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Spend Analysis - Process, Methodology

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Spend Analysis - Process, Methodology

  1. 1. Strategic Sourcing Webinar Series Spend Analysis – There’s always money to save! Mar 14, 2015 Copyright © 2015 BCube Global Solutions All Rights Reserved
  2. 2. Agenda for Today introduction The presenter, Spend Analysis 1 Types of spend, data & categoriesData sources, categories & sub-categories 2Spend analysis – the process Steps involved in performing a comprehensive analysis 3 Common types of analysis Possible templates – limitless opportunities 4Tools and technology Introduction, tools, challenges 5 Summary, Question & Answ sessionType in your questions or raise your hand.
  3. 3. 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. Achievem ents 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 & Europe Implemented lean manufacturing system at a plant that saved $48 million Trained peers on ERP implementation, lean manufacturing Conducted seminars on Negotiation and Leadership within Terex Corp CPSM Certified (held by less than 1% Supply Chain professionals)Learni ng Leaders hip Director, ISM India – Chennai Chapter. The Institute of Supply Management is the premier institution in the world for Sourcing and Procurement Professionals.
  4. 4. Spend Analysis – The Basics Copyright © 2015 BCube Global Solutions All Rights Reserved
  5. 5. DIRECT SPEND (MATERIAL) Spend on Goods and Materials that directly influence the product/service that the company is selling. Easier to find and classify!  Commodities  Parts and Sub-assemblies …… Types of spend INDIRECT SPEND (ENABLING SPEND) Spend on Goods and Services that enable its primary activity  Travel  IT  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
  6. 6. ACCOUNTS PAYABLE DATA Quite possibly the most widely used source of data. Integrity of data cannot be questioned. Easily covers more than 95% of company spending. Data sources OTHER SOURCES If an organization wants to get close to 100% understanding, they should look at other sources. Very challenging and resource- intensive  INTERNAL (Invoices, HR data)  EXTERNAL (Supplier spend, Data in public domain)
  7. 7. Input Data Must Have’s Nice To Have’s Field Description Invoice No The unique identifier of the invoice Invoice Date Issue date of invoice PO Number The unique Purchase Order identifier PO Date Date on which Purchase Order was issued Product Code Unique item code set by buying company Product Description Description of item/service Category Name Name of Commodity (eg. Travel) Business Unit The BU/division responsible for the spend Supplier Name Name of the Supplier Supplier Code Unique code to identify the Supplier Supplier Parent Ultimate parent supplier Supplier Location City/Country (or) address of the Supplier Purchased Quantity Number of items supplied Unit of Measure Unit by which supplied items are measured Field Description Contract No The unique contract identifier Expiry Date Date on which the contract expires Payment Terms Number of days within which the payment is made INCO Terms Terms under which Title of goods will be transferred from Supplier to Buyer Category/UNSPC Code UNSPC Code for the Commodity/service Sub-category Name of the Sub-commodity (Legal services is a sub- category to Professional Services) Delivery Location Location/Plant the supplier delivers to Cost Center Code Cost center to which the payment applies Cost Center Desc Cost Center code description G/L Account Number The General Ledger account number to which the payment is made G/L Account Description General Ledger account description Payment Date Date on which the invoice payment was made
  8. 8. 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 categorization 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)
  9. 9. Spend Analysis – The Process Copyright © 2015 BCube Global Solutions All Rights Reserved
  10. 10. Spend Analysis – Benefits Lower Overall Costs Identify Areas of Opportunity Increase Productivity and Efficiency Better Decision-making Greater Visibility Improve Relationships Track every Rupee you spend across multiple categories including Indirect Spending Obtain insights from your historical spending and create savings opportunities Focus more on your key deliverables rather than mundane data analysis Make fact-based decisions with data made available at your fingertips. Improve 360 degree relationship – suppliers, customers and stakeholders
  11. 11. Spend Analysis – The Process AP Data AP Data Extract Cleans e Enrich Classificatio n Analysis Insight Automate the input from your ERP system into our flexible solution. Custom Web Interface CSV Format Data
  12. 12. Spend Analysis – The Process AP Data AP Data Extract Cleans e Enrich Classificatio n Analysis Insight 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! Data Extraction • Mapping and extracting required data fields to data source Manual Validation • Data availability under correct headers and GL Account Supplier Normalization • HCL Bombay, HCL Mumbai, HCL BOM, Hindustan Computers Ltd.
  13. 13. Spend Analysis – The Process AP Data AP Data Extract Cleans e Enrich Classificatio n Analysis Insight Classify your spend into Industry accepted categories or create your own based on the need. Custom Web Interface
  14. 14. Spend Analysis – The Process AP Data AP Data Extract Cleans e Enrich Classificatio n Analysis Insight Insights that drive decisions. Dashboards, Charts, Reports and more!
  15. 15. Spend Analysis – Templates Copyright © 2015 BCube Global Solutions All Rights Reserved
  16. 16. Spend analysis should help you answer The Spend Cube What are we buying? From who are we buying? For who are we buying? What? Category THE SPEND CUBE
  17. 17. Common Types of Analysis Cost per unit weight Analysis Cost per unit weight is performed to compare the similar parts. The inherent assumption is that these parts are similar, and their cost/unit weight should be similar. This helps to identify the outliers which contributes to different costs. Part Price History Analysis Plot the trend of a part’s price over 2 years and identify opportunities to re- negotiate lower price in cases of unjustified price increases in the past. Pricing Brackets/ EOQ Analysis Analysis identifies the optimum bracket quantity for cost reduction within the available brackets. Can only be done on parts that have contracts that include pricing brackets. Indexed Pricing Analysis This type of analysis helps identify the relationship between material prices and part cost and helps us identify opportunities for index-based pricing and re-negotiation. Currency Opportunity Analysis The analysis identifies the cost reduction opportunity by switching prices between currencies. The assumption is that the manufacturer should be paid in the currency of manufacturing country.
  18. 18. Common Types of Analysis Freight Analysis Analysis identifies a way to obtain visibility into freight costs associated with procuring parts from suppliers. It helps in selecting a best approach to optimize freight costs. VAT Analysis 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 recovered when a supplier sells his product to the next supplier in the chain. Leakage can sometimes occur when trying to recover the VAT from foreign governments. Warranty Cost Recovery Warranty cost incurred due to defective supplier parts. This could include both labor and part cost. Payment Terms Analysis Analysis identifies deviation to standard payment terms. The intent is to negotiate with the suppliers to pay them on Standard Terms so that we realize savings from holding the cash (Cost of Money) Part Family Analysis Analysis identifies the optimum way of categorizing parts into a family and then identifying potential parts for cost reduction which do not belong to the 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
  19. 19. 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 An extension of spend analysis Savings & Compliance Tracking Cash Flow 0% 20% 40% 60% 80% 100% 0 1 2 3 4 5 6 Compliance % Across Categories Contract Compliance
  20. 20. Spend Analysis – Tools Copyright © 2015 BCube Global Solutions All Rights Reserved
  21. 21. 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! Spend analysis tools
  22. 22. 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 stored on their existing cloud (or) in a cloud located in the same region as their HQ for legal restrictions Key considerations COST Enterprise Tools very expensive1 implementation Complex & Time Consuming2integration Individual Tools need to integrate 3 automation Still lots of manual intervention4 SERVICE-BASED APPROACH TO SPEND ANALYSIS ALTERNATIVE
  23. 23. Thank You! Copyright © 2015 BCube Global Solutions All Rights Reserved Ram Raghuraman Founder, BCube Global Solutions Director, ISM India Mobile: (91) 95000 17385 ram@bcubeglobal.com www.bcubeglobal.com

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