Spend Analysis Aug28


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Presentation by John Coster, Strategic Sourcing and Procurement Consultant from Solusoft

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Spend Analysis Aug28

  1. 1. Increasing Profit during the Global Economic Crisis Solusoft’s Management Excellence Series Strategic Sourcing Best Practices
  2. 2. Contents <ul><ul><li>Objectives </li></ul></ul><ul><ul><li>The “New” Solusoft Overview </li></ul></ul><ul><ul><li>Global Economic Crisis Pressures on Corporations </li></ul></ul><ul><ul><li>Profit from Purchasing </li></ul></ul><ul><ul><li>How To Identify Savings Opportunities </li></ul></ul><ul><ul><li>Savings Examples </li></ul></ul><ul><ul><li>Solusoft’s Category Spend Analysis Service </li></ul></ul><ul><ul><li>Additional Purchasing Services from Solusoft </li></ul></ul>
  3. 3. Objectives <ul><ul><ul><li>To communicate Solusoft’s new business strategy as a trusted business & IT advisor </li></ul></ul></ul><ul><ul><ul><li>To provide ideas for identifying savings opportunities and increasing profit </li></ul></ul></ul>
  4. 4. Solusoft Historically: Solusoft is well known as an Oracle Database administration outsourcing services provider as well as a reseller of software like NetSuite & Oracle software licenses and support. Additionally: Solusoft is a Business Consulting & IT Solutions provider. Our seven core services include Business Technology Optimization, Enterprise Performance Mgt, Financial Mgt, Human Capital Mgt, Outsourcing, Service Oriented Architecture & Supply Chain Mgt.
  5. 5. Solusoft’s Purchasing Value Proposition <ul><li>Purchasing is part of Solusoft’s SCM Core Service </li></ul><ul><li>Staff with strong strategic sourcing & purchasing strategy experience </li></ul><ul><li>Allows Solusoft to be a trusted Business & IT advisor </li></ul><ul><ul><li>John Coster is Solusoft’s strategic sourcing expert </li></ul></ul><ul><ul><li>23 years of experience mostly in Financial Services industry </li></ul></ul><ul><ul><li>Was responsible for over $100 Million spend annually </li></ul></ul><ul><ul><li>Was responsible for over $50 Million annual savings </li></ul></ul><ul><ul><li>Experienced during other economic downturns </li></ul></ul><ul><ul><li>Linkedin account details experience & references </li></ul></ul>
  6. 6. <ul><li>Sales are decreasing </li></ul><ul><li>Profits are down </li></ul><ul><li>Jobs are being eliminated </li></ul><ul><li>Projects are on hold </li></ul><ul><li>Other expenses are being questioned </li></ul><ul><li>Costs of Goods keep rising </li></ul>Corporate Global Economic Crisis Pressures Strategic Procurement!!!
  7. 7. Increase ROI by Increasing Savings <ul><li>Dollars spent on goods and services are operating expenses </li></ul><ul><li>Reducing operating expenses increases ROI </li></ul><ul><li>Example: </li></ul><ul><li>Company A with $100M spend under purchasing </li></ul><ul><li>Purchasing is Tactical, not Strategic </li></ul><ul><li>Savings Potential $14M (Aberdeen Group 2005 14.4%) </li></ul><ul><li>Using: </li></ul><ul><li>Profit Margin = OI / Sales </li></ul><ul><li>Asset Turnover Rate = Sales / Total Assets </li></ul><ul><li>ROI = Profit Margin x Asset Turnover Rate </li></ul>
  8. 8. Increase ROI by Increasing Savings Recent Annual Report: Net Sales = $967M Operating Income = $167M Total Assets = $88M Profit Margin = 17% Asset Turnover Rate = 11 ROI = 18% With Strategic Sourcing: Savings = $14M Total Assets = $74M Profit Margin = 17% ATR = 13 ROI = 22% $14M savings equals $82.4M of new sales Or an 8.5% increase in sales
  9. 9. Profit from Purchasing <ul><li>Changing from Tactical to Strategic </li></ul><ul><ul><li>Apply Process Improvements </li></ul></ul><ul><ul><li>Reduce Suppliers </li></ul></ul><ul><ul><li>Manage Suppliers Effectively </li></ul></ul><ul><ul><li>Use Competitive Bids vs. 3 quotes method </li></ul></ul><ul><ul><li>Use Cross-Functional Teams </li></ul></ul><ul><ul><li>Better Contract Terms & Conditions </li></ul></ul><ul><ul><li>Choose Value vs. price </li></ul></ul><ul><ul><li>Consider Outsourcing, e-Sourcing </li></ul></ul><ul><ul><li>Solidify Policies & Procedures </li></ul></ul><ul><ul><li>Implement Spend Analysis </li></ul></ul>
  10. 10. Benefits of Strategic Sourcing
  11. 11. How to Best Identify Savings Opportunities Knowledge Through Spend Analysis
  12. 12. How to Identify Savings Opportunities <ul><li>Spend Analysis </li></ul><ul><li>Provides the foundation for best-in-class procurement </li></ul><ul><li>Enables management to make more informed decisions </li></ul><ul><li>Enable procurement staff to analyze & understand </li></ul><ul><li>Highlights Potential Savings Opportunities </li></ul>
  13. 13. How to Identify Savings Opportunities <ul><li>Spend Analysis </li></ul><ul><li>Assists during contract negotiations </li></ul><ul><li>Find spending outside of purchasing </li></ul><ul><li>Highlights contract milestone achievements </li></ul><ul><li>Identifies process improvements </li></ul><ul><li>Identifies duplicate payments </li></ul><ul><li>Finds opportunities to leverage like spends </li></ul><ul><li>Helps rationalize suppliers and leverage total spend </li></ul><ul><li>Helps prioritize purchasing events </li></ul><ul><li>Helps with supplier management </li></ul>
  14. 14. Benefits of Spend Analysis <ul><li>Companies with Best-in-Class procurement average 12% more savings using spend analysis </li></ul><ul><li>Represents 75% more savings and 33% more compliance than those companies that are not strategic in their sourcing efforts </li></ul>
  15. 15. Savings Examples Overall Savings Potential Annual Spend - $100,000,000 Average Savings from Strategic Sourcing 14.4% ( Aberdeen 2005 ) - $14,400,000 Additional Savings of 12% due to Spend Analysis - $1,800,000 Travel Commodity Savings Potential Example Annual Spend - $8M Annual Savings from strategic sourcing project 8% - $640,000 ( annually & should be higher ) Additional 12% from Spend Analysis - $77,000 ( annually )
  16. 16. Solusoft’s Category Spend Analysis <ul><li>Identify Target Category </li></ul><ul><ul><li>Working together with Client reviewing high level spend data to identify possible target categories </li></ul></ul><ul><li>Select & Analyze one Target Spend Category </li></ul><ul><ul><li>Solusoft will fully analyze the chosen spend category’s data. Processes, Systems, Policies and Procedures will also be analyzed </li></ul></ul><ul><li>Identification of Recommendations </li></ul><ul><ul><li>Solusoft will create spend reports, spend models and develop process and spend optimization scenarios. The result will identify actions to take to achieve significant savings. These actions will most likely include process changes, policy changes and formal strategic sourcing efforts or any combination thereof. </li></ul></ul>Estimated Project Length of Two Months
  17. 17. Achieving Savings <ul><ul><li>Spend Analysis alone does not create savings, it strategically identifies the opportunities </li></ul></ul><ul><ul><li>The recommendations from a spend analysis MUST be acted upon to realize the savings </li></ul></ul><ul><ul><li>Executive sponsorship is necessary </li></ul></ul><ul><ul><li>Finance Department’s co-operation is necessary </li></ul></ul><ul><ul><li>Internal Auditing must co-operate </li></ul></ul><ul><ul><li>Business Departments must be on-borad & compliant </li></ul></ul><ul><ul><li>Major operational / cultural changes must be managed formally. </li></ul></ul><ul><ul><li>Spend Analysis should be an ongoing program </li></ul></ul>
  18. 18. Additional Purchasing Services <ul><ul><li>Strategic Sourcing & RFP Event Management </li></ul></ul><ul><ul><li>Ongoing Spend Analysis Program Implementation </li></ul></ul><ul><ul><li>Contract Negotiations </li></ul></ul><ul><ul><li>Purchasing Process Improvement </li></ul></ul><ul><ul><li>Organizational Reorganization </li></ul></ul><ul><ul><li>Staff Recruitment Assistance </li></ul></ul><ul><ul><li>Staff Skill-set Evaluation & Training </li></ul></ul><ul><ul><li>Contract Management Solutions </li></ul></ul><ul><ul><li>Supplier Management Solutions </li></ul></ul><ul><ul><li>Procurement Related Software Sales & Implementations </li></ul></ul>