EXECUTIVE INSIGHT SERIES:
Four Challenges of Spend Visibility
Executive Insight Series: An ROI Framework for Spend Analytics
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About the Author
Tom Beaty Tom Beaty is the founder and CEO of SpendHQ partner Insight Sourcing Group. Insight Sourcing Group is one of the largest pure-play boutique consulting firms in North America focused exclusively on Strategic Sourcing and procurement-related services. Tom is also the founder of the Witness to War Foundation (www.witnesstowar.org), a non-profit dedicated to preserving the oral histories of combat veterans.
Executive Insight Series: An ROI Framework for Spend Analytics
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Overcoming Common Challenges to Build a Simple Framework for Spend Visibility Having full visibility of your spend—knowing exactly where your money is going—is a key factor in managing your bottom line. But most companies struggle to achieve full procurement visibility. Why is spend visibility so hard to achieve? Insight Sourcing Group, the sourcing and procurement professionals behind SpendHQ, looks at the four most common challenges we encounter and offer a simple framework for achieving clarity over spend.
Challenge #1: Multiple Systems and Fragmented Data Many companies—particularly those involved in multiple mergers and acquisitions—will find their data living in siloes. As companies are acquired, years pass by without any attempt to consolidate these disparate systems. Nonintegrated P-card spend data and expense management systems further complicate data visibility as these elements are rarely integrated which causes even greater procurement data issues.
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Even companies that have a single instance of an ERP system have challenges with fragmented data due to redundant vendor spellings, non-structure entity reporting, or employee expense reimbursements. While ERP solutions have strived to develop complex business intelligence (BI) solutions driven by algorithms, BI alone unfortunately does not provide the value that necessary human logic and ‘pick & shovel’ work bring to help decipher how vendors should be categorized at the sourcing-level sub-category. The bottom line is that procurement needs an enterprise view of the data – not a siloed view.
Challenge #2: Maverick and Unmanaged Spend Maverick spend is an issue that most organizations constantly struggle with. For example, an employee goes outside of their company’s established purchasing process to buy goods or services and pays on average 20% higher than they would have gotten from their preferred supplier. Although most maverick spend is typically due less to malicious behavior and more to a lack of awareness, it can have a great impact on an organization by exposing them to unnecessary risk of breaching contract with your vendors, falling out of compliance, and other consequences. According to a recent study, companies lose an estimated 16% of negotiated savings due to this rogue spend.1 1 MAVERICK SPEND REPORT. THE HACKETT GROUP. 2019
Executive Insight Series: An ROI Framework for Spend Analytics
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Challenge #3: Accounting Oriented Categorization While most ERPs were designed with accountingorientation in mind, procurement leaders continue to struggle with interpreting how vendors are being used within their organizations. Unfortunately, a general ledger (GL) structure does not map well to a standard sourcing taxonomy, and most ERP solutions have not designed the appropriate procurement codes to be selected when good and services are purchased.
Challenge #4: Poor Data Input Discipline The quality of data varies widely by supplier and category, and how data is entered into ERP and ePro systems is a major issue. This is particularly true for non-procurement specialists such AP clerks who are focused on processing speed and don’t understand the need to select the appropriate category, and in the long run these miscategorizations can have a significant impact on the accuracy of spend data. Additional data failure points can be driven by limited or out-of-date catalogs, incomplete entries by buyers and manual edits by buyers or entry clerks.
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Bottom Line: Fixing the Data Supply Chain Is Difficult
Huge investments in technology solutions do not appear to be paying off for many procurement organizations. Fixing an ineffective data supply chain is expensive, and very few companies achieve success due to the tremendous discipline required by their organization. The big picture here is simple though: achieving excellence in your procurement organization begins with spend visibility. Companies need a spend visibility tool that blends analytics, logic, and procurement intelligence to truly provide companies the insights needed to empower their organizations.
Executive Insight Series: An ROI Framework for Spend Analytics
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Built by procurement experts for procurement experts, SpendHQ is an AI-driven spend analytics solution recognized as an industry leader through Spend Matters’ SolutionMap, Procurement Leaders’ World Procurement Awards, and Ardent Partners’ Key Provider. We deliver actionable insights on your spend data, helping you build a strategic plan for your spend, starting with: Vendor Level Spend Visibility for Strategy Formation We recommend focusing initially on your aggregate data strategy at the vendor-level—not at the line item detail (LID) level—due to the extraordinary challenges in achieving LID quality. This approach helps a procurement leader gain broad spend visibility to enable a repeatable strategy formation. A spend analysis at the vendor-level should include the following steps:
UNORGANIZED SPEND DATA
AP
P-C
AR D
EX
CONSOLIDATE
NORMALIZE
CATEGORIZE & CUSTOMIZE
PE
NS E
ER
Consolidates data files to create comprehensive spend database.
Cleanse and de-duplicated unique vendor names to create single instance of each vendor.
H OT
Executive Insight Series: An ROI Framework for Spend Analytics
Categorize spend to create sourcing-focused spend profile.
SOURCING SPEND CUBE
Once spend visibility is achieved at the vendor-level, you can leverage this data to identify sourcing-related opportunities tied to unmanaged spend, vendor fragmentation, low compliance, maverick spend, seasonality, trending, and much more. While most procurement leaders will express needs for clean LID, most of the challenges are major impediments to achieving an accurate categorization structure.
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LID Visibility via a ‘Sourcing-to-Manage’ Process After vendor-level visibility is achieved down to the sourcing-level sub-category, we recommend a ‘Source-to-Manage’ process to achieve LID clarity which includes: ⊲ Leveraging the higher-level data to spot opportunities related to vendor fragmentation, low compliance, or new sourcing opportunity areas. ⊲ Developing clean LID through the hard “pick and shovel” work of strategic sourcing. Integrate that vision into the sourcing or vendor renegotiation process. ⊲ Leveraging the sourcing process to negotiate data rights with vendors so that vendor reporting provides “perfect data” for the category. ⊲ Require highly specified reports and formats, including SLA reporting, line item categorization, etc. ⊲ Develop a process to receive those reports and automatically load them into existing procurement technology, Category Management dashboards or internally developed tools in Excel, Access, SQL, etc. ⊲ Leveraging the higher-level view (AP data) to track compliance and the line item detail to manage demand and the vendor.
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LID Visibility via a ‘Sourcing-to-Manage’ Process After vendor-level visibility is achieved down to the sourcing-level sub-category, we recommend a ‘Source-to-Manage’ process to achieve LID clarity which includes: ⊲ Leveraging the higher-level data to spot opportunities related to vendor fragmentation, low compliance, or new sourcing opportunity areas. ⊲ Developing clean LID through the hard “pick and shovel” work of strategic sourcing. Integrate that vision into the sourcing or vendor renegotiation process. ⊲ Leveraging the sourcing process to negotiate data rights with vendors so that vendor reporting provides “perfect data” for the category. ⊲ Require highly specified reports and formats, including SLA reporting, line item categorization, etc. ⊲ Develop a process to receive those reports and automatically load them into existing procurement technology, Category Management dashboards or internally developed tools in Excel, Access, SQL, etc. ⊲ Leveraging the higher-level view (AP data) to track compliance and the line item detail to manage demand and the vendor.
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World Class Category Management Over time, as you get more and more spend under management, you will be among the top 5% of procurement organizations in the world in terms of visibility over actionable, sourcing caliber data. As categories are continually addressed via a sourcing process, the “source-to-manage” concept should provide the necessary data to drive worldclass category management including: ⊲ Demand Management ⊲ Supplier Performance Management ⊲ Savings Tracking ⊲ Price Auditingv ⊲ Rapid Strategic Sourcing Again, the “source-to-manage” concept leverages the power of the sourcing process to shift the responsibility for having “perfect data” away from you and onto the supplier instead.
Schedule a demo today to see how SpendHQ can help you overcome your spend visibility challenges.
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About SpendHQ SpendHQ is a spend intelligence system that provides rapid, accurate and detailed visibility into your spend data. This full-service SaaS (Software-as-a-Service) spend visibility solution, combined with our data optimization services, gives clear insight into your spend so you can confidently drive savings. Our U.S.-based team of sourcing professionals will perform the entire upfront data cleanup, spend categorization and spend analysis required to provide sourcing-ready views of your data via our online solution. SpendHQ refresh your data as frequently as you desire. SpendHQ was created by the procurement leaders at Insight Sourcing Group, a firm focused exclusively on strategic sourcing, spend analytics and procurement process transformation. Insight Sourcing Group is led by alumni of the world’s largest consulting firms including AT Kearney, Deloitte and McKinsey, and veterans of worldclass procurement organizations at companies such as Coca-Cola and Home Depot.
Executive Insight Series: An ROI Framework for Spend Analytics
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Executive Insight Series: An ROI Framework for Spend Analytics
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