1. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee An Introduction to Spend Analysis and Spend Management Optimizing your spend

2. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee What are they? Who uses them? Who are they relevant to? Why bother? How are they done? What does the Spend Analysis process look like? What spend management projects could I undertake after a spend analysis to identify savings? Spend Analysis and Spend Management

3. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee In the name of transparency…

4. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Spend data comes primarily from the AP, ERP or FMS systems… Ask questions What do you call spend outside of contract? Do you trust your current data? Let’s agree on a few things first…

5. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Spend Analysis: What you do to the data… Spend Management: What you do with the data… What are they?

6. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Enhance Classify Cleanse Spend Data pCard Data AP Data PO Data Spend Analysis

7. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee …is the proactive use of spend analysis data to carry out the following within the organization: Spend Data Deliver Savings Improve Processes Manage Maverick Spend Manage Supplier Relationship Manage Risk Recover Over- payments Procure Co- operatively Reduce Disparity Source More Locally Ensure Legal Compliance Benchmark Relative Position Quantify Savings Spend Management

8. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Spend Analysis: Procurement Spend Management: Everyone Who uses them?

9. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee 84.4% Spend Analysis Survey

10. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Spen d Data Buyers Procurement Managers Contract Managers Finance Department Accounts Payable Environmental Officers Equality Officers Economic Development Legal Department Audit Department Budget Holders Spend Data Spend Management

11. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Spend Management: In order to save, you have to know what you spend… Spend Analysis: If you can’t trust the data, how can you trust the analytics? Why bother?

12. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Challenges Cut spending but not services – do more with less Spend more with Local/ Small/ Diverse Suppliers Be transparent Obstacles System data isn’t good enough/ doesn’t contain all of the data Multiple systems within the organization No two organizations have the same system Why bother?

13. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Solutions Software AP system tools E-Procurement Analytics/ BI tools Data Spend Analysis Provider Hire a Data Analyst / Excel or Access Expert Guidance Customized consultancy project What are the solutions?

14. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Here is how spend analysis is done… How are they done?

15. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee 1.Supplier name 2.Supplier address 3.Invoice number 4.Invoice date 5.Spend value 5 Pieces of Data How is spend analysis done?

16. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Level 1 Analysis of AP Spend Analysis of PCard spend Analysis of eProcurement spend How is spend analysis done?

17. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Level 2 Export from AP, pCard and PO systems Sense check exports Stitch exports together Manually classify suppliers Enhance data on top 25 suppliers Manipulate in Excel, Access etc. How is spend analysis done?

18. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Level 3 Export from AP + pCard + PO Systems Standardize exported data Check fitness/ accuracy of data export Validate value and volume with organization De-duplicate supplier records Classify to common taxonomy Manually validate classification Enhance supplier information Link to a master record Provide MI tools and export function Spend Data How is spend analysis done?

19. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Basic assumptions One version of the truth – how much was actually spent Extract in an electronic format… Common Pitfalls Finance or IT teams too busy to extract Data extracted incorrectly and not checked Relying on user entered classifications Existing tools are designed for analysts Assuming classification is easy Assuming data can be stitched together Assuming software can do it for you How is spend analysis done?

20. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee 1.Invoice ConsolidationInvoice Consolidation 1.Invoice ConsolidationInvoice Consolidation 2. Long Tail Consolidation 2. Long Tail Consolidation 3. Terms in the Top Tier 3. Terms in the Top Tier 4. Contract Compliance 6. Category Extension 6. Category Extension 5. Category Rationalization 5. Category Rationalization 7. Aggregation with others Using the results of spend analysis

21. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee If I could answer these questions, I could find savings… If I want to answer those questions, this is the data I need… Example Savings Opportunity

22. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Identifying Savings: Which suppliers should I seek weekly/monthly invoices from? Which category of suppliers are giving me an invoice volume problem? Which suppliers would be best to move order and payment to pCard? How much could I save by moving to pCard? $ Supplier Names Aggregate number of invoices per supplier Average invoice value per supplier Invoices by value range per supplier Invoice Reduction

23. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee 43,979 invoices < $500

24. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee $ Supplier Name Aggregate spend per supplier Aggregate number of invoices per supplier Category of supplier Department spend per supplier Identifying Savings: Which suppliers do I spend less than $1000 per year with? Which suppliers do I only have one transaction with per year which I could lose? Which departments are using a lot of “one time” suppliers? Which categories do we have a lot of small suppliers in? Long Tail Consolidation

25. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee 442 suppliers <$1000

26. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Identifying Savings: Which suppliers do I spend the most with and how many departments do they supply? How many other suppliers are in the same category as my top tier suppliers? Are all of my departments getting the same “best rate?” How much do my top tier suppliers rely on my business? $ Supplier Name Aggregate spend per supplier (de- duplicated) Category of supplier Department spend per supplier Other suppliers in the same category Percentage of supplier’s turnover represented Contracts already in place Terms in the Top Tier

27. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee 84 suppliers >$250,000

28. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee $ Supplier Name Aggregate spend per supplier Category of supplier Other suppliers in the same category Dept. spend per supplier Current contracts Categories with no contracts Monthly spend information Identifying Savings Which departments aren’t using the preferred/ contracted supplier in a given category? Which categories of spend don’t have any contracts in them? Is my data source up to date enough to deal with off- contract spend quickly? Contract Compliance

29. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee 36% average with contracted suppliers

30. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee $ Supplier Name Aggregate spend per supplier Category of supplier Other suppliers in the same category Department spend per supplier Current contract expiry date Identifying Savings: Which suppliers enjoy a relative monopoly of supply to my organization? Which categories do I have too many suppliers in where aggregation could drive costs and prices down? What contracts are coming up for renewal where I could rationalize or extend my supplier base? Category Rationalization/Extension

31. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee 38 Computer Programming and Design

32. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Identifying Savings: Which suppliers does my group already share and how much is spent with those suppliers? Which categories does the group have the greatest spend/ greatest number of suppliers? When are the current contracts for members of the group expiring so that we can collaborate? $ Standardized supplier name/number Standardized public sector body name/number Aggregate spend per supplier) Category of supplier to common classification Current contract expiry date Centrally hosted and maintained database Common tools that all contributors can use Aggregation with other organizations

33. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee 55 Common Suppliers, $60.5 spend

34. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Next Steps: Spend Analysis really is the first step Get the data in shape first Internal or External Start thinking about problem areas Let the data guide your projects Analytical/business intelligence tools are step two. A Spend Management plan is step three.

35. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee ?

36. 90 th Annual Meeting & Exposition April 3 – 6, 2011 Memphis, Tennessee Spend Analysis and Spend Management The images, charts, and graphs in this presentation were exported directly from Spikes Cavell’s Observatory. For more information about how the Observatory could help your agency to identify real savings, collaborate more effectively, increase contract compliance, and record your success, please contact Spikes Cavell Jonathan White (571) 527 - 8310 jonathan.white@spikescavell.com