Spend Analysis: The Window into Strategic Sourcing
Strategic supply management has become a significant driver of improved corporate performance and better risk management, and spend analysis is the most critical component to achieving world-class performance. Written by leaders in the field, Spend Analysis: The Window into Strategic Sourcing is the only reference to provide in-depth guidance on what spend analysis really is, what it specifically involves, and how it can be used to improve identification of cost reduction opportunities,...
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Strategic supply management has become a significant driver of improved corporate performance and better risk management, and spend analysis is the most critical component to achieving world-class performance. Written by leaders in the field, Spend Analysis: The Window into Strategic Sourcing is the only reference to provide in-depth guidance on what spend analysis really is, what it specifically involves, and how it can be used to improve identification of cost reduction opportunities, prioritization of sourcing projects, negotiated results, and the tracking and monitoring needed to ensure that identified opportunities reach the bottom line. It is a valuable resource for decision-makers considering spend analysis solutions.
Foreword xiiiPreface xvAcknowledgments xviiAbout the Authors xixWeb Added Value xxiPart IFundamentals of Spend Analysis 3What Is Spend Analysis? 5Basics 5History of Spend Analysis 10Specialist Vendors 11Consolidation 12Similarities/Differences between Spend Analysis and Data Warehousing 12Characteristics of an Ideal Spend Analysis Application 15Data Definition and Loading (DDL) 15Data Cleansing, Structure, and Enrichment (DE) 17Spend Data Analytics (SA) 19Knowledgebase Management (KB) 20Summary 22References 22Business Imperative and Return on Investment 23Spend Leakage and Compliance Multiplier 23Importance of Spend Analysis within Supply Management 25Benefits to Businesses 26Estimation of Spend Analysis Return on Investment 27Savings Opportunity 30Highly Decentralized Purchasing 30Overview and Objectives 30Methodology 31Global Procurement Challenges 31Methodology 34Results 35Merger Planning and Integration 39Overview 39Situation 40Methodology 40Conclusion 43Summary 44References 45How to Implement a Successful Spend Analysis Program 47Set Objectives 48Lead from the Top 48Establish a Focused Center of Excellence 49Carefully Evaluate Choices 50Commodity Classification 50Data Enrichment 50Take a Limited-Scope, Phased-Rollout Approach 50Requirements Scoping 50Multicube Approach 51Data Scoping 52Refresh Requirement 52Know Your Data 53Technology Should Support Business, Not Drive Business 53Align the Team to Support the Organization 54Increase Organizational Visibility 54Measure Constantly, Report Frequently 54Engage with Your Application Provider 55Sample Project Plan 55Procurement Transformation for an {dollar}8 Billion Agrochemical Business 55Overview 55Background 57Implementation and Key Learning 57Spend Analysis Program Success 58Sourcing Program Success 58The Future-Managing Supplier Relationships 59A Fortune 500 Provider in the Healthcare Industry 59Overview 59Implementation 60Challenges 60Results after One Year 61A Company with Global Procurement Locations 61Overview 61Implementation 62User Adoption 62Next Steps 62Summary 62References 63Opportunity Identification 65Spend-Level Opportunities 67Supplier Rationalization 67Demand Aggregation (or Disaggregation) 67Bypass of the Preferred Purchasing Process 69Non-PO Spend 69Off-Contract Spend 69Diversity Spend Compliance 70Supplier Performance 70Spend with Poorly Performing Suppliers 71Approved versus Nonapproved Spend 71Spend by Payment Type 72Transaction-Level Opportunities 72Contractual Term Opportunities 72Unrealized Discounts and Rebates 73Quantity Violations 74Delivery Date Violations 76Payment Term Opportunities 76Invoice Processing Opportunities 77Consolidated Payments 77Frequent Charges and Credits 77PO Approval Limits 78Prioritizing Opportunities 79Conduct Buyer Interviews 79Create a Segmentation Framework 80Segment the Categories 80Assign Category to Implementation Waves 80Summary 81Part IIThe Anatomy of Spend Transactions 85Types of Spend 85Direct 85Indirect 86MRO 87Procurement Processes 88Procure-to-Pay (P2P) 88Purchasing Cards (P-Cards) 88Travel and Entertainment (T&E) 88Information and Approval Flow in P2P Processes 89Data Requirements for P-Cards 93Data Requirements for T&E 93Source Systems and Data Extracts 94Accounts Payable 94Purchasing/e-Procurement 94Receiving 95Materials Management 95Freight Transactions 95Corporate P-Cards 96Travel and Entertainment 96Contract Management 96Material Requirements Planning or Manufacturing Resource Planning Systems 96Contract Manufacturer Data 96Other (External Sources) 96Quality of Data 97Item Description 98Vendor Name 99Cost Center and GL Code 99Summary 100Spend Analysis Components 101Introduction 101Data Definition and Loading (DDL) 103Data Cleansing 105DDL Considerations 107Data Assessment 108Data Enrichment (DE) 110Overview 110Classification 115Clustering 116Business Rules and Manual Editing 116Dimensional Enrichment 116Classification 119Clustering 120Transactional Enrichment 120Business Rules 120Transactional Classification 123Knowledge Acquisition and Management 125Concepts 126Attributes 127Instances 127Knowledgebase Essential Functionality 127Browsing 127Editing 128Knowledge Assimilation 128Spend Reporting and Analytics 129Business Intelligence Key Capabilities 131Reporting 131Analytics 131Scorecarding 132Dashboards 132Business Event Management 132Basic OLAP Reports 133Pivot Tables 133Cross-tabular Reports 133Graphical Reports 135Specialized Charts 141Waterfall Chart 141Pareto Chart 142Treemap 142Multidimensional Report 144Map Report 144Ad Hoc Analytics 144What-If Analysis 147Dashboards 148Summary 148References 150Taxonomy Considerations 151Ontologies and Taxonomies 151Popular Industry Standard Commodity Taxonomies 153UNSPSC 154Design 154Advantages of UNSPSC 155Disadvantages of UNSPSC 156eOTD 157Design 157Advantages of eOTD 165Disadvantages of eOTD 166eCl@ss 166Design 166Advantages of eClass 168Disadvantages of eClass 169RUS 170Design 171Advantages of RUS 172Disadvantages of RUS 173Quantitative Comparison of Taxonomies 173Size and Growth 174Hierarchical Order and Balance of Content 175Quality of Property Libraries 175Conclusion and Summary 177References 178Technology Considerations 179Technical Considerations in the SA Module 179Online Analytic Processing (OLAP) 179What Is Your OLAP Schema? 180What Do Your Dimensions Look Like? 181Precooked Data or On-the-Fly Calculations? 182Continental or International Deployment? 182Pivoting or Multidimensional Navigation? 183Technical Considerations in the DDL Module 184Representative Sampling 185Missing Values 185Balanced Dimensional Hierarchies 187Detection of Systematic Errors 189Technical Considerations in the DE Module 190String Matching 190Classification 191Statistical Algorithms 193Distance-Based Algorithms 194Decision Tree-Based Algorithms 194Neural Networks-Based Algorithms 195Rule-Based Algorithms 196Clustering 196Classifier Evaluation 198ROC Graph Details 200Association Rules 201Summary 203References 203Part IIITracking and Monitoring 209Introduction 209Spend Under Management 212Integrated Supply Management 212External Integration Using Web Services 214Using Spend Analysis for Measuring Benefits 214Summary 217Spend Analysis and Compliance 219Introduction 219Control Violations in the Procurement Process 220Supplier Assessment 220Supplier Selection 221Contract 221Procurement or Requisition 222Fulfillment 222Invoicing 222Payment 222Implementing Controls in Procurement 222Commonly Implemented Controls 222Payment Controls via 3-Way Match 224Authorizations 224P-Card Control 224Travel and Entertainment 224Spend Leakage 225Contract Compliance 225Vendor Compliance 226Fraud 226Case Study 227The Future of Procurement Compliance 228Measurement 228Prevention 228Summary 229References 229The Future of Spend Analysis 231Supplier Discovery 232Spend Forecasting 232What-If Spend Analysis 232Microanalysis 233New Product Target Cost Analysis 233Real-Time Classification 233Relevance Search 234Price Benchmarking 235Summary 235Index 237
