Spend & Contract Management

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Spend & Contract Management

  1. 1. Spend & Contract Management Bottom Line Improvements & Savings Anand Subramaniam
  2. 2. <ul><li>“ How can we improve this?” </li></ul><ul><ul><li>- Walt Disney </li></ul></ul>
  3. 3. Highlights <ul><li>Enterprise Spend Management / Analysis </li></ul><ul><li>Contract Management </li></ul><ul><li>Data Management </li></ul><ul><li>Electronic Invoice Presentment and Payment (EIPP) </li></ul><ul><li>Spend Management Deployment </li></ul>
  4. 4. Niche Players Spend Management Contract Management <ul><li>Analytics, Inc. </li></ul><ul><li>ATK Procurement Solutions </li></ul><ul><li>Austin Tetra </li></ul><ul><li>Ariba </li></ul><ul><li>BIQ / Iasta </li></ul><ul><li>Emptoris </li></ul><ul><li>Global eProcure </li></ul><ul><li>Ketera </li></ul><ul><li>Nextance </li></ul><ul><li>Procuri </li></ul><ul><li>SAS </li></ul><ul><li>Zycus </li></ul><ul><li>Vendor Reputation </li></ul><ul><li>Experienced with Organisation (Your Size / Industry Vertical) </li></ul><ul><li>Should have a Strong Domain Expertise </li></ul><ul><li>Future Strategy must be Clear and Align with Your Organisation’s </li></ul><ul><li>Understand Product Offering Today </li></ul><ul><li>Understand Three Year Strategy </li></ul><ul><li>Ensure Product Suite is Completely Integrated </li></ul><ul><li>Experienced Team of Consultants </li></ul>
  5. 5. Enterprise Spend Management / Analysis
  6. 6. Enterprise Spend Management Strategy Alignment Technology Enablement Metrics & Measures Process Optimisation Continuous Improvement Enterprise Spend Management <ul><li>Strategic Supplier Partnerships </li></ul><ul><li>Global Leverage </li></ul><ul><li>Business Strategy Development </li></ul><ul><li>Strategic Sourcing Process </li></ul><ul><li>Process Efficiency </li></ul><ul><li>Supplier Process Linkage </li></ul><ul><li>Balanced Scorecard </li></ul><ul><li>Total Cost of Ownership Measurement </li></ul><ul><li>Transaction Volume Metrics </li></ul><ul><li>ERP Leverage </li></ul><ul><li>Efficient Data Exchange </li></ul><ul><li>Data Collection & Analysis </li></ul><ul><li>Continuous Learning / Education </li></ul><ul><li>Cross-Functional Involvement </li></ul><ul><li>Global Organisation </li></ul>
  7. 7. Best Practice in Spend Management <ul><li>Traditional </li></ul><ul><li>Time intensive, paper based transactions </li></ul><ul><li>Transaction processing, tactical focus </li></ul><ul><li>Limited time & focus on supplier management </li></ul><ul><li>Limited competitive landscape </li></ul><ul><li>Lack of visibility to negotiated contracts and preferred suppliers </li></ul><ul><li>Maverick spending </li></ul><ul><li>Lack of spend data, limited spend analysis </li></ul><ul><li>Best Practice </li></ul><ul><li>Electronic transactions </li></ul><ul><li>Intuitive user interfaces </li></ul><ul><li>Reduced purchase intervention </li></ul><ul><li>Reduced cycle time in sourcing </li></ul><ul><li>Increased time and focus on spend / supplier management </li></ul><ul><li>Full visibility to contracts and preferred suppliers </li></ul><ul><li>Reduction of maverick spending </li></ul><ul><li>Improved spend data capture and reporting capabilities </li></ul>
  8. 8. Current Spend Analysis Challenges.. Spend Analysis No consolidation of buying power to negotiate favourable contract prices / terms Lack standard approach, no internal taxonomies and / or ineffective reporting on classification / categorisation of products and / or services Price vary among the same item Lack information on the spend analysis across the firm for budgets, forecasts or in managing suppliers Lack key cost drivers to negotiate low cost / prices from contracts Commodities with the same functions have multiple specs Lack customisable Executive Dashboards Lack tools to cleanse, normalise, categorise spend data from a variety of sources No bundling of high demand spend with low demand items under long term agreement
  9. 9. Business Case for Spend Analysis Obtain Yearly Spend Determine Spend Categories Categorise Spend Categorise Spend Total Determine Potential Benefits <ul><li>Corporate contracts </li></ul><ul><li>Number of suppliers </li></ul><ul><li>Number of invoices </li></ul><ul><li>Band value of invoices </li></ul><ul><li>Resource Management Issues </li></ul><ul><li>Operational Performance </li></ul><ul><li>Determine spend categories </li></ul><ul><li>Opportunity for stakeholder collabo-ration </li></ul><ul><li>Supplier Base </li></ul><ul><li>Analyse expenditure from yearly spend into the spend categories agreed </li></ul><ul><li>Spend totals by spend category </li></ul><ul><li>% spend by category </li></ul><ul><li>Contract Compliance </li></ul><ul><li>Maverick spend by category / # of suppliers </li></ul><ul><li>Benchmark savings % to addressable spend by category </li></ul>
  10. 10. Contract Management
  11. 11. Contract - Lifecycle Challenges <ul><li>Spend Planning </li></ul><ul><ul><li>Lack of feedback leads to guesswork </li></ul></ul><ul><ul><li>Spreadsheet based, limited measurement </li></ul></ul><ul><ul><li>Lack of clear goals </li></ul></ul><ul><li>Negotiation Management </li></ul><ul><ul><li>Inconsistent, poor management visibility </li></ul></ul><ul><ul><li>Poor supporting data – often ask suppliers </li></ul></ul><ul><ul><li>Failure to achieve best price/quality/supply </li></ul></ul><ul><li>Spend Management </li></ul><ul><ul><li>Poor controls - missed discounts and rebates </li></ul></ul><ul><ul><li>Guesswork on actual price achieved </li></ul></ul><ul><ul><li>Higher cost of goods than planned & negotiated </li></ul></ul>
  12. 12. Contract - Management Challenges <ul><li>Lack standardised process </li></ul><ul><li>Lack visible indicators of progress and issues </li></ul><ul><li>Poor visibility of the negotiation process </li></ul><ul><li>Improper records of the final agreements / clauses </li></ul><ul><li>Inaccurate pricing and / or incentive modelling </li></ul><ul><li>Poor measurement / guesstimates / inaccurate accruals </li></ul><ul><li>Weak feedback loops (dependent on supplier data !!) </li></ul><ul><li>Lack i nstant access to any contract due to paper based / non electronic storage & retrieval </li></ul>
  13. 13. Contract Management Overview Source Analyse Procure <ul><ul><li>Data Warehousing & Analysis </li></ul></ul><ul><ul><li>Electronic Sourcing </li></ul></ul><ul><ul><li>Electronic Procurement (eBuying, eContracts, eInvoicing) </li></ul></ul>Initiate Contracts Execute Contracts Analyse Contracts
  14. 14. Contract Management Lifecycle Initiate Contracts Contract Drafting Manage RFx Negotiation Terms / Conditions Library – clauses / templates Analyse Contracts Evaluate Corporate spending Contract Admin. / Compliance Supplier Audits / Evaluation Contract Renewal / Optimisation Execute Contracts Adherence to procurement practices / Contract Terms Supplier Engagement Contract Repository
  15. 15. Parts of a Contract <ul><li>Strategic </li></ul><ul><li>Master Agreements </li></ul><ul><li>Statements of Work </li></ul><ul><li>Outline Agreements </li></ul><ul><li>Intellectual Property </li></ul><ul><li>Transactional </li></ul><ul><li>Deliverables – alerts / reminders / user defined </li></ul><ul><li>Service Levels </li></ul><ul><li>Warranties & Guaranties </li></ul><ul><li>Remediation or Termination </li></ul><ul><li>Workflows </li></ul><ul><li>Tactical </li></ul><ul><li>Pricing </li></ul><ul><li>Specifications </li></ul><ul><li>Terms &conditions </li></ul><ul><li>Utilisation / compliance Tracker </li></ul><ul><li>Logistics & Inventory </li></ul>
  16. 16. Contract Management Tools <ul><li>Electronic log of all signed contracts </li></ul><ul><li>Manual management of expiry dates, renewals, Key Performance Indicators </li></ul><ul><li>Contracts may be stored on file server or as paper copies </li></ul><ul><li>Database driven system to capture contract details </li></ul><ul><li>PDF contracts uploaded and stored in system </li></ul><ul><li>Expiry dates and key milestones tracked and notified via email </li></ul><ul><li>Some KPIs may be tracked online but bulk are outside of system </li></ul><ul><li>Online contract management system for constructing contracts </li></ul><ul><li>Clauses and requirements can be combined to create contract </li></ul><ul><li>Contracts stored in database system with full tracking of milestones </li></ul><ul><li>Integration with ERP system for performance monitoring and thresholds </li></ul>Usage of Electronic Tools Low High
  17. 17. Data Management
  18. 18. Current Data Management Challenges. Current Challenges Inconsistent formats, quality, consistency (e.g., vendor name spelling) Incomplete and / or poor data at decentralised locations as there is no o n-line capture of pertinent spend data No Standardised taxonomies Data cleaning is an ordeal task due to inconsistent coding or resource constraints Lack electronic procurement records / standardised solutions Reluctance to share information Lack on-line capture of pertinent spend data Data entry errors & omissions due to incompetent / untrained resources Data has less meaning / lack source classification No continuous improvement initiatives in place to classify / normalise data
  19. 19. Data Management Continuous Improvement in Data Classification and Normalisation Data Collection Data Definition Data Normali-sation Data Validation Data Analysis Data Refine-ment
  20. 20. Data Definition to Refinement Data Definition Define data that needs to be collected Identify data sources & stakeholders Define spend categori-sation rules, product taxomony <ul><li>Data Collection </li></ul><ul><li>Collect data </li></ul><ul><li>(soft & hard copies) </li></ul><ul><li>Engage with stakeholders </li></ul><ul><li>to refine and verify spend categorise rules, metric </li></ul><ul><ul><li>Set-up, manage, sourcing databases </li></ul></ul>Data Normali-sation Cleanse & categorise data Review gaps & inconsis-tencies Develop high level spend baseline & priorities Data Validation Engage with stakeholders & discuss priorities / data fit for further investigation Reconcile data gaps <ul><li>Data Analysis </li></ul><ul><ul><li>Analyse spending, growth patterns </li></ul></ul><ul><li>Conduct market, benchmark, analysis for select categories </li></ul><ul><ul><li>Identify improvement opportunities </li></ul></ul>Data Refine-ment Validate findings against initial hypotheses Refine opportunity assessment and drill down to details
  21. 21. Electronic Invoice Presentment and Payment (EIPP)
  22. 22. Current EIPP Challenges No EIPP system for quick invoice / payment processing, to avoid late payment fees or avail discount from early payment EIPP not integrated with eProcurement / Finance / ERP systems creating reconciliation headaches Or lack adaptation between supplier / buyer firms
  23. 23. Benefits <ul><li>Supplier </li></ul><ul><li>Time and Cost Savings </li></ul><ul><li>Error Reduction </li></ul><ul><li>Quicker Settlement </li></ul><ul><li>Improved Visibility </li></ul><ul><li>Buyer </li></ul><ul><li>No manual data entry </li></ul><ul><li>One-stop, real-time invoice access </li></ul><ul><ul><li>Faster dispute process </li></ul></ul><ul><li>One, consistent view of all invoices </li></ul><ul><li>Releasing Working Capital </li></ul>Environmental Replace slow, inaccurate manual process with a faster, more efficient electronic service And it's not just paper invoices that can be replaced, it's all financial supply chain documents including delivery notes, purchase orders, statements, remittances etc Security Digital certificates Role and user based permissions Standards XML, UBL, ebXMLand vendor specific formats for exchanging documents Compliance Sarbanes Oxley 404 compliance. Audit trail of all system transactions, moving away from paper based documents and processes
  24. 24. EIPP Process <ul><li>Receipt </li></ul><ul><ul><li>Convert manual invoices to electronic formats, thereby reducing costs and errors </li></ul></ul><ul><li>Validation </li></ul><ul><ul><li>Automated invoice validation based on workflows / business rules </li></ul></ul><ul><li>Financial Management </li></ul><ul><ul><li>Manage discount, cash, budgeting and forecasting requirements / planning needs </li></ul></ul><ul><ul><li>Better management of cash flows and working capital </li></ul></ul><ul><li>Governance </li></ul><ul><ul><li>Built in checks and balances between supplier and buyer relationship </li></ul></ul><ul><ul><li>Transparency and auditability of transactions </li></ul></ul><ul><ul><li>Improved visibility, dispute resolution and improved communications </li></ul></ul>
  25. 25. Spend Management - Deployment
  26. 26. Risks & Opportunities Opportunities Increased sales and establishment of strategic relationship due to leveraged volume spending Improved customer satisfaction due to improved product and process visibility Improved market share within customer’s organisation due to reduction in maverick spending Process efficiencies through use of electronic transactions Risks Technical requirements to participate and support new technology Adoption of new processes to support new technology Training of personnel to perform new roles and responsibilities Less competitive, non-strategic suppliers may not retain/gain business with existing customers
  27. 27. Benefit Realisation Effective and efficient service delivery Program governance in place and all roles and forums fully resourced Functional coordinators and team members identified, committed to the program and clear about their roles External resource requirements identified and engaged Program budget established Program Management Plan considered and endorsed by Reference Groups and Steering Group All stakeholders identified and initial communication undertaken Future delivery blueprint complete Potential benefits & change articulated Mobilisation of the change program Planning Diagnostic Design / Build / Test Savings potential determined Quality improvement potential determined Cultural change requirement articulated (Functional) change priorities established Broad improvement program (clusters of improvement opportunities) defined All stakeholders aware of potential change impacts on them Continued stakeholder commitment to change Deploy Post implementation review and further improvement Service delivery models defined (incl. roles & responsibility & org structure) Target savings known and impacted areas identified Staff transition plans complete Program to develop service culture defined Program of improvement initiatives defined Tailored communication to all stakeholders defined Capability and leadership to drive the implementation defined Demonstrable improvements in service delivery & Savings realised Staff appointed in new roles Reengineering of business processes completed Service oriented culture embedded Implementation of enabling projects completed Staff and management training & development programs delivered Organisational development capability established
  28. 28. Spend - Value Proposition.. Stakeholder Buy-in Improved decision making via reporting and anlytics Savings opportunities = cost, sourcing pipeline, maverick spend reduction, demand & supply chain management etc Improved spend visibility People, process & system Integrated with business operations leads to improved SCM (e.g., supplier performance, reduced inventory Profit improvements, higher EPS, and extended budgets Procurement visibility leads to better negotiation positions and compliance Improved supplier and customer relations Consolidation of spend data into a single interface
  29. 29. From Pilot to Firm wide - Rollout Plan <ul><li>Planning </li></ul><ul><ul><li>Define the spend analysis program </li></ul></ul><ul><ul><li>Data sources, completeness, schemata </li></ul></ul><ul><ul><li>Spend analytic tools and processes </li></ul></ul><ul><ul><li>Assess Staff capabilities </li></ul></ul><ul><ul><li>Understanding of industry and market dynamics </li></ul></ul><ul><li>Design, Build Test </li></ul><ul><ul><li>Identify required capabilities </li></ul></ul><ul><ul><li>Map the process and potential areas of value </li></ul></ul><ul><ul><li>Bridge the capability gaps </li></ul></ul><ul><ul><li>Adopt common taxonomies </li></ul></ul><ul><ul><li>Train personnel and/or acquire spend analysis software/partner </li></ul></ul><ul><ul><li>Identify quick win opportunities </li></ul></ul><ul><li>Support / Document / Validate </li></ul><ul><ul><li>Establish benchmarks & continuously reassess progress </li></ul></ul><ul><ul><li>Keep the data current </li></ul></ul><ul><ul><li>Increase the frequency </li></ul></ul><ul><ul><li>Enhance spend data with business intelligence – factor in qualitative data </li></ul></ul><ul><li>Deployment </li></ul><ul><ul><li>Build on quick wins and proof of concept results from Pilot, firm wide rollout </li></ul></ul><ul><ul><li>Phase in operating units </li></ul></ul><ul><ul><li>Expand use of the data and analyses </li></ul></ul><ul><ul><li>Couple analysis results with other market driving information </li></ul></ul>
  30. 30. Stakeholder Engagement Approach Identify stakeholders Measure Stakeholder Expectation Identify Needs Identify Gaps Develop Plan for Engagement Monitor and Measure Key Planning Questions Key Planning consideration <ul><li>Who are the key individual stakeholders? </li></ul><ul><li>What are their current expectation? </li></ul><ul><li>What specific needs should we need to address to make the programme a success? </li></ul><ul><li>Where are the gaps between the desired (To~ Be) and the current (As~Is) state? </li></ul><ul><li>What activities can we undertake to close these gaps? </li></ul><ul><li>How do we know when they are at the desired point of the To~Be? </li></ul><ul><li>How do we keep them informed? </li></ul><ul><li>Decide who has influence over, or is impacted by the outcome of the project </li></ul><ul><li>Stakeholders will be both internal and external to the organisation </li></ul><ul><li>Understand how things are done today and watch their behaviours </li></ul><ul><li>Consider the importance that each stakeholder has to the success of the project </li></ul><ul><li>Different stakeholders will have different desired levels of expectations </li></ul><ul><li>Consider what the activities are required to build the To~Be state </li></ul><ul><li>Try to use current forums where possible (e.g. update meetings etc.) </li></ul><ul><li>Consider who is best placed to undertake these activities </li></ul><ul><li>Track the activities that are being undertaken </li></ul><ul><li>Monitor the stakeholder levels as a result of these activities </li></ul>
  31. 31. Change Management /Implementation Planning Determine Vision and Governance Conduct Readiness Assessment Develop Strategy and Plan Deliver Change Mgmt Workshops Review and Align Business Processes Transition Organisation Stakeholder Communication Conduct Communication Assessment Develop Strategy and Plan Develop Communication Material Information Distribution Performance Reporting Manage Stakeholders Training Conduct Needs Analysis Develop Strategy and Plan Develop Training Material Conduct Train-the-Trainer Workshops Deliver Training Evaluate Training Documentation Conduct Documentation Assessment Develop Strategy and Plan Develop Templates & Standards Develop Business & Technical Doc. Develop Online Help Maintain Documentation Support Conduct Support Assessment Develop Strategy and Plan Develop Service Level Agreement Select Help Desk Software Establish Help Desk Manage Ongoing Support Testing Determine Testing Needs & Develop Strategy Prepare Test -Plans, Scenarios & Scripts Co-ordinate Test Data Conduct Testing Support UAT Validate Software in Production Data Conversion Determine Data Conversion Needs Develop Strategy and Plan Develop Decommission Strategy Conduct Data Analysis & Design Develop and Test Data Conversion Manage Conversions Configuration Mgmt (CM) Conduct CM Assessment Develop Strategy and Plan Build Environments Support Environments Develop CM Documentation Rollout to Production Authority Levels / Change Budget Manage Risks, Issues, Change Control Change Management Approach Conduct Reviews at Milestone, Deliverables, Stage Gates and Post Implementation QA / Audits / Health Checks Benefit Realisation / Change Readiness Monitor and Evaluate Progress
  32. 32. Program Governance Program plan Drivers for change Program objectives Program Management & Governance Plan and priorities Resourcing Change baseline Core Program Governance Checkpoints Case for Change Services effectiveness and quality Client needs and satisfaction Improvement opportunities (IT, process, organisation) Common design principles Savings potential Program Management, Communication and stakeholder engagement Change Management Design Preparation Implementation Diagnostic Service performance Improvement potential Benchmarking Staff inventory Common issues/opportunities Program planning & organisation Change baseline Future services Roles & responsibilities Service delivery model Structure Implementation Plan Blueprint for the future Service portfolio Service delivery model Management & organisation model Staffing profile IT systems map and plan Implementation plan Design principles Process & improvement Capability building People Management & Development Work Organisation Benefit realisation LEGEND Capacity Building/Leadership Development Within service area Across service areas Governance milestone
  33. 33. Eg. - Supplier Spend Segementation Spend $0 to $2K Spend $3K to $20K Spend $21K to $200K Spend $201K to $2M Spend $2.1M plus 1 to 5 Invoices 6 to 10 Invoices 11 to 50 Invoices 51 to 100 Invoices 101 to 500 Invoices 501 plus Invoices Transaction Volume by Supplier High Low Spend by Supplier High Low 1,001 plus Invoices
  34. 34. Eg. - Spend Analysis Matrix                                                                                                                                                         Priority Gaps Market influence Scope for improve-ment Risk / Opportunity $ Spend Spend area
  35. 35. Eg. – Performance Indicators <ul><li>Client satisfaction score </li></ul><ul><li>% expenditure with approved suppliers </li></ul><ul><li>% expenditure under framework contracts </li></ul><ul><li># of approved suppliers to total expenditure </li></ul><ul><li>Staff costs as % of approved expenditure </li></ul><ul><li>Number of complaints/ challenges in period </li></ul><ul><li>Number of contracts awarded </li></ul><ul><li>% of total expenditure via ‘partnerships’ </li></ul><ul><li>% total expenditure through local sourcing </li></ul><ul><li>Total estimated savings in period </li></ul>
  36. 36. Take-away Lessons <ul><li>Continuous improvement and learning </li></ul><ul><li>Drive initiatives with targeted benefits </li></ul><ul><li>Manage change and stakeholder relationship </li></ul><ul><li>Spend management has become a key priority </li></ul><ul><li>Commit to achieve expense reduction goals in delivering value through spend management </li></ul><ul><li>Develop projects to drive value through spend management processes, tools and techniques </li></ul>
  37. 37. <ul><li>“ We can only learn and grow if we are willing to ask a lot of good questions.” </li></ul><ul><ul><li>- Dr. Alan Gregerman </li></ul></ul>
  38. 38. <ul><li>Good Luck </li></ul><ul><li>http://www.linkedin.com/in/anandsubramaniam </li></ul>

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