract No The unique contract identifier
Invoice Date Issue date of invoice Expiry Date Date on which the contract expires
PO Number The unique Purchase Order identifier Payment Terms Number of days within which the payment is made
PO Date Date on which Purchase Order was INCO Terms Terms under which Title of goods will be transferred
issued
from Supplier to Buyer
Product Code Unique item code set by buying
company Category/UNSPC UNSPC Code for the Commodity/service
Code
Product Description of item/service
Description Sub-category Name of the Sub-commodity (Legal services is a sub-
category to Professional Services)
Category Name Name of Commodity (eg. Travel)
Business Unit The BU/division responsible for the Delivery Location Location/Plant the supplier delivers to
spend Cost Center Code Cost center to which the payment applies
Supplier Name Name of the Supplier
Cost Center Desc Cost Center code description
Supplier Code Unique code to identify the Supplier
G/L Account The General Ledger account number to which the
Supplier Parent Ultimate parent supplier Number payment is made
Supplier Location City/Country (or) address of the
G/L Account General Ledger account description
Supplier
Description
Purchased Number of items supplied
Quantity Payment Date Date on which the invoice payment was made

Unit of Measure Unit by which supplied items are

measured
 categorization
UNSPSC ® (www.unspsc.org)
The United Nations Standard Products and Services Code is an open, global, multi-sector standard
for efficient, accurate classification of products and services.
KEY FEATURES:
 Most commonly used categorization across the world – helps if everyone speaks the same
language
 Managed by the UNDP (United Nations Development Program)
 Open Standard, free for everyone
 Over 20,000 categories available. Five level hierarchical code set
 Responsive – constantly updated

OTHER SOURCES

 FSC (Federal Supply Codes published by US Government)

 NAICS (North American Industry Classification System)
 NIC (National Industrial Classification published by Ministry of Statistics and Program
Implementation)
Spend Analysis – The Process

Copyright © 2015 BCube Global Solutions All Rights Reserved

Spend Analysis – Benefits
Improve 360 degree
relationship – suppliers,
customers and
Track every Rupee you stakeholders
spend across multiple
categories including
Indirect Spending

Greater Visibility Improve Relationships

Make fact-based decisions

with data made available at
your fingertips.

Lower Overall Costs

Identify Areas of Opportunity Better Decision-making

Obtain insights from your Focus more on your key

historical spending and deliverables rather than
create savings mundane data analysis
opportunities

Increase Productivity and

Efficiency
Spend Analysis – The
Process
AP
Data
Extract Cleans
AP Data
e
Enrich Custom Web
Interface
Classificatio
n
Analysis

Insight
CSV Format Data

Automate the input from your ERP system into our flexible solution.
Spend Analysis – The
Process
AP
Data
Extract Cleans
AP Data
e
Enrich
Data Extraction
• Mapping and extracting required
Classificatio data fields to data source
n
Analysis Manual Validation
• Data availability under correct
headers and GL Account
Insight
Supplier Normalization
• HCL Bombay, HCL Mumbai, HCL
BOM, Hindustan Computers Ltd.

We use a variety of automated tools and manual checks to ensure the

quality of the data. A system is only as good as the data it uses!
Spend Analysis – The
Process
AP Custom Web
Data Interface
Extract Cleans
AP Data
e
Enrich

Classificatio
n
Analysis

Insight

Classify your spend into Industry accepted categories or create your own
based on the need.
Spend Analysis – The
Process
AP
Data
Extract Cleans
AP Data
e
Enrich

Classificatio
n
Analysis

Insight

Insights that drive decisions.

Dashboards, Charts, Reports and
more!
Spend Analysis – Templates

Copyright © 2015 BCube Global Solutions All Rights Reserved

The Spend Cube

Spend analysis should help you answer

What are we buying? From who are we buying? For who are we buying?

THE SPEND CUBE

What? Category
Common Types of Analysis

Cost per unit weight is performed to compare the similar parts. The inherent
Cost per unit weight
assumption is that these parts are similar, and their cost/unit weight should be
Analysis similar. This helps to identify the outliers which contributes to different costs.

Part Price History Plot the trend of a part’s price over 2 years and identify opportunities to re-
Analysis negotiate lower price in cases of unjustified price increases in the past.

Analysis identifies the optimum bracket quantity for cost reduction within the
Pricing Brackets/
available brackets. Can only be done on parts that have contracts that include
EOQ Analysis pricing brackets.

This type of analysis helps identify the relationship between material prices
Indexed Pricing
and part cost and helps us identify opportunities for index-based pricing and
Analysis re-negotiation.

The analysis identifies the cost reduction opportunity by switching prices

Currency
between currencies. The assumption is that the manufacturer should be paid
Opportunity Analysis in the currency of manufacturing country.
Common Types of Analysis

Analysis identifies a way to obtain visibility into freight costs associated with
Freight
procuring parts from suppliers. It helps in selecting a best approach to
Analysis optimize freight costs.

VAT is a tax that is assessed at each phase of the process where value is
added to components or services by different suppliers. It is usually
VAT
recovered when a supplier sells his product to the next supplier in the chain.
Analysis Leakage can sometimes occur when trying to recover the VAT from foreign
governments.

Warranty cost incurred due to defective supplier parts. This could include
Warranty Cost
both labor and part cost.
Recovery

Analysis identifies deviation to standard payment terms. The intent is to

Payment Terms
negotiate with the suppliers to pay them on Standard Terms so that we realize
Analysis savings from holding the cash (Cost of Money)

Analysis identifies the optimum way of categorizing parts into a family and
Part Family then identifying potential parts for cost reduction which do not belong to the
Analysis part family due to different processes or alternate processes that could be
used. It also helps in identifying cost outliers within the same family of parts
Savings & Compliance Tracking

An extension of spend
analysis
A logical extension of Spend Analysis is helping track benefits and drive PO compliance. This will
help recover costs and minimize leakage as well as help the Finance/Budgeting organization in
projecting future cash flows

Contract Compliance Cash Flow

Compliance % Across Categories

6 100%
5 80%
4
60%
3
40%
2
1 20%
0 0%
Spend Analysis – Tools

Copyright © 2015 BCube Global Solutions All Rights Reserved

 Spend analysis tools

Currently, there are many tools available in the market that offer spend analysis solutions.

A few popular tools include:

1. Ariba
2. SAP
3. I2 Technologies
4. Procurian Software (Acquired by Accenture)
5. Bravo Solutions
6. Zycus
7. SMART by Global eProcure……. And many more!
While the differentiation between them will be limited, the following should be kept in mind:

1. DATA SOURCES: The ability to handle multiple data sources, providing data in multiple
formats
2. COMPATABILITY: Compatibility with multiple ERP systems
3. CUSTOMIZATION: Almost all tools are customizable, but require a lengthy implementation.
The required capability must be very well defined upfront else it will be hard to work in
modifications
4. VISUALIZATION: Ability to provide information in a clean, crisp manner. Different profiles
need different information – the charts and tables should be different for different
hierarchies
5. CLOUD: This is a must – especially for large corporations who would want data to be

Key considerations
stored on their existing cloud (or) in a cloud located in the same region as their HQ for legal
restrictions

COST
1 Enterprise Tools very expensive
implementation
ALTERNATIVE

integration 2 Complex & Time Consuming SERVICE-BASED

3 Individual Tools need to
automation
APPROACH TO SPEND
ANALYSIS
integrate
4 Still lots of manual intervention
 Thank You!

Ram Raghuraman
Founder, BCube Global Solutions
Director, ISM India
ram@bcubeglobal.com
www.bcubeglobal.com

Mobile: (91) 95000 17385

Copyright © 2015 BCube Global Solutions All Rights Reserved