Allocating Savings Using Spend Analysis


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Spend Radar was contacted by a leading Business Process Outsourcing (BPO) provider to support their multi-year agreement to provide strategic sourcing and spend management for their client - a global 200 consumer packaged goods manufacturing company.

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Allocating Savings Using Spend Analysis

  1. 1. Spend Radar’s Award-Winning Spend Analysis Case StudyJune 2011 1
  2. 2. BackgroundSpend Radar was contacted by a leadingBusiness Process Outsourcing (BPO) provider tosupport their multi-year agreement to providestrategic sourcing and spend management fortheir client - a global 200 consumer packagedgoods manufacturing company. June 2011 2
  3. 3. The Client’s Cost Cutting InitiativeThe client had an ambitious plan for cost cutting.Cost-cutting programs had been implemented thatrepresented less than 3% percent of their cost of goodsand the client was pushing for that figure to be morethan 4%. June 2011 3
  4. 4. The Client’s Savings InitiativeFor their savings initiative, they put in place the followingService Level Agreements:1. Savings percentage for 28 categories across three different types of projects2. Seven-day turnaround from receipt of data until report delivery3. Allocate savings by category down to the plant level4. 95% accuracy June 2011 4
  5. 5. Spend Radar’s ResponsibilitiesSpecifically, Spend Radar was responsible forcollecting, cleansing and classifying spend datafrom over 90 global locations.But it didn’t stop there. After identifying the savings opportunities, Spend Radar was responsiblefor tracking and allocating the savings back to the various operating companies, product lines,spend categories and plant locations. June 2011 5
  6. 6. The ProjectAll projects at Spend Radar follow a six-stepprocess outlined in our Project Excellence program.This program was implemented to ensure theconsistency and quality of all of our projects. June 2011 6
  7. 7. Step One: Project KickoffEach client is designated a project manager that isresponsible for keeping the project on target, ontime and on budget, as well as ensuring that theclient is kept up to date.Introductions are made, roles are defined andcommunication guidelines are set.The project kickoff is also used to ensure that we clearly understand the client’s business, animportant aspect when determining categories and classification codes. A commodity that isclassified as MRO for one company may be classified as a direct spend for another. June 2011 7
  8. 8. Step Two: Acquiring the DataWithin one day of receiving the 1.5 gigabytes of spend data, the Fast Facts:data was uploaded to Spend Radar’s Data Manager, a master data  1.5G of spend datamanagement (MDM) module designed specifically for spend data.  +$20B in global spendAll of the data had been extracted from multiple SAP instances. Thisdata represented over $20 billion in annual global  90 global locationsspend, representing the following four high-level indirect spend  1 day to uploadcategories:  4 indirect categories 1. Manufacturing Equipment  4 SLAs 2. Corporate Services 3. Information Technology and Telecommunications  95% accuracy 4. Human Resources and Professional Services June 2011 8
  9. 9. Step Three: Cleansing and Classifying the DataAll data is collected and stored in the Spend Radar DataManager module and managed by an internal team of solutionsconsultants that have been fully informed of the company’sbusiness-specific categorization needs.The Data Manager’s Rule Builder creates, edits and managescompany-specific supplier and transaction classification rules.Based on our extensive history with data classification, we havealso included pre-built, commonly used rules into theapplication to assist with the classification process.Without the use of this flexible master data management module, a quick turnaround would nothave been possible. June 2011 9
  10. 10. Step Four: Client Workshops & Business ReviewsConstant, immediate feedback from the BPO as wellas the client allowed us to complete the cleansingand classification within three weeks. The BPO hadvisibility into the process at all times, ensuring thatthe data was being cleansed and classified in amanner consistent with the BPO’s sourcing strategies.The data was cleansed at 95% accuracy – a level of accuracy that was agreed upon by the client.We used our data accuracy model to ensure this SLA was achieved. The data accuracy model is aformula that is used to generate a representative sample of an overall data set that is approvedby the client. June 2011 10
  11. 11. Step Five: Delivery of Reporting and AnalysisThe BPO leveraged the Spend Radar Reporting and Analysismodule, allowing the end users to create reports, analyses and “We’ve been struggling to pull this data together forviews in mere seconds, with minimal to no training. And months. I’m amazed at howbecause the tool is easy to use, end users could manipulate quickly this project wasreports and analyses on their own, without the need for IT or delivered.”senior analyst support. -FinanceOnce the savings were identified, we: Tracked and allocated the savings back to the various operating companies, product lines, spend categories and plant locations using an organizational hierarchy that we incorporated into the Data Manager module. Integrated sourcing award savings data and cost allocation percentages by business unit, plant, etc., as per the organizational financial model and as desired. Applied the savings and cost allocation percentages back to the business units, plants and locations as defined by the organizational hierarchy and savings allocation model. June 2011 11
  12. 12. Step Six: Ongoing Data RefreshesSince the initial cleansing and classification process, wehave been conducting ongoing monthly refreshes of theclient’s spend data. Monthly refreshes are made possibleby the extensive initial cleansing and classification processthat we conducted. Company-specific rules for itemclassification were created that can be used for all futurerefreshes and changes and additions can easily be made. June 2011 12
  13. 13. ChallengesThe challenge for this project was incorporating acustomer-specific financial allocation model within DataManager. This was not standard functionality andrequired custom development to accomplish. The clientprovided their organizational hierarchy and allocationmodel, and we were able to include this information intoSpend Radar’s Data Manager.All software customization is done in-house so we have complete control over timelines and canquickly adapt to new customer requests. And since Data Manager is offered as Software-as-a-Service (SaaS), once the enhancements were complete they became available to all clients. June 2011 13
  14. 14. ResultsThis case study describes an advanced spendmanagement project that resulted in:  Merging global spend from over 90 locations  Providing indisputable proof of realized cost reductions  Providing insight into forthcoming cost reductions  Relating impact to the bottom line by product line, operating company, category and location 14
  15. 15. Key TakeawaysThe most important lesson of this or any other spend analysisproject is that spend analysis is not simply about identifyingpotential cost-reduction opportunities. Any savings shouldthen be measured, validated and tracked so that true successcan be quantified and managed in an ongoing, repeatablemanner.And for some businesses, it is critical to ultimately trace back and allocate any realized costreductions directly to the individual locations or business units. Not all organizations managetheir savings and cost allocations directly to each individual organizational entity, but for themany that do, having a spend analysis solution that can fully manage this process in anindisputable manner is critical. June 2011 15
  16. 16. ConclusionManaging costs has always been important. In thecurrent economic climate, it is imperative. However,the promise and hype of spend analysis has left muchto be desired from previous generations of spendanalysis solutions. Unlike our predecessors, SpendRadar is delivering fast, accurate and measurableimpact to our customer’s bottom line. Isn’t that whatspend management is all about?This case study outlines the real-world experiences of this team and their project. We hope thatyou are able to learn from and leverage this insight to define and implement a successful spendmanagement project at your company. June 2011 16
  17. 17. Award-WinningUpon completion of the initial phase of this project, theteam at Spend Radar realized they had accomplishedsomething special – a twist on the typical spend analysisproject that provided even greater savings and sourcingopportunities. When submissions for the Supply &Demand Chain Executive 100 became available, we knewthat we had to submit this project forconsideration, illustrating the tangible benefits that can beachieved through spend analysis. We’re pleased toannounce that this project resulted in winning thisprestigious award.Supply & Demand Chain Executive is the executives user manual for successful supply and demand chain transformation, utilizing hard-hittinganalysis, viewpoints and unbiased case studies to steer executives and supply management professionals through the complicated, yet critical, world ofsupply and demand chain enablement to gain competitive advantage. It is located on the web at Ten years ago, Supply & DemandChain Executive announced its first "100" list of supply chain solution providers, consultants and other organizations that were helping lead the way intransforming companies supply and demand chains. To learn more about this award, visit June 2011 17
  18. 18. Contact Us to Learn MoreSpend Radar311 S. Wacker DriveSuite 2270Chicago, IL 60606+1 June 2011 18