Consolidation, control, cost savings: Harnessing spend visibility
IN ASSOCIATION WITH
CONSOLIDATION, CONTROL, COST SAVINGS: HARNESSING SPEND VISIBILITY
EXECUTIVE SUMMARY n
Visibility is vital: teams cannot manage opaque spend.
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Although spend consolidation in direct procurement may have fallen out of favour, plenty of other opportunities are on the table—including rationalising payment terms and procurement compliance. Consolidating indirect spend remains a productive opportunity.
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procurement organizations possess the skill sets to fully leverage spend analytics; data and taxonomy issues remain significant challenges.
n Picking
the right spend visibility partner is an important determinant of successfully gaining visibility into spend.
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rocurement teams should act now: the returns on any investment in spend P analytics tools deliver range from 10:1 to 20:1.
Seeing is believing The Covid-19 crisis has highlighted both the importance of spend visibility and the scale of the opportunities open to organizations that adopt a smart approach Although 2020 was a year like few others, many purchasing teams have realized they won’t see a return to pre-pandemic paradigms in 2021 or any time soon. Take spend visibility. In many businesses, leaner times beckon, prompting an even sharper focus on driving procurement savings. The uncertain shape of the post-pandemic future compounds the difficulties for businesses. Spend visibility provides vital insights with which organizations can drive those savings and navigate the future. “Spend that can’t be seen is spend that can’t be managed,” says Wendy Tate, professor of supply chain management at the University of Tennessee, and coeditor in chief of the Journal of Purchasing and Supply Management. “Even today, there’s still far too much maverick spend, tail spend, and spend that simply isn’t captured.”
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In tackling this, procurement teams face several challenges—both in capturing and leveraging insights into spend. One is that 2020 upended spend patterns, clouding spend data with new suppliers, new purchases, and sometimes whole new categories. To ensure the security of supply, companies engaged with different suppliers, diluting their reliance on existing trading relationships. New areas of spend opened up, as working practices changed and safety measures took hold. “People focused on doing what was necessary and right, rather than on strictly complying with policy,” says Ed Weenk, senior lecturer in supply chain management at Maastricht School of Management. FOCUS ON IN DIR ECTS Even so, significant amounts of spend remain uncaptured—especially indirect spend, and particularly spend on services, says Carlos Mena, Nike professor of supply chain management at Portland State University’s School of Business. With procurement organizations under pressure to deliver fresh sources of saving, he points out, teams are focusing on correcting that. “One company was paying totally different rates to consulting firms around the world—and sometimes even totally different rates to a single firm. They negotiated a single, global rate—and made considerable savings.” That said, even when spend data is available, procurement’s post-pandemic playbook is going to be different. “At least in direct procurement, few organizations are talking about spend consolidation and single sourcing these days,” says Richard Gane, a director at procurement consultants Vendigital. “Supply chain resilience and continuity of supply are seen as more important.” But that still leaves plenty of opportunities on the table, says Andrew Olson, manager of professional services at spend analytics software provider SpendHQ. “Payment term rationalization, supplier risk management, supplier diversity management—spend visibility is vital for all of them. And with indirect spend, the door is wide open: unlike direct spend, there are often significant opportunities in consolidating fragmented spend.” n Æ
CONSOLIDATION, CONTROL, COST SAVINGS: HARNESSING SPEND VISIBILITY
Data-driven deliverables Deploying the right spend visbility solution could yield huge returns for companies that select the right partner and leverage the tool fully
In theory, spend visibility shouldn’t be difficult. In practice, the reality is often very different. “Time and again, we see spend reports that are just plain wrong, aren’t actionable, or are couched in a language that no one really understands,” says Simon Geale, SVP for client solutions at procurement consultants Proxima. The challenges of bringing together data drawn from multiple IT systems, of different quality standards, following multiple coding conventions, and
It’s almost always a mistake for a procurement organization to imagine it has the expertise to manage the introduction of spend analysis initiatives in-house Andrew Olson, SpendHQ
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stemming from multiple procurement organizations are to blame, he says. Unsurprisingly, the picture that emerges is often cloudy and incomplete—hardly a satisfactory starting point from which to better manage spend. PICK A PER FECT PA RT N ER Consequently, a business’s choice of spend visibility provider is crucial to determining its success in this area, says Andrew Olson, manager of professional services at spend analytics software provider SpendHQ. “Picking the right partner is vital,” he says. “It’s almost always a mistake for a procurement organization to imagine it has the expertise to manage the introduction of spend analysis initiatives in-house.” The problem? To deliver meaningful answers, spend analysis calls for skills and experience that most procurement organizations do not possess. Æ
CONSOLIDATION, CONTROL, COST SAVINGS: HARNESSING SPEND VISIBILITY
HOW A US BROADBAND PROVIDER GAINED ONE VIEW OF THE TRUTH
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In 2018, one US-based broadband provider began to explore the possibility of better spend visibility—initially within one division, and then across the entire business. “We had four different divisions, with four different spend tools, and it wasn’t readily possible to aggregate spend across divisions—we had an aggregation provider, but it carried out aggregation only quarterly, and the process took a long time,” explains the organisation’s spend analytics manager. “Instead, we wanted more actionable, timely data.” A formal request for proposal was prepared in mid-2019 and the company received expressions of interest from six spend visibility providers, says the company’s senior sourcing manager, who led the selection process. By late 2019, the company had decided on SpendHQ as its preferred provider and implementation began with the initial goal of merging spend data from 2016 to 2019. “Aggregation was the challenge,” the senior souring manager says. “There wasn’t a common taxonomy so we could all speak the same language. Plus, we were pulling data from 15 different systems, with 15 different data structures. Fairly quickly, we discovered gaps and inconsistencies in the data—fields not filled, for instance, or filled inconsistently.” By this point, the company had decided to merge its four procurement organizations, with the spend analytics manager chosen to lead a team of five. “Experts from SpendHQ were having regular phone calls with our category leads, helping people to think through these issues,” the spend analytics manager says. “We had people from different divisions working together, trying
The number of systems—each with its own data structure—from which the companny was aggregating data to understand each other’s supplier bases. SpendHQ was very much involved, helping us with basic templates and frameworks.” Fairly quickly, significant benefits started to emerge, the spend analytics manager adds. “There were vendors with which we were spending a significant number of dollars, but we hadn’t been aware of that fact. There were vendors with which we were spending a lot of money but didn’t have contracts in place. And, of course, we could more clearly see all the usual rogue spend and tail spend issues. Today, we have a much clearer view of our spend—and it’s an up-to-date view, not a historical one.” Going forward, the spend analytics manager concludes, that clearer view will deliver substantial value. “Today’s commercial agenda is all about making savings. Spend visibility helps us to be sharper in identifying opportunities, seeing where the value lies, and in going to vendors to proactively renegotiate. Right now, it’s a very costconscious environment, and our spend visibility capability helps us to succeed.”
The data integration challenges, for instance, can be considerable. In practice, spend data is spread across multiple data sources, even when just a single procurement organization is involved: Enterprise resource planning data, accounts payable data, procurement card data from one or more providers, travel and expense data from a dedicated system, and data feeds from various ‘payment consolidators’— transportation agents, shipping agents, utilities, and so on. Extracting, consolidating, cleaning, and normalising that data to build the required ‘single source of the truth’ calls not only for best-practice data-handling techniques, but also skills and experience in procurement, says Olson. “Procurement people usually don’t have the right IT skills, and IT people generally
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don’t have the right procurement skills,” he notes. “At a minimum, it calls for a spend visibility solution that does as much of the heavy lifting as possible.” TACK L ING T R ICK Y TA XONOMIES Developing the correct category taxonomy is another challenge, he adds. Again, it’s a challenge that’s more complex than many procurement organizations initially appreciate. Generally speaking, when spend visibility initiatives under-deliver, an inappropriate taxonomy is often a root cause. “It needs to be a taxonomy that mirrors the procurement organization’s view of the world, rather than—say—the finance function’s view of the data. That’s important for two reasons. First, it’s likely to map onto how the procurement organization works from a category and organizational Æ
CONSOLIDATION, CONTROL, COST SAVINGS: HARNESSING SPEND VISIBILITY
Even as quickly as one year after negotiating a preferred supplier contract, it’s not unusual to find rogue spend levels of 40% Andrew Olson, SpendHQ
point of view, so it’s more efficient to work with. Second, it helps to deliver actionable recommendations and courses of action that the rest of the business will understand.” Speaking the same language as the broader business is vital, he says. “It’s important to engage with stakeholders to say: ‘Here’s the data, and here are the opportunities.’ We stress the importance of consistency: consistency of format, and consistency in presentation— that way, stakeholders quickly become fluent in seeing and understanding where those opportunities lie.” And where do they lie, generally? Spend consolidation is still very much lowhanging fruit, says Olson—especially with respect to indirect spend. “Spend consolidation in indirect spend was previously a fairly neglected area, and clients are often surprised as to how much scope there is,” he notes. Likewise, he adds, spend visibility data also tends to present opportunities in
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terms of noncompliance with preferred supplier contracts. “Clients are again often surprised how much rogue spend is going on: even as quickly as one year after negotiating a preferred supplier contract, it’s not unusual to find rogue spend levels of 40% or so.” A DDI T IONA L A DVA N TAGES That’s not all. Factor in the gains from opportunities in supplier risk management, payment terms rationalisation, improved sourcing through spend visibility-enabled strategic sourcing and sourcing events, and the return on investment (ROI) ratchets up quite significantly, Olson says. How high, precisely? Olson’s colleague David Bush, chief revenue officer at SpendHQ, points to customers’ experiences with SpendHQ providing a useful benchmark for prospective new clients to gauge their own potential ROI. “We generally say that, at a minimum, there’s a 10:1 return on our fees: in other words, spend $100,000 with us, and there’s a potential return of $1m—and that’s conservative. Use the power of spend analysis to the full, and it’s more likely to be on the order of 20:1.” But the operative word is ‘use’, as in ‘use it’, he says. “In and of itself, it’s important to remember that spend visibility saves no money at all: it’s what you do with it that makes the difference.” n
CONSOLIDATION, CONTROL, COST SAVINGS: HARNESSING SPEND VISIBILITY
Action points SpendHQ’s Andrew Olson suggests five ways in which procurement organizations can better engage with a spend visibility initiative
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Map the various data sources that contain spend data: experience suggests most procurement organizations have more of these than they appreciate, including: enterprise resource planning data, accounts payable data, procurement card data, travel and expense data from a specialized system, and data feeds from various ‘payment consolidators’ such as shipping agents and utilities.
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Poor data and poor data governance are barriers to efficient and effective spend analytics. Carry out a data audit, and clean and validate data where possible. Establish procedures to ensure that data fields are completed properly and consistently. Payment term rationalisation is often an easy win, so make sure that payment term data is correct.
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Develop a useful category taxonomy. Aim for something to which the procurement organization can relate, rather than something that meets the needs of the finance function, and for a taxonomy that roughly maps on to the way in which categories are organized and managed within the function itself.
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That said, give yourself the freedom to break the rules. Right now, for instance, many procurement organizations are spending heavily on Covid-19 resources such as cleaning materials and personal protective equipment. Typically, these might ordinarily straddle several categories. But in this case, consider grouping them together to better identify economies and efficiencies.
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It’s almost always a mistake for a procurement organization to imagine it has the expertise to manage the introduction of spend analysis initiatives in-house. Start thinking about your choice of potential partners—and bear in mind that their software is only one part of the package that you’re looking for: help and support is also vital.
CONSOLIDATION, CONTROL, COST SAVINGS: HARNESSING SPEND VISIBILITY
A BOU T OU R PA RTNER SpendHQ is a procurement analysis solution that provides rapid, accurate, and detailed visibility into enterprise spend data. This full-service SaaS spend analytics solution delivers actionable insight for sourcing and procurement professionals. SpendHQ has been acknowledged as a leader by being included in the 50 To Know by Spend Matters for the last six years, being a finalist in the SaaS Awards, Procurement Leaders’ World Procurement Awards, and a 2020 SIIA CODiE winner.
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Published by: Procurement Leaders Ltd Prospero House, 241 Borough High Street, London, SE1 1GA, UK
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