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Ten Tips Superior Spend Radar

Ten Tips Superior Spend Radar

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Published by: Kuldeep Singh on Sep 13, 2011
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12/09/2013

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10 Tips for More Valuable Spend Intelligence

Authored by: Brian Daniels, CEO, Spend Radar and Rod True, COO, Spend Radar

10 Tips for More Valuable Spend Intelligence
Table of Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. Avoid the Black-Box Syndrome ............................................................................................................. 3 Collect All Data for Unfettered Analysis ............................................................................................... 4 One Size Does Not Fit All ...................................................................................................................... 4 Minimize the Burden ............................................................................................................................ 5 Spend Analysis is a Business Solution ................................................................................................... 6 Quickly “Mine” the Mountain............................................................................................................... 6 There’s More than Meets the Eye ........................................................................................................ 6 Understand Yesterday, Today and Tomorrow...................................................................................... 7 Different Strokes for Different Folks..................................................................................................... 8

10. Don’t Get Blinded by the Lights ............................................................................................................ 8

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10 Tips for More Valuable Spend Intelligence
A few years ago we were participating in a spend analysis kickoff meeting for a global holding company. This was the first time this company had attempted to consolidate and leverage spends across their global portfolio of companies, so as you can imagine this project had the highest level of visibility. As their COO was addressing the room of over 50 attendees, he described the challenges of the executive management team with one simple phrase - “We are tired of speaking from the ‘tower of babble’.” The issue was a lack of credible spend information from which the company could make better purchasing decisions. This is an issue that continues to plague many companies today. Over the past decade, we have deployed a wide variety of spend management technologies on a global scale. As with The COO said, “We are any technology deployment there can be some bumps and tired of speaking from the bruises gained along the way, but more importantly, some ‘tower of babble’.” valuable lessons learned. The following is a high level list of lessons learned gleaned from personal experience as well as the experiences of global consulting organizations. The information presented spans multiple industries and company best-practices to provide a view of key success factors. These points will help shape your spend analysis approach so it is successful to your organization. Rather than provide a list of theoretical possibilities, we sought to focus on practical approaches from a practitioner’s point of view.

1. Avoid the Black-Box Syndrome
The goal of a spend analysis deployment is to transform data into information, and ultimately that information is transformed into knowledge by the organization. The “black-box” syndrome is made up of two components—technology and resources—and results in three key issues. The technology is typically a software application used to process data that employs rigid, hardcoded algorithms. This produces the first key issue - the results are not consistent with your expectations. When this occurs, there is no way to adjust the algorithms to make them behave differently. As a result, a large percentage of the transactions will have to be treated as “exceptions” or errors. This leads us to the second key issue – resources. All “exceptions” or errors are then processed manually outside of the system by offshore factories. Generally the exceptions are divided into manageable pieces and worked on by various teams – teams without knowledge or context of your business. Which leads us to the third key issue - any “rules” that the teams create are not able to be incorporated back into the black-box. Thus, future refreshes of your data are a mix of automated processing and mostly manual exception handling, which leads to extremely long refresh cycles. It is of utmost importance that the solution provider offer full transparency into the data-cleansing process through the use of a flexible application. Business data contains subjectivity and businessspecific details that generally require customer feedback so that the classifications align with the organization’s strategic sourcing. This process should be highly automated to facilitate future refreshes and eliminate manual intervention, creating longer-term efficiency.

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10 Tips for More Valuable Spend Intelligence
2. Collect All Data for Unfettered Analysis
Deeper analysis begins with collecting transactional data from every source system. This data is spread across accounts payable, purchase order, supplier master, finance, p-card and travel and expense systems from every location. But by no means is this the definitive list of sources. Is your organization lacking detail spend information in a particular category? Consider obtaining line item data directly from your key suppliers. Does your organization purchase exchange-traded commodities? Try layering commodity price information on top of your spend data. These are just a few examples that have become quite common in the market today. The point is that other unstructured data can be blended into the mix to drive value for other parts of your business. Advanced spend intelligence involves looking at everything related to spend to get the most visibility and leverage possible. The key is to economically collect all spend-related data—a difficult challenge without the right tools in hand.

3. One Size Does Not Fit All
We have worked both for and with numerous companies over the years across a wide variety of industries. While companies in the same industry may appear to be very similar from the outside, the reality is that internal differences abound. It is true that two industrial manufacturing companies might be running the same supply chain and procurement systems, combined with similar lean manufacturing disciplines. However, when you take a closer look you realize the differences in philosophy, methodology and (relative to this discussion) how vastly different the internal systems have been implemented. So the question is, “Why would you choose a spend analysis technology which treats your business like every other business in the world?” The following points should be considered regarding spend management systems. Does this system force-fit you into an industry standard taxonomy that your business does not understand? Through our experience, companies that have attempted to adopt a new category taxonomy have faced a significant change-management issue. In early 2002, we launched a global spend deployment for a European CPG company, in which the CPO had decided to adopt UNSPSC as the new standard (unbeknownst to the rest of the organization). After the initial process was complete, we presented the analysis to the executive team, with the spend neatly organized into The Global CTO said, UNSPSC segments/families/classes/commodities. Within five “That is not my budget… minutes, the Global CTO stood up and said, “Can you show I do not spend that much me the I/T category?” We quickly pulled up Segment 43, every year.” Information Technology Broadcasting and Telecommunications and presented a view of these spends. His immediate reply was, “That is not my budget…I do not spend that much every year.” The question is, “Where was the disconnect?” The answer was quite simple - the UNSPSC I/T categories did not align with the CTO’s internal category structure. They should have used a taxonomy (or multiple taxonomies) that made sense for their business or business segments. UNSPSC provides a good unifying standard (if

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10 Tips for More Valuable Spend Intelligence
none exists), but may prove to be too generic for your specific business sourcing needs. Business sourcing is usually based on target categories, so UNSPSC should be rolled-up to business sourcing categories as defined by the sourcing project scope. Does the technology adapt to your business requirements? It is critical that the business context is preserved to drive accuracy. Also, if an industry standard taxonomy has been leveraged, you will most likely require the ability to roll-up industry codes into your sourcing categories. As mentioned previously, industry standard taxonomies can provide a solid unifying standard if none exists internally. However, they were not designed with strategic sourcing in mind. Consider one scenario in UNSPSC – software. A quick search for software in UNSPSC results in over 200 codes. Segment 43 contains numerous codes for various software products while Segment 81 contains the codes services related to software. If you are looking to strategically source a procurement software application, you would want to know how much we have historically spent for the software, maintenance and any consulting services. This would require consolidating numerous codes across two segments. A better approach would be to roll-up these UNSPSC codes into sourcing groups for a clean, consolidated view. Is the classification process “Google and Guess?” To quote the infamous catch-phrase from Flip Wilson, “What you see is what you get.” The data classification process should adhere to this message. If you do not have transparency and visibility into the process, the output will most likely not meet your expectations. A recent discussion with a manufacturing company provided a good example of this. Their first attempt at spend analysis involved the process described above – a data dump sent to an offshore factory for classification. A few months later the data was returned and the customer was informed the project was complete. As the customer was reviewing the results, they immediately zeroed in on a particular area of interest – electrical components used in Polaris Heart Rate Monitors. They immediately discovered that these transactions—the ones with “Polaris” in the descriptive text—were either classified as a snow mobile, a missile, or a heart rate monitor. A Polaris is in fact a manufacturer of snowmobiles, but it is also a type of missile as well as a type of heart rate monitor. Of course in this instance these transactions were for heart rate monitors exclusively. What happened? The offshore factory had no idea what the company did and even less of an idea of any business context, so they “Googled and Guessed.” The more you know, the better the outcome.

4. Minimize the Burden
One of the greatest choke-points for many spend analysis projects is the burden to extract the data out of the source systems. The I/T resources in most companies are either more scarce than water in the desert, or their backlog is a solid two years. Many spend analysis systems required I/T to not just extract the data, but to also format the output to very exacting standards. Given the number of systems that can exist across the organization, this effort can quickly turn into a science project, and ultimately close the lid on the project. No matter what spend analysis system is used, the data still needs to be extracted and we recommend some initial involvement from I/T to help validate the totals (as they generally know

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10 Tips for More Valuable Spend Intelligence
the internals of the systems better than anyone). After that, I/T can return back to the rest of their workload. What is important is that the system provides the upmost flexibility in accepting a wide variety of file types and file formats. Not only will your colleagues in I/T thank you, but you will be well on your way towards deployment.

5. Spend Analysis is a Business Solution
Spend Analysis is a business solution that requires internal planning and resources from the applicable business departments. Although we have seen some very good deployments led by Project Managers, these individuals had some sourcing knowledge along with experience with business systems. Finding one individual with this experience is not always the easiest to do, so consider adding an additional resource or two to round out the team. From our experience, having these skills available will enable your internal team to:    Effectively communicate and coordinate with I/T during the data extract process. Confirm and validate control totals with members in the Accounting and Finance departments. Successfully lead category audit workshops with the sourcing teams.

6. Quickly “Mine” the Mountain
One of the best approaches we have seen to build momentum and buy-in around a spend analysis system is to generate quick-wins, specifically if there are skeptics in the organization. A great example of this was witnessed in the healthcare industry. A company had previously attempted to aggregate spends using internal resources but the project never got off the ground. After quickly deploying a commercial spend platform, rather than conducting a thorough wave analysis they sought to identify quick savings – and they did so with their p-card spends. The initial savings generated (just off of the p-card) were five times the investment - more than enough to turn the skeptics into believers. It’s sufficient to say their spend management program has never looked back.

7. There’s More than Meets the Eye
How do you define spend intelligence? The best-in-class companies view this as an ongoing process used to measure and manage spend across a wide variety of sourcing and savings programs, rather than a one-time snapshot. There are many spend and supplier management programs that can be addressed including:    Opportunity identification (leverage and supplier rationalization) and basic strategic sourcing. Compliance analysis to ensure the right suppliers are used, with the right terms and price. Supplier risk analysis.

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10 Tips for More Valuable Spend Intelligence
The list of programs above contains the basics and you’re probably thinking – “What’s more?” To describe the “more than meets the eye,” let’s look at the core components of a spend analytics platform: Data – The Foundation It all starts with the data, which needs to be as comprehensive as possible. It goes beyond just what is inside your organization; it should extend to the world outside. We will dive into this more in the next point below. Analytics – Powerful & Easy to Use The analysis gives us the power to visualize our information and ultimately make better decisions for our business. The latest technological advances in this arena break away from the traditional OLAP (Online Analytical Processing) “cubes” and give us the power to navigate freely through the information with Google-like ease. Performance Management – Manage & Measure The final component is the performance management aspect, the missing piece from just about every vendor in the market. It is nearly impossible to deliver real results if you cannot measure the performance of all sourcing and savings projects in a timely fashion. After all, the goal is to deliver measureable, bottom-line impact.

8. Understand Yesterday, Today and Tomorrow
A majority of the spend analysis approaches in use today do a good job of providing a historical view of your spending. And that’s the problem – it’s a historical view only. It’s like driving your car while looking in the rear-view mirror. If you’re really good, you may be able to successfully navigate the car down the road, assuming the road is fairly straight. But what happens when you come up to the curves? Most likely the car veers into the ditch. This analogy might be a little drastic, but the general point is applicable. The capabilities of your spend management platforms need to evolve as your business evolves. To illustrate this point, we have developed a basic maturity curve based on our years in the field.

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10 Tips for More Valuable Spend Intelligence
The maturity curve highlights the general path most organizations seek to follow – advancing from basic opportunity identification to aligning with enterprise strategic initiatives. As organizations progress along the curve, their eyes begin to shift from the rearview mirror to the front windshield. The real question is, “How do we advance along this path?” The answer lies in higher refresh cycles (to track compliance) that are used to integrate external data combined with crossdepartmental information.

9. Different Strokes for Different Folks
How many times have you heard someone say, “What’s in it for me?” There is an acronym for this— WIFM—that is thrown around corporate meetings rooms constantly. As technologists responsible for deploying global systems, it is imperative that we understand the “WIFM Effect.” In a recent lecture at Northwestern University, former Baxter CEO Harry Kraemer discussed Values Based Leadership. One of his points clearly spoke to the matter at hand – seek to understand before being understood. As in any project, it comes down to people, their personal/organizational goals, and their drive to succeed and help their organization. There are different user groups with different needs and responsibilities: executives, strategic sourcing, commodity category managers, general purchasing and administration. It is critical for us to understand their individual and collective needs and responsibilities and ensure the analytics focus on the business impact versus simple information. When done correctly, people will contribute, and spend analysis will generate significant savings for the organization. Additionally the spend management/spend intelligence will grow with your organization.

10.

Don’t Get Blinded by the Lights

There are many glitzy reporting tools on the market today which are used to influence your purchasing decision. In many cases the so-called sizzle and flash are there to cause a blinding effect, preventing you from seeing that there is nothing underneath. This is equivalent to finding that perfect home for the family and after move-in day you realize the house doesn’t have plumbing. This may be another extreme example, but we recommend that companies understand the foundation on which the system is built, and in the case of spend analysis this foundation starts with the source data. The best reporting tool out there is useless without credible data. Taking a bottoms-up approach to systems evaluation will ultimately lead you to the solution that will deliver meaningful, measureable results on an ongoing basis.

www.spendradar.com

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10 Tips for More Valuable Spend Intelligence
The Bottom Line – Spend Analysis Produces Large ROI There are many ways you can put together a project to gain valuable information and act upon it, one step at a time. Whether it be starting with a services-based approach, or acquiring the many available software tools on the market to have a comprehensive solution, the savings and ROI are dramatic. We recommend starting with spend visibility. Identify quick-win opportunities to get the momentum going and let the spend intelligence/spend management grow within your organization as another very valuable application to enhance your company’s efficiency and effectiveness. About Spend Radar Spend Radar is a leading software technology company focused solely on conquering the challenges of spend analysis and spend management. Spend Radar was founded to overcome many of the challenges that previous generation spend analysis and data classification solutions fail to address in a complete or optimal way. Our entire focus is to help any organization working with spend or supplier-related data to take action more quickly and effectively, significantly reducing the time spent to create actionable analysis. By enabling organizations to gather and structure complicated, distributed and diverse sets of information in a completely new manner, Spend Radar sets a new standard for data management. Spend Radar customers achieve greater savings faster. About Brian Daniels Brian Daniels is CEO of Spend Radar and is responsible for product vision and strategic direction. With 20 years experience in the software industry and a focus on purchasing and spend analysis technology, Brian is highly skilled in the overall architecture, design, development, and implementation of largescale distributed software solutions. Prior to cofounding Spend Radar, Brian was VP Professional Services at Procuri where he lead the spend analysis consulting organization. Brian has also held senior leadership and development positions at leading spend management and technology organizations including True Source, Emptoris, Moai Technologies, Oracle Corporation, and Kellogg, Brown and Root. About Rod True Rod True is COO of Spend Radar and is the primary liaison for strategic partner alliances related to Spend Radar's spend analysis software and services. Rod has over 35 years of experience in business solutions-oriented information technology, with an extensive background in planning, developing, deploying, and managing large, successful systems projects for Fortune 500 companies and state governments. Prior to cofounding Spend Radar, Rod founded True Source, a leading spend management organization, serving as president and CEO until the company was acquired by Procuri and later by Ariba. Previous experience includes cofounding IntegrationWare, a business intelligence software engineering company, and serving as practice coordinator with Ernst & Young by heading HRMS systems integration services. Rod has also worked as a senior manager for Abbott Laboratories in the corporate business systems organization.

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