CIPS QLD Regional Event:Getting your procurement spend under control

1• Know your spend

2• Uncover Opportunities

3• Know your priorities

4• Develop and Implement

5• Track Performance

countries

active licensed users

Spend Analytics

S2C Transaction

Services

Procurement BPO

Services

Supplier Engagement Framework

Spend Analysis

KNOW YOUR SPEND

Maturity Model for Savings & Value Delivery

A BStandard reporting, such as

supplier by category, is

readily available to analyse

spend

Preferred sources of supply

for each category are

maintained in ERP

Flexible reporting capability

to identify category trends

to identify cost reduction

opportunities

C DOptions for payment terms

are limited, standardised

across the supply base, and

based on policies – may not

be possible, needs to be

reviewed (fit for purpose for

agencies and vendors)

Vendors are reviewed and

approved at the time the

vendor is selected

Category managers should

manage supplier

relationships and serve as

the single point of contact

within the category

Regular category reviews

in place

Category prioritisation and

management strategy

drives sourcing strategies

Categories are managed

and prioritised based on

total spend, operational

importance, supply chain

risk, and potential savings

opportunity

Category reduction targets

are based on established

baseline and aligned to

overall strategic objectives

Savings targets are tracked

to monitor category

performance

- Over 1,100 CPO’s participated in study

- Organisations with revenues over

US$1bn

- 168 of these organisations were

defined as leading procurement

organisations

UNCOVER

OPPORTUNITIES

1. Gather, consolidate, and clean all data

•Gather data and consolidate it all into one file.

•Standardise and cleanse the file

2. Categorise and subcategorise all spend

•Develop categories and subcategories relevant to your organisation.

•These may be allocated by account codes or suppliers, or may be done manually

3. Analyse data

•Analyse the data by financial year spend, individual supplier spend, item level pricing, category and subcategory total spend, and contracted versus non-contracted spend.

4. Identify savings opportunities based on the analysis

•How much spend is managed?

•What per cent of spend is under contract?

•How are top suppliers managed?

• Is spend increasing year on year? Why?

Poor underlying

data quality

Multiple

disparate

systems

Interpretation &

categorisation

time consuming

Data not current

IT Dependent

Headline Item /

Action Item

disconnect

How to effect

business real

time?

Agnostic to

source systemsData cleansing

and enrichment

Auto-

categorisation

Near real time

with actionable

insight

Alerts

Data mining and

predictive

analysis

Out of the box

visualisations

Drill down to

transaction

details

In the Cloud…

KNOW YOUR

PRIORITIES

Leverage

- Frequent purchases

- Typically many

suppliers

Transactional

- Common place for tail

end spend

- Infrequent purchases

Bottleneck

- Limited alternatives

- High switching costs

Strategic

- High impact

products/services

- Limited alternatives

Valu

e

Risk

Initiatives Easiest to

Implement • Furniture & fitout

• Pest control rates review

• IT accessories consolidation

Top Savings Initiatives • Consolidation of FM services

• Security

• Pest Control rates review

DEVELOP AND

IMPLEMENT

Initiative Name Category Subcategory

Wave

• Quick win

• Mid term

• Strategic

Ease of Implementation

Initiative Annual Spend

Addressable Spend

Base Annual Savings

Stretch Annual Savings

Confidential information, example provided in the mid term wave.

Top Benefits Realisation • Strategy Operations and

Service Delivery

• Systems & Tools

• End-to-end Procurement

Process

Easiest to Implement • Documentation & templates

• Communication and customer

engagement

TRACK

PERFORMANCE

Issue (Examples) Category How can it happen How can it be avoided

Price non compliance Marketing Rate cards are not being adhered to• Cost tracking

• Standardised reporting

• Category management

• Cross referencing with periodic

spend analysis

• Supplier performance

management

Vendor non compliance General professional servicesSourcing from non approved

agencies, suppliers

Volume non compliance MRO

SKU’s have been changed. Spend is

up, volume on negotiated SKU’s is

low

Delays PackagingNegotiated SKU’s are not entered

into ER delaying savings inflow

• Clear process ownership during

sourcing transition

Change of scope/requirements ITHardware change, scope change

during the implementation

• Proper needs gathering and

approved checks for decision

impacting savings

Contract governance Transportation

Freight savings diminished due to

unstructured ‘accessorial changes’

with carriers

• Regular spend analysis

• Category management

Commodities DirectNo proper index/indices used for

price adjustments

• Proper mechanisms for price

escalations

Savings means

something different to

different roles in

organisation

• Sourcing/Buying Manager: Savings can mean incremental discounts I negotiated from the supplier’s first quote

or otherwise benchmarked market process across anticipated purchase volumes

• Finance Manager: I may look at savings as the direct costs or expense reductions reflected as a positive

variance or working capital improvement in my budget

• CFO: Controller or Treasurer: savings is something that impacts earnings or cash-flows plans including

financing and global exchange implications

Procurement savings

get lost in translation

• Lack of common standards

• Lack of consistency

• Lack of breadth in definition

Procurement savings

has traditionally lacked

credibility

Procurement in the past has been guilty of:

• Carrying over savings from previous years

• Inconsistencies in establishing market benchmarks

• Assumption with high inflation rates

• Mishandling of changes in unit price and quantity

• Overestimating savings assumptions due to process change

Baseline determination • Determination of baseline

• Process standardisation

Reinvesting the savings• Savings in government sector

• Savings against the baseline spend

Culture• Savings in government sector

• Savings against the baseline spend

Supplier Relationship• Miscommunicating the value delivered by a service provider savings against the baseline spend

• Impairing the relationship between the client/company and the service provider

Demand

Management

Specification

Management

Negotiated

Price

Reduction

Payment

Terms

Headcount

Savings

Processing

Efficiency

Savings

Capital

Project Price

Reduction

Inventory

Carrying Cost

Reduction for an

existing product

Capital Project

Price

Reduction

Additional

Goods or

Services at no

additional cost

Reduced

Demand

Escalation /

Price Rise

Management

and Avoidance

Negotiated

Cost

Avoidance

New Product

Operating

Cost

Reduction

Inventory

Carrying Cost

Reduction for

a new product

Negotiated

Savings from

Sourcing

(100%) Realised

Savings

(76-86%)

Lost Savings

via Leakage

(14-24%)

Average Savings Leakage 21%

Contract Compliance

Implementation Process

Contract Negotiation

Time Source: Aberdeen

Category Management

Stakeholder Liaising (Clients,

Finance etc.)

Identify Savings and

Tracking

Contract Management

& Supplier Relationship Management

Project Management

Spend Management

Continuous Improvement

Effective contract management is one

critical element for the successful

realisation of benefits

✔

ProcessCategory &

Contract Management

Collaboration Technology

Benefit Realisation

Collaboration Collaborate closely with finance, stake holders and suppliers

Technology adoption for tracking savings identified vs realisedTechnology

Strategy for category management, contract management and monitoring

supplier performance management etc.

Category & Contract Management

Outline ownership and method of savings, tracking and complianceProcess

Know your spend

Identify opportunities

Know your priorities

Develop & implement

Track performance

PU

RP

OS

EA

CT

IVIT

IES

• Spend analysis

• Tail end analysis

• Pareto analysis

• Contract audit

• Addressable &

non addressable

spend

• Stakeholder map

• Buying channels

audit

• Kraljic Model

• Ease of

implementation

v’s value

• Stakeholder

‘buy-in’

• Cost base reduction

plan

• Baseline for

demonstrating

value

• Resource plan to

achieve savings

1. Define the scope of

the procurement

activity

2. Define the

comparison units

3. Baseline the past

costs

4. Predict the new costs

5. Compare

• Highlight the depth

of understanding

required to fully

understand all

spend

• Display issues if

spend is not

understood

• Increase spend

visibility

• Discover pricing

variations

• Establish preferred

suppliers

• Assess procurement

process compliance

• Identify risks

The identified

opportunities must be

prioritised in alignment

with the overall

business strategy.

By categorising

initiatives into waves

organisations have a

clear overview of the

kind of time associated

with the initiative.

Tracking performance

assists in identifying

savings, monitoring

variances and

analysing trade offs for

cost reductions.