IASTA's Using Spend Analysis to Smooth the M&A Path (featuring Forrester Research & Ciena) with Q&A


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Using Spend Analysis to Smooth the M&A Path: 4 Steps to Consolidate Your Purchasing Power.

September 21, 2011 @ 11am EST

Sponsored By Iasta
Featuring Forrester and Ciena

Spend visibility is critical in helping your organization consolidate its purchasing power, particularly during post-M&A spend management efforts. In fact, Most post-M&A spend analysis efforts yield a savings of 7-10 the project investment. It's no surprise the demand for automated spend analysis tools is expected to grow by more than 40% from 2010 to 2012.

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  • IASTA's Using Spend Analysis to Smooth the M&A Path (featuring Forrester Research & Ciena) with Q&A

    1. 1. Using Spend Analysis to Smooth the M&A Path 4 Steps to Consolidate Your Purchasing Power
    2. 2. Speakers
    3. 3. Audience Profile What's the biggest Spend Management challenge you face? Consolidation & mgnt of supplier info Contract compliance/ high maverick spend Spend data analysis/ reporting Manual RFX creation/ supplier analysis Spend visibility/ granularity = 71% Has your company been involved in or have plans for a M&A within the next 12 months?
    4. 4. The Many Sources of Value from Spend Analysis <ul><li>Andrew H. Bartels Vice President and Principal Analyst </li></ul>
    5. 5. Spend analysis is a critical element in any company’s efforts to improve the results of its purchasing activities – especially for larger and more complex businesses or those undergoing mergers and acquisitions
    6. 6. Spend analysis is the first stage in the eight-stage ePurchasing process 1. Spend analysis 3. Supplier identification 4. Sourcing 5. Contract life-cycle management 6. Procurement 7. Order fulfillment (services procurement) 8. Electronic invoice processing and presentment 2. Supplier assessment New category: Supplier risk and performance management Supplier network services
    7. 7. Three approaches to spend analysis <ul><li>Reports of transaction systems (ERP, procurement, etc.) </li></ul><ul><ul><ul><li>Pros: Cheap, leverages existing systems </li></ul></ul></ul><ul><ul><ul><li>Cons: Data quality generally poor and incomplete </li></ul></ul></ul><ul><li>2. Manual analysis of POs, invoices, receipts, etc. </li></ul><ul><ul><li>Consultants help sort and categorize POs and invoices </li></ul></ul><ul><ul><ul><li>Pros: Cost-effective one-time snapshot of spending </li></ul></ul></ul><ul><ul><ul><li>Cons: Expensive to repeat </li></ul></ul></ul><ul><li>3. Automated spend analysis </li></ul><ul><ul><li>Specialist software vendors provide automated tools </li></ul></ul><ul><ul><ul><li>Pros: Fast, repeatable, complete </li></ul></ul></ul><ul><ul><ul><li>Cons: Training system to improve accuracy; cost </li></ul></ul></ul>
    8. 8. Who needs automated spend analysis? Single ERP A few ERPs Multiple ERPs TECHNOLOGY COMPLEXITY Definitely yes! Probably yes! Possibly yes. Multiple markets, multiple industries Single market, single industry BUSINESS COMPLEXITY Enterprises in multiple markets and multiple industries with multiple ERPs benefit the most
    9. 9. Who needs automated spend analysis? Enterprises engaged in mergers and acquisitions Acquiring company’s spend categories Acquired company’s spend categories Merged companies’ spend categories <ul><li>Many corporate acquisitions and mergers are justified on the basis of cost savings </li></ul><ul><li>Consolidation of spending and increased discounts from higher category spend are two important sources of cost savings </li></ul><ul><li>Spend analysis tools allow companies to assess quickly the size and areas of potential savings </li></ul>
    10. 10. Automated spend analysis <ul><li>Benefits </li></ul><ul><ul><li>Identifying opportunities to consolidate spending and get volume discounts </li></ul></ul><ul><ul><li>Sarbanes-Oxley compliance </li></ul></ul><ul><ul><li>Assessing compliance with and results of past sourcing activities </li></ul></ul><ul><li>What’s involved </li></ul><ul><ul><li>Defining a product taxomony, generally starting with UNSPSC </li></ul></ul><ul><ul><li>Importing file of PO/invoice/receipt data </li></ul></ul><ul><ul><li>System cleanses, normalizes, categorizes and enriches data </li></ul></ul><ul><ul><li>Detailed reports and analytical tools </li></ul></ul>
    11. 11. Other sources of value <ul><li>Improved employee and supplier compliance with sourcing policies </li></ul><ul><li>Improved master data management </li></ul><ul><li>Improved employee satisfaction and work performance through simplified purchasing of needed services </li></ul>
    12. 12. Demand for automated spend analysis tools is growing Number of companies with automated spend analysis tools Annual vendor revenues for automated spend analysis tools US$ millions Source: Forrester Research, Inc., based on vendor data from 14 vendors
    13. 13. What to look for in a spend analysis solution <ul><li>Ability to cleanse, normalize, and categorize spend data from a variety of sources </li></ul><ul><li>Efficiency of analysis engine – how much data can it handle, how quickly can it generate results, what level of accuracy? </li></ul><ul><li>Structure of analysis engine: </li></ul><ul><ul><li>Rules-based engines work best on direct and indirect materials </li></ul></ul><ul><ul><li>Artificial intelligence engines are best for services </li></ul></ul><ul><li>In-house software or outsource service? </li></ul><ul><li>Experience in analyzing spend in your industry </li></ul><ul><li>Integration with sourcing tools </li></ul><ul><li>Portfolio of analytical reports and data views </li></ul><ul><li>If you’re a multi-national, language and currency support </li></ul>
    14. 14. Different vendors use different spend classification algorithms April 2008 “Market Overview 2008: Automated Spend Analysis”
    15. 15. General issues in spend analysis <ul><li>Setting up the right taxonomy of spend categories </li></ul><ul><ul><li>Start with UNSPSC </li></ul></ul><ul><ul><li>But probably will need to customize </li></ul></ul><ul><li>Determining frequency of analysis </li></ul><ul><ul><li>Once a quarter to once a month is optimal </li></ul></ul><ul><ul><li>Once a year is too infrequent </li></ul></ul><ul><ul><li>Once a week or once a day is too frequent! </li></ul></ul><ul><li>Determining who sees results </li></ul><ul><ul><li>Aggregate results to CPO, CFO </li></ul></ul><ul><ul><li>Category results to relevant business units </li></ul></ul><ul><ul><li>Detailed results to sourcing project teams </li></ul></ul><ul><li>Integrating with eSourcing </li></ul><ul><ul><li>Take outputs of the analysis of a spend category and port them directly into a RFx for that category </li></ul></ul>
    16. 16. International issues in spend analysis <ul><li>Multiple language support </li></ul><ul><ul><li>Mutlinational companies operate in many countries with many languages </li></ul></ul><ul><ul><li>Ability of tool to handle invoices, POs, and receipts in many languages is critical </li></ul></ul><ul><li>Cross-border mergers and acquisitions </li></ul><ul><ul><li>European M&A involves regulatory constraints that limit ability to consolidate and rationalize ERP systems </li></ul></ul><ul><ul><li>Increases importance of a spend analysis tool to consolidate spend data from across all units </li></ul></ul>
    17. 17. Recommendations <ul><li>For large or diverse companies, automated spend analysis is a critical element in spend management </li></ul><ul><li>Choose an automated spend analysis tool that meets your requirements and budget </li></ul><ul><li>Create your spend category taxonomy before doing analysis </li></ul><ul><li>Start with semi-annual analysis, then move to quarterly, then to monthly </li></ul><ul><li>Act on the information! Avoid analysis for analysis sake </li></ul>
    18. 18. Deploying Spend Analytics in a Post-Merger Environment Seth Balsam Director, Global IT Procurement September 21 st , 2011
    19. 19. Ciena: a global leader in the optical networking industry <ul><li>Global leader in high-capacity networking </li></ul><ul><li>Global leader in network/service automation and mesh switching </li></ul><ul><li>Global leader in OTN </li></ul><ul><li>Emerging leader in Carrier Ethernet and converged packet-optical and networking </li></ul>Technology leadership 1 Dell’Oro optical market share estimates as of calendar Q3 2010 2 Heavy Reading Q2 2010 market estimate 3 Ciena analysis based on network operator annual revenue <ul><li>#1 share in metro and long-haul optical in North America 1 and #3 share worldwide 1 </li></ul><ul><li>#1 share in fiber-based Ethernet access 2 </li></ul><ul><li>Only supplier with commercially available 100G solutions </li></ul><ul><li>Built the market’s largest optical mesh networks </li></ul>Market leadership A global supplier serving 80% of the world’s 20 largest network operators 3 , leading enterprises, and government agencies
    20. 20. Ciena doubled in size with acquisition of Nortel With this acquisition came the pressure to identify savings and synergy opportunities as quickly as possible <ul><li>Fiscal 2008 revenue of US $902 million </li></ul><ul><li>~350 customers worldwide </li></ul><ul><li>2,110 employees worldwide </li></ul><ul><li>leader in practical innovation with strengths in network automation, switching and optical/Ethernet convergence </li></ul><ul><li>Fiscal 2008 revenue of US $1.36 billion; first 6-mos 2009 US $556 million (unaudited) (acquired assets only) </li></ul><ul><li>~400 customers worldwide </li></ul><ul><li>~2,300 employees worldwide </li></ul><ul><li>leader in network innovation with strengths in high-capacity optical transport and connection-oriented Ethernet </li></ul>METRO ETHERNET NETWORKS
    21. 21. Ciena’s indirect team is new to the sourcing group <ul><li>What Was Going Well </li></ul><ul><ul><li>Improved organizational “fluency” and awareness around procurement </li></ul></ul><ul><ul><li>Strong degree of cooperation from most stakeholders </li></ul></ul><ul><ul><li>Vendor response to “new Ciena” </li></ul></ul><ul><ul><li>Synergy expectations </li></ul></ul><ul><li>What Was Not Going So Well </li></ul><ul><ul><li>Lacked spend visibility </li></ul></ul><ul><ul><li>Demand for savings associated with merger synergies </li></ul></ul><ul><ul><li>Need to focus sourcing efforts on dollars & savings </li></ul></ul><ul><ul><li>Too much manual effort around data extraction and review </li></ul></ul>
    22. 22. Struggling with spend analysis, the merger compounded the situation <ul><li>No central data repository </li></ul><ul><li>Oracle extraction efforts were “blunt force” efforts, no legacy Nortel SAP data was included in the deal </li></ul><ul><li>Indirect data wasn’t a focus until shortly before the deal was announced </li></ul><ul><li>Data wasn’t cleansed or structured </li></ul><ul><li>High degree of manual effort to determine basics (top vendors, top categories, total spend) </li></ul><ul><li>Push to identify merger synergies fast </li></ul><ul><li>Huge demand for analytics </li></ul><ul><li>Budget made available </li></ul><ul><li>Willingness to try new solutions </li></ul><ul><li>On-demand solutions met the price point </li></ul><ul><li>Nothing to lose, everything to gain </li></ul>
    23. 23. Search for appropriate tool was bounded by ease-of-use and timing requirements Specific reporting formats and categories required Ability to scale quickly, cost effectively once application gained adoption within organization End-user friendliness guaranteed adoption <ul><li>Quick deployment – 1 st time use had to be short; Ciena resource requirements to be minimized </li></ul><ul><li>Minimal investment required </li></ul><ul><li>Low risk </li></ul>
    24. 24. Implementing Spend Analytics allowed us to disaggregate spend across suppliers & categories Credibility, Leverage for Supplier Negotiations Enhanced Data Insight <ul><li>First time the combined organization had easy-to-manipulate spend data at their fingertips </li></ul><ul><li>Post-Merger leverage: Insight into how legacy organizations were using common suppliers </li></ul><ul><li>Drill-Down functionality allowed granular analysis </li></ul>Customized Reporting Improved Adoption RESULTS
    25. 25. Implementing Spend Analytics allowed us to disaggregate spend across suppliers & categories Credibility, Leverage for Supplier Negotiations Enhanced Data Insight <ul><li>Analyst support helped accelerate adoption across direct and indirect organizations </li></ul><ul><li>Category-based reports popular – “roll-ups” or “bookmarks” based on UNSPSC allow specific commodity views </li></ul><ul><li>Added surprise: Adoption by spend owners outside of procurement </li></ul>Customized Reporting Improved Adoption RESULTS
    26. 26. Implementing Spend Analytics allowed us to disaggregate spend across suppliers & categories Credibility, Leverage for Supplier Negotiations Enhanced Data Insight <ul><li>True, cross-organizational, cross-commodity spend views allowed us to talk credibly with suppliers about post-merger spend </li></ul><ul><li>Ability to track committed spend vs. actual </li></ul><ul><li>Rogue spend identification eased </li></ul>Customized Reporting Improved Adoption RESULTS
    27. 27. Lessons learned <ul><li>Work with a partner that will be flexible and supportive as you start the journey. Imperfect data and process knowledge require a perfect partner. </li></ul><ul><li>Ensure underlying data query is accurate, especially when extraction is coming through a reporting tool. </li></ul><ul><li>A dedicated resource helps speed adoption through report design and tool discovery. Sometimes, “adult supervision” is indeed required.... </li></ul><ul><li>The one-time upfront manual review effort of uncategorized transactions is required for good results, but pays huge dividends. </li></ul><ul><li>While 80:20 is good, remember that 90:10 is better: Categorization rules made for larger spend amounts also apply to smaller items – some providers don’t leverage this fact. Make sure to tailor your SLAs accordingly. </li></ul>
    28. 28. Procurement Enablement <ul><li>Data visibility exists as the key ingredient to a best-in-class procurement operation </li></ul>
    29. 29. Data – The Communicator in Unique Deployments <ul><li>BPO Deployments </li></ul><ul><ul><li>Communication is the primary differentiator between successful and unsuccessful Procurement BPO efforts </li></ul></ul><ul><ul><li>Spend Analysis is an accelerant in BPO scenarios, but also a common source of information shared by in-house and remote teams </li></ul></ul><ul><li>Multinational Deployments </li></ul><ul><ul><li>When combined with other data (sourcing, resource planning data), as with Iasta’s CPO Dashboard, a spend analysis platform allows collaboration </li></ul></ul>
    30. 30. Means vs. Ends <ul><li>Most of the “ Means ” of Spend Analysis are similar… </li></ul><ul><ul><li>Raw data is cleansed, rationalized, or enriched </li></ul></ul><ul><ul><li>Data transformation occurs in software to ensure iterative refresh success </li></ul></ul><ul><ul><li>Data is delivered and experienced by end user through interactive reporting </li></ul></ul><ul><li>… but the “ Ends ” often differ. </li></ul><ul><ul><li>Procurement Transformation </li></ul></ul><ul><ul><li>Category-Specific Savings </li></ul></ul><ul><ul><li>Regional/Departmental Politics! </li></ul></ul><ul><ul><li>Data Control </li></ul></ul>
    31. 31. Q&A Please submit your questions…
    32. 32. Question 1 <ul><li>We have both an ERP system & BI (business intelligence) system that provides spend reports. Why can’t these suffice? </li></ul><ul><ul><li>The key reason comes back to data and the level of data gained from ERP / BI vs. automated spend analysis solution. </li></ul></ul><ul><ul><li>Typically the data in an ERP system is going to be at the level of detail needed for a general ledger. For example, how much have you bought in computer equipment? But knowing how much you bought on computer equipment is not very useful if you want to go out and do sourcing. </li></ul></ul><ul><ul><li>Automated spend analysis gives you the ability to drill down to give much more detailed information to explain what you bought, when you brought it, who bought it, and for how much. </li></ul></ul><ul><ul><li>Good spend analysis providers can also bring in data from purchasing scorecards, such as important contract data, supplier risk, etc. </li></ul></ul><ul><ul><li>There are a lot of powerful spend analysis solutions available in the marketplace that give you the ability to bring in multiple systems with multiple dimensions to bring in much more power. </li></ul></ul>
    33. 33. Question 2 <ul><li>What was the most difficult part of the deployment and how long did it take to implement? </li></ul><ul><ul><li>I think we had our spend analysis dashboard up and running in about 6-7 weeks from the time we had our data extracts complete and handed off to Iasta. </li></ul></ul><ul><ul><li>The most difficult part was when we needed to make a pass from that famous category 99 – which is the question mark category. We had to pick up all of the stuff the machine didn’t get because it wasn’t clearly articulated what was purchased. We wound up taking that category and splitting it up across all commodity managers to go through it manually to make sure we captured everything. I would say that was the tough part, even though while the system was up and running so I wouldn’t add that to the deployment timeline. </li></ul></ul><ul><ul><li>Even though it was a manual process for some category mangers to go through and clean up those last bits and pieces to get more granular rules in place, once you do it- it’s done. The data becomes the Holy Grail. </li></ul></ul>
    34. 34. Question 3 <ul><li>What advice do you have for companies who do a POC (proof of concept) before implementing a spend analysis solution? </li></ul><ul><ul><li>Every company has different data – so it’s extremely important for us to get involved with client / prospect to understand the data and help identify the categories that they are looking into exploring for new opportunities. </li></ul></ul><ul><ul><li>Iasta takes the time to meet with the client to develop the reports they would like to see during the POC demonstration, including target categories. </li></ul></ul><ul><ul><li>This process helps us become much more intimate with the data and that’s important for a successful POC. </li></ul></ul>
    35. 35. Question 4 <ul><li>How can you justify ROI for a spend analysis implementation? </li></ul><ul><ul><li>Through the cost savings achieved from gaining supplier and spend visibility, compliance, risk management, and a sourcing pipeline developed through the classification and reporting of your spend analysis partner. </li></ul></ul><ul><ul><li>Iasta works with its clients to make spend dada actionable, benchmarking past sourcing experience against current client data to determine prime categories to source, identify supplier rationalization opportunities, isolating price variances and off-contract spend, and so on. </li></ul></ul>
    36. 36. Question 5 <ul><li>How do you recommend teams build a solid case for spend analysis? </li></ul><ul><ul><li>Gather references </li></ul></ul><ul><ul><li>Review case studies </li></ul></ul><ul><ul><li>Participate in a proof of concept </li></ul></ul><ul><ul><li>Read analyst research </li></ul></ul><ul><ul><li>Ensure the solution can bring in 3 rd party data and other data, such as sourcing project details gained from Iasta’s CPO dashboard. Other data to bring in includes: </li></ul></ul><ul><ul><ul><li>Supplier performance management </li></ul></ul></ul><ul><ul><ul><li>Contract compliance </li></ul></ul></ul><ul><ul><ul><li>Risk management </li></ul></ul></ul><ul><ul><ul><li>Benchmarking </li></ul></ul></ul><ul><ul><li>Once the POC is complete and you have gathered this information, put together a presentation for key stakeholders that includes opportunities discussed in the POC and learned their your research. Overall, demonstrate the value that spend analysis will bring to your organization. </li></ul></ul>
    37. 37. Question 6 <ul><li>Andrew discussed 3 approaches to spend analysis (reports of transaction systems, manual analysis of PO’s, invoices, tec. and automated spend analysis)- which would you say is most frequently used today? </li></ul><ul><ul><li>Most of Iasta’s clients / prospects were using manual analysis prior to implementing SmartAnalytics®. </li></ul></ul><ul><ul><li>They were typically pulling data from their ERP systems and writing it out or creating reports. However, that process is often time consuming and difficult to manage. </li></ul></ul><ul><ul><li>Iasta can generally replicate the reports our clients / prospects are using in SmartAnalytics to gather the same information they are needing at much quicker rate. </li></ul></ul>
    38. 38. Question 7 <ul><li>How long does it typically take to deploy a spend analysis solution? </li></ul><ul><ul><li>Best-in-class spend analysis partners can deploy a solution in a timeframe of 4-10 weeks when focused on providing clean, sustainable data to the client. </li></ul></ul><ul><ul><li>Best practice is to use a combination of classification software and data professionals to bring the data to a certain state out of the box and then audit the work of the software to ensure accuracy from implementation through refreshes. </li></ul></ul><ul><ul><li>  Iasta will create business rules for any audited data that will be stored in the software to ensure that future classifications are automatic, quick, and consistent. </li></ul></ul>
    39. 39. Question 8 <ul><li>How does “good” data impact the deployment process? </li></ul><ul><ul><li>All companies can benefit from undergoing a cleansing and classification process, no matter how clean the data may seem. </li></ul></ul><ul><ul><li>In terms of deployment, the more information given in a clean format will most likely spend up the process. </li></ul></ul>
    40. 40. Question 9 <ul><li>In Ciena’s case, user adoption of its spend analysis solution spread quickly to other business units. What advice do you have for companies looking to collaborate with other business units / stakeholders using spend data? </li></ul><ul><ul><li>The key is to start out small in procurement, get some wins and gain confidence throughout the organization. </li></ul></ul><ul><ul><li>Then, you can slowly gain user count and train the users to build usage across departments. </li></ul></ul><ul><ul><li>Strive to maintain procurement as a Center of Excellence and bring in other business units with additional tabs / reporting information that is segmented by unit, stakeholder, department, etc. </li></ul></ul><ul><ul><li>Use bookmarks, shared reports, and so on to keep driving adoption and collaboration. </li></ul></ul>
    41. 41. For more info www.eSourcingWiki.com Iasta European HQ Hartham Park Corsham, Wiltshire SN13 0RP United Kingdom Operations: +44.(0).870.199.4060 Sales: +44.(0).1249.700726 www.Twitter.com/Iasta eSourcing | forum www.eSourcingForum.com www.LinkedIn.com Iasta Alliance Group www.Iasta.com Iasta Global HQ 12800 N. Meridian St. Suite 425 Carmel, IN 46032 United States of America Operations: 317.594.8600 Sales: sales@iasta.com eSourcing | wiki
    42. 42. Related Materials <ul><li>White Papers </li></ul><ul><ul><li>Keys to Unlocking Your Sourcing Power </li></ul></ul><ul><ul><li>Spend Analysis: It's what you don't know that costs you </li></ul></ul><ul><ul><li>Dynamic Procurement: The CPO as Collaborator, Innovator and Strategist </li></ul></ul><ul><li>Case Studies </li></ul><ul><ul><li>Gaining Insight into Key Suppliers & Contracts with a Spend Analysis Implementation </li></ul></ul><ul><li>eSourcingWiki Articles </li></ul><ul><ul><li>Spend Analysis and Opportunity Assessment </li></ul></ul><ul><li>eSourcingForum Posts </li></ul><ul><ul><li>6 Steps to Implementing Spend Analysis: Procrastination is not the 1 st step </li></ul></ul><ul><ul><li>Creating a Different Conversation around spend Analysis projects </li></ul></ul><ul><li>Iasta Solutions </li></ul><ul><ul><li>SmartAnalytics </li></ul></ul><ul><ul><li>Spend Analysis Services </li></ul></ul>