Achieving Proactive Spend Management Capabilities (Zycus White Paper)


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Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence In Real-Time (Zycus White Paper)

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Achieving Proactive Spend Management Capabilities (Zycus White Paper)

  1. 1. Ottawa, Canada 2009 Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence In Real-Time White Paper A Knowledge Leadership Publication By Procurement Insights
  2. 2. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time Table of Contents ADAPTIVE INTELLIGENCE FOR A DYNAMIC WORLD . . ..............................................2 THE SOURCE OF INFORMATION DETERMINES ITS EFFECTIVENESS ……………3 CAMCORDERS VERSUS CANVASSES ...................................................................................4 CAN’T SEE THE FORREST(ER) FOR THE TREES ..............................................................5 A POINT OF CONTEXT ..............................................................................................................6 ON A CLEAR DAY YOU CAN SEE FOREVER ......................................................................7 CALCULATING THE IMPACT ………………………………………….. …………………. 8 ABOUT ZYCUS INC. ……………………………………………………………......…………11 Appendices APPENDIX A ...............................................................................................................................13 1
  3. 3. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time Adaptive Intelligence for a Dynamic World “Progressive business intelligence in key areas such as Spend Management should not only tell you where you have been, but also where you are or where you should be going on an adaptive basis . . . think of true business intelligence in terms of a GPS system that can provide updates on current road and weather conditions in real-time. With this level of adaptive intelligence we are no longer confined to a static understanding of historic events, but are instead able to respond to the dynamic nature of an increasingly globalized supply chain.” From the critically acclaimed “Business Intelligence Is Intelligent Business” Conference Series Hansen Consulting and Seminars Inc. 2
  4. 4. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time The Source of Information Determines It’s Effectiveness Often times business intelligence in the area of Spend Management is culled from the finance department’s ERP system. In these instances, it is often incorrectly assumed that the existing application is more than sufficient in terms of providing intelligent data to analyze spend. Unfortunately, the means through which ERP data is accessed can be both cumbersome and time consuming decreasing its overall effectiveness in a dynamic supply practice that operates in the here and now. Even with the advent of initiatives such as the industry collaboration on what eventually became DUET, and the long on promise, short on results Service Oriented Architectures (SOA) that heralded the “near real-time” interaction between disparate systems, organizational supply practices are handicapped by the provision of stale dated information that neither empowers proactive decision-making, nor offers a reliable corrective course of action. In a paper that was written in 2005 (and subsequently expanded upon in a 2008 article), reference was made to the fact that software developers needed to build camcorders versus improving canvasses. It was an interesting paper on many levels as the concepts of agent-based modeling versus equation-based modeling was not widely known in the general market. And while the “camcorder versus canvas” analogy may be somewhat dated, its message has taken on even greater meaning with the emergence of Artificial Intelligence and Web 2.0 (through to Web 4.0) as well as new business models such as Software as a Service (SaaS) and even Free and Open Source Software (FOSS). Here is an excerpt from the 2005 paper that will illustrate the difference between traditional ERP-centric spend analysis data, and the real-time intelligence that is available through emerging technologies such as the ones offered by Zycus. 3
  5. 5. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time Camcorders versus Canvasses Traditional ERP-based Spend Management solutions are built utilizing what is referred to as an equation-based model. Equation-based models utilize interactive assumptions, and therefore focus primarily on the somewhat static interaction between independent entities. Recall for a moment the example of the artist attempting to paint a portrait of a subject who is in perpetual motion – similar to the dynamics surrounding the globalized supply practice. While the artist may capture for a brief moment a portion of the image on canvas, the reality is that the effort will always be a work in progress, and therefore will never be able to provide a complete or true picture. As with the introduction of DUET’s ERP access points through Microsoft Office products such as Excel, while you can improve the quality of the paint the artist is using, add more advanced lighting, and even improve brush stroke speed and techniques, the fact remains that the end result is unlikely to change in any significant way. The only way to achieve the desired result is to create an environment where the subject is stationary at all times. To be specific, you have to restrict the subject from moving, from doing what is natural. Like the artist’s subject, the globalized supply chain is not static in nature. Now picture if you will, the same “moving” subject being captured on film with a camcorder. Regardless of the time of day or changing locations, the subject is always captured in real-time. In essence, you are now able to adapt and even interact with the subject’s environment. Unlike a painting, when you finish one shot, you can quickly move onto the next, without losing what you have already captured. When required, you have the ability to playback the previous images within seconds. This refers to the adaptive attributes of emerging Spend Management technologies. In this example, you are not asking the subject to change the way they operate in the real-world. Nor are you trying to artificially restrict their natural movements. This of course is at the heart of agent-based modeling. It is also the primary reason why Spend Management data obtained through traditional equation-based ERP applications are static in nature and somewhat incomplete in terms of the picture they provide. 4
  6. 6. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time The fact remains that in today’s dynamic and complex world, it is imperative for business intelligence technology to simultaneously engage all parties to a transaction on a real-time basis, with an ability to provide meaningful data that can meet an evolving set of demands as required. To effectively develop this type of solution, software vendors must abandon equation-based modeling which is driven by interactive assumptions within the confines of a static environment, and replace it with agent-based modeling which is driven by the ability to understand the unique operating attributes of all trading partners on an adaptive, real-time basis. This leads to a synchronization of independent events, which in turn creates an environment of adaptive responsiveness that results in sustainable “best value” decision-making. Can’t See the Forrest(er) For the Trees In a 2002 article Forrester Research’s Navi Radjou linked the lack of flexibility to the inherent problems of enterprise-centric applications from vendors such as Oracle. The specific problem is that batch-based supply chain tools “can’t” support swift resolution of supply chain glitches. The reason he gave is that “these apps need time to collect and synthesize data from multiple sources – even those unaffected by the exception at hand.” Radjou’s conclusions that unlike “static, linear supply networks, the emergence of “adaptive supply networks” which will be powered by multi- partner processes that are event driven, real-world aware and self- regulating” coincides with Procurement Insights supply chain expert Jon Hansen’s conclusions in Parts 6 and 7 of his critically acclaimed Dangerous Supply Chain Myths series. In the “Myths” postings, Hansen referred to the meta-enterprise applications which can create “on-the-go” real-world metrics that can be reliably incorporated into all purchasing decisions on a real-time basis to the benefit of all stakeholders. 5
  7. 7. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time However, the meta-enterprise application referenced in the Myths series of articles goes beyond the “loosely coupled” supply networks discussed in Radjou’s findings by envisioning solutions that adapt to and therefore seamlessly captures and integrates intelligence such as Spend Management into the multiple stakeholder supply chain. A Point of Context As referenced in the previous sections, traditional ERP vendors were compelled to team-up or partner with organizations such as Microsoft to address the inefficiencies and inconsistencies inherent in the gap between desktop productivity and their business applications. This of course included an attempt to satisfy the need for the timely availability of information to drive proactively effective purchasing decisions. Conversely, and providing what is simply one of the most powerful Spend Management solutions available in the industry today, Zycus’ intuitive user interface “evolved naturally as an original element of their suite’s evolution to excellence strategy.” Compare this with being an adjunct by-product borne out of an urgent necessity to address the limitations associated with traditional ERP-centric Spend Management solutions and the difference between the two approaches is compelling. And while Zycus’ cutting-edge technology and domain expertise is specifically geared towards increasing organizational user adoption while simultaneously driving sustainable savings, the organization dogmatically adheres to the edict that one must focus on “the results that Spend Management technology can achieve rather than just the technology itself.” In essence the Zycus value proposition is centered on the intuitive elements of a technology that has clearly been formed around understanding and adapting to the user experience in the real-world. By using this non- technological approach to technology development, the complexity that drives the Zycus suite’s results engine remains hidden behind the outward- facing simplified user-interface. 6
  8. 8. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time On A Clear Day You Can See Forever While timely access to data is important, it is the quality of the information that ultimately determines its effectiveness. So while ERP vendors attempt to streamline or simplify multiple access points to Spend Management data, it is Zycus’ insightful intelligence that has made it the world’s leading provider of Spend Management solutions to global 1,000 companies. In fact, Zycus boasts more than 150 customers in over 16 countries around the world, which is a true testimony to the universal appeal of a solution that has set the standard for intelligence gathering and utilization. Zycus’ Spend Analysis tools are comprised of two complimentary modules; Auto class and Analytics. In a recent interview with a senior executive from the company, he described the unique attributes of each module. Auto class as described by the executive, “is an Artificial Intelligence-based auto-classification engine, while Analytics helps sourcing professionals go into the depths of the classified data through its intuitive objective driven process that provides unparalleled detailed visibility into an organization’s spend.” The Analytics module also has an “inbuilt Opportunity Finder that discovers hidden savings, compliance leakages and procurement process inefficiencies.” According to the Zycus executive, this capability helps clients to “identify as well as both validate and scale an opportunity,” resulting in a tangible savings outcome that can be used by the finance department to compare actual performance to procurement related targets. This of course is emblematic of the Zycus win-win outcome in that the Spend Analysis tools represent the amalgam of the ideal solution in that they satisfy the real-time intelligence requirements of the purchasing department while seamlessly interfacing with the finance department’s current platform and related objectives. Or as the Zycus executive so eloquently stated, “we provide a win-win solution that effectively merges the diverse interests of the emerging global supply practice. 7
  9. 9. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time Calculating the Impact Far too often business intelligence in one area of an enterprise is not necessarily recognized or at least given the same degree of importance or priority when it comes to an organization’s overall operations. Given the above, a strategic industry survey was conducted by Procurement Insights which asked the following question: “What is the primary source of business intelligence such as Spend Management within your current organization?” The responses were telling in that almost every answer looked at the issue of Spend Management from a financial versus operational perspective. And while the general consensus based on survey results clearly demonstrated that Business Intelligence, particularly Spend Management, was still considered to be a core function of a financial ERP system, there was an emerging trend that indicated a potential shift in popular opinion. Specifically, the growing recognition that the “Key Performance Indicators (KPI) that are normally considered to be important to the purchasing department is not normally available in a finance department ERP system.” And in line with similar trending in related surveys, there was a general belief that the role of the finance department “is to facilitate the creation of tools needed to measure improvement,” and that finance should be “an impartial scorekeeper, as it is up to operations to actually make things work.” This apparent shift in both defining and selecting Spend Management tools to one that is centered more on stakeholder collaboration versus stakeholder compliance with an existing platform signals an important breakthrough. In essence, innovative solutions such as the Zycus suite are no longer being viewed as a mere “bolt-on” application that is designed to bridge the gaps in ERP system capabilities while still operating within what many consider to be the limiting confines of an ineffective architecture. 8
  10. 10. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time That said calculating the ROI relative to implementing a Spend Management solution still has to be “calibrated” with the traditional financial metrics that clearly define bottom line contributions in key areas such as; a) Return on Invested Capital (ROIC), b) Cost of Capital, c) Economic Value Add (EVA), d) Earnings Per Share (EPS), and e) P/E Ratio. While the above metrics have not traditionally been associated with the implementation of a supply practice or purchasing solution, recent studies which indicate that CFOs discount 73% of all savings claimed by the purchasing department as being either invalid or irrelevant is a clear indication that an important disconnect is impeding the transition to the aforementioned collaborative approach to selecting and implementing a Spend Management Solution. Therefore, those vendors who are able to calculate savings that can be funnelled or linked to a meaningful finance department outcome will have a decided advantage in terms of demonstrating the value of their specific solution and as a result receive the necessary buy-in from the ultimate decision-makers. And referencing their win-win approach, this is where the Zycus organization is particularly strong. 9
  11. 11. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time Spend Management Solutions Zycus Spend Management solutions are designed to ensure overall success of an organization's spend management program by helping sourcing professionals ANALYZE their spend deeper and wider, PLAN their sourcing strategies, and SOURCE easily and completely - a repeatable and sustainable cycle that ensures  Greater alignment between spend management and corporate objectives - Zycus Spend Management solutions and applications embed innovative processes, global best practices and planning abilities that takes procurement and sourcing organizations closer to the corporate objectives. Benefit : Greater buy-in on spend management initiatives.  Enhanced user adoption - Zycus ensures higher user adoption by providing Spend Management solutions that are super easy-to-use and require ZERO training. Zycus uses Web 2.0 technologies to design various features like drag-and-drop, interactive scoring and ranking to make the software as easy to use akin to emailing. Benefit : Greater user adoption ensures realization of savings opportunities.  Enhanced and sustainable savings - Zycus helps companies identify, manage and track savings opportunities thus minimizing the savings leakage and ensuring sustainable savings. With such abilities as to plan and negotiate, deeper and wider spend visibility, and greater process control, organizations can ensure enhanced savings on a repeatable basis. Benefit : Greater control accelerates the realization of savings targets. Analyze Spend & Identify Source and Implement Manage Savings & Savings Opportunities Savings Contract Compliance Spend Analysis Strategic Sourcing Contract Management Solutions  Zycus AutoClass  Zycus iSource  Zycus iContract  Zycus iAnalyze  Opportunity Identification  Contract Audit Services Services  Opportunity Identification Services  Category Sourcing  Contract Digitization & Migration  Event Management Differentiators  Artificial Intelligence (AI) Based  Powerful & Easy Event Modeling  Contract Compliance Classification Engine  Exhaustive & Easy Analysis  Contract to Market Indices Linkages  Opportunity tracker  Powerful & Easy Collaboration  Guided & Free Text Search About Zycus Inc. 10
  12. 12. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time About Zycus Zycus continues to deliver on its heritage of providing easy-to-use integrated spend management solutions that are world renowned and trusted for delivering an accelerated return on investment through superior user adoption. Delivered as Sostware as a Service (SaaS), Zycus solutions are built from the ground up combining innovative technology, and domain expertise. Zycus provides global spend management solutions to more than 150 leading global customers that consider spend management software, process and technology strategic to their competitive advantage. Zycus Spend Management solutions automate and streamline the processes of spend analysis, strategic sourcing and contract management. Zycus has more than 300 employees across North America, Europe and Asia-Pacific. To learn more about Zycus, e-mail or visit © Zycus Inc. 2009 11
  13. 13. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time About the Author Jon Hansen has studied and written extensively about e-Procurement and the changing face of procurement around the globe. In addition to being a highly acclaimed international speaker, his Procurement Insights Blog reaches 300,000 syndicated subscribers each month worldwide, and is currently available in several languages. He has written more than 200 articles and papers on subjects ranging from supply chain optimization and the utilization of agent-based modeling in the software development process to the evolution of sustainable purchasing practices and the impact of traditional ERP-centric implementation methodologies on the high rate of supply chain initiative failures. Funded by the Government of Canada’s Scientific Research and Experimental Development (SR&ED) program Jon’s work in both identifying the existence of Commodity Characteristics as well as defining and recording their impact on “best value” purchasing practices represented a seminal breakthrough that led to the establishment of new theories surrounding the practical utilization of synchronized platforms in achieving sustainable coordinated savings and overall process efficiencies. Jon is also the host of the highly acclaimed PI Window on Business Show on Blog Talk Radio (BTR). As a BTR Network featured host, Jon has welcomed leaders and bestselling authors from the world of business discussing both timely and thought provoking topics. The PI Window on Business Show airs every Tuesday and Thursday between 12:30 and 1:15 PM EDT. Other white papers by Jon Hansen: The Greening of Procurement: How Social Consciousness is Re-Shaping Procurement Practices Yes Virginia! A Profile in Excellence To obtain copies of the above referenced white papers, or to inquire about Jon’s availability to speak at your next conference or seminar contact Jennifer Cameron at, or 819-986-8953. 12
  14. 14. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence In Real-Time White Paper Appendices 13
  15. 15. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time APPENDIX A Page 2 (Duet Reference); Doing What Comes Naturally: Accessing Zycus Spend Management Innovation through A Simplified and Practical User Interface (Zycus Inc. Profile), Procurement Insights Profile of Zycus (October 23, 2008) Page 2 (camcorders versus canvasses Reference); Similarity Heuristics, Iterative Methodologies and the Emergence of the Modern Supply Chain, Procurement Insights article (April 8, 2008) Page 2 (FOSS Reference); The FOSS(ilization) of the supply chain: The risks of a strategy centered on Free and Open Source Software, Procurement Insights Article (September 27, 2007) Page 5 (Navi Radjou Reference); Double Marginalization and the Decentralized Supply Chain Revisited, Procurement Insights article (July 16, 2008) Pages 8, 9 (KPI Reference); Bridging the Communications Gap Between Finance and Purchasing, Procurement Insights Article (September 27, 2007) Page 9 (CFOs discount 73% Reference); Is There a Difference Between Purchasing and Procurement? (A PI Q&A), Procurement Insights article (January 31, 2008) 14