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Spend Analysis: The Window into Strategic Sourcing
by Kirit Pandit, H. MarmanisStrategic 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… See more details below
Overview
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.
Product Details
- ISBN-13:
- 9781932159936
- Publisher:
- J. Ross Publishing, Incorporated
- Publication date:
- 03/28/2008
- Edition description:
- New Edition
- Pages:
- 272
- Product dimensions:
- 6.20(w) x 9.10(h) x 0.80(d)
Table of Contents
Foreword xiiiPreface xv
Acknowledgments xvii
About the Authors xix
Web Added Value xxi
Part I
Fundamentals of Spend Analysis 3
What Is Spend Analysis? 5
Basics 5
History of Spend Analysis 10
Specialist Vendors 11
Consolidation 12
Similarities/Differences between Spend Analysis and Data Warehousing 12
Characteristics of an Ideal Spend Analysis Application 15
Data Definition and Loading (DDL) 15
Data Cleansing, Structure, and Enrichment (DE) 17
Spend Data Analytics (SA) 19
Knowledgebase Management (KB) 20
Summary 22
References 22
Business Imperative and Return on Investment 23
Spend Leakage and Compliance Multiplier 23
Importance of Spend Analysis within Supply Management 25
Benefits to Businesses 26
Estimation of Spend Analysis Return on Investment 27
Savings Opportunity 30
Highly Decentralized Purchasing 30
Overview and Objectives 30
Methodology 31
Global Procurement Challenges 31
Methodology 34
Results 35
Merger Planning and Integration 39
Overview 39
Situation 40
Methodology 40
Conclusion 43
Summary 44
References 45
How to Implement a Successful Spend Analysis Program 47
Set Objectives 48
Lead from the Top 48
Establish a Focused Center of Excellence 49
Carefully Evaluate Choices 50
Commodity Classification 50
Data Enrichment 50
Take a Limited-Scope, Phased-Rollout Approach 50
Requirements Scoping 50
Multicube Approach 51
Data Scoping 52
Refresh Requirement 52
Know Your Data 53
Technology Should Support Business, Not Drive Business 53
Align the Team to Support the Organization 54
Increase Organizational Visibility 54
Measure Constantly, Report Frequently 54
Engage with Your Application Provider 55
Sample Project Plan 55
Procurement Transformation for an {dollar}8 Billion Agrochemical Business 55
Overview 55
Background 57
Implementation and Key Learning 57
Spend Analysis Program Success 58
Sourcing Program Success 58
The Future-Managing Supplier Relationships 59
A Fortune 500 Provider in the Healthcare Industry 59
Overview 59
Implementation 60
Challenges 60
Results after One Year 61
A Company with Global Procurement Locations 61
Overview 61
Implementation 62
User Adoption 62
Next Steps 62
Summary 62
References 63
Opportunity Identification 65
Spend-Level Opportunities 67
Supplier Rationalization 67
Demand Aggregation (or Disaggregation) 67
Bypass of the Preferred Purchasing Process 69
Non-PO Spend 69
Off-Contract Spend 69
Diversity Spend Compliance 70
Supplier Performance 70
Spend with Poorly Performing Suppliers 71
Approved versus Nonapproved Spend 71
Spend by Payment Type 72
Transaction-Level Opportunities 72
Contractual Term Opportunities 72
Unrealized Discounts and Rebates 73
Quantity Violations 74
Delivery Date Violations 76
Payment Term Opportunities 76
Invoice Processing Opportunities 77
Consolidated Payments 77
Frequent Charges and Credits 77
PO Approval Limits 78
Prioritizing Opportunities 79
Conduct Buyer Interviews 79
Create a Segmentation Framework 80
Segment the Categories 80
Assign Category to Implementation Waves 80
Summary 81
Part II
The Anatomy of Spend Transactions 85
Types of Spend 85
Direct 85
Indirect 86
MRO 87
Procurement Processes 88
Procure-to-Pay (P2P) 88
Purchasing Cards (P-Cards) 88
Travel and Entertainment (T&E) 88
Information and Approval Flow in P2P Processes 89
Data Requirements for P-Cards 93
Data Requirements for T&E 93
Source Systems and Data Extracts 94
Accounts Payable 94
Purchasing/e-Procurement 94
Receiving 95
Materials Management 95
Freight Transactions 95
Corporate P-Cards 96
Travel and Entertainment 96
Contract Management 96
Material Requirements Planning or Manufacturing Resource Planning Systems 96
Contract Manufacturer Data 96
Other (External Sources) 96
Quality of Data 97
Item Description 98
Vendor Name 99
Cost Center and GL Code 99
Summary 100
Spend Analysis Components 101
Introduction 101
Data Definition and Loading (DDL) 103
Data Cleansing 105
DDL Considerations 107
Data Assessment 108
Data Enrichment (DE) 110
Overview 110
Classification 115
Clustering 116
Business Rules and Manual Editing 116
Dimensional Enrichment 116
Classification 119
Clustering 120
Transactional Enrichment 120
Business Rules 120
Transactional Classification 123
Knowledge Acquisition and Management 125
Concepts 126
Attributes 127
Instances 127
Knowledgebase Essential Functionality 127
Browsing 127
Editing 128
Knowledge Assimilation 128
Spend Reporting and Analytics 129
Business Intelligence Key Capabilities 131
Reporting 131
Analytics 131
Scorecarding 132
Dashboards 132
Business Event Management 132
Basic OLAP Reports 133
Pivot Tables 133
Cross-tabular Reports 133
Graphical Reports 135
Specialized Charts 141
Waterfall Chart 141
Pareto Chart 142
Treemap 142
Multidimensional Report 144
Map Report 144
Ad Hoc Analytics 144
What-If Analysis 147
Dashboards 148
Summary 148
References 150
Taxonomy Considerations 151
Ontologies and Taxonomies 151
Popular Industry Standard Commodity Taxonomies 153
UNSPSC 154
Design 154
Advantages of UNSPSC 155
Disadvantages of UNSPSC 156
eOTD 157
Design 157
Advantages of eOTD 165
Disadvantages of eOTD 166
eCl@ss 166
Design 166
Advantages of eClass 168
Disadvantages of eClass 169
RUS 170
Design 171
Advantages of RUS 172
Disadvantages of RUS 173
Quantitative Comparison of Taxonomies 173
Size and Growth 174
Hierarchical Order and Balance of Content 175
Quality of Property Libraries 175
Conclusion and Summary 177
References 178
Technology Considerations 179
Technical Considerations in the SA Module 179
Online Analytic Processing (OLAP) 179
What Is Your OLAP Schema? 180
What Do Your Dimensions Look Like? 181
Precooked Data or On-the-Fly Calculations? 182
Continental or International Deployment? 182
Pivoting or Multidimensional Navigation? 183
Technical Considerations in the DDL Module 184
Representative Sampling 185
Missing Values 185
Balanced Dimensional Hierarchies 187
Detection of Systematic Errors 189
Technical Considerations in the DE Module 190
String Matching 190
Classification 191
Statistical Algorithms 193
Distance-Based Algorithms 194
Decision Tree-Based Algorithms 194
Neural Networks-Based Algorithms 195
Rule-Based Algorithms 196
Clustering 196
Classifier Evaluation 198
ROC Graph Details 200
Association Rules 201
Summary 203
References 203
Part III
Tracking and Monitoring 209
Introduction 209
Spend Under Management 212
Integrated Supply Management 212
External Integration Using Web Services 214
Using Spend Analysis for Measuring Benefits 214
Summary 217
Spend Analysis and Compliance 219
Introduction 219
Control Violations in the Procurement Process 220
Supplier Assessment 220
Supplier Selection 221
Contract 221
Procurement or Requisition 222
Fulfillment 222
Invoicing 222
Payment 222
Implementing Controls in Procurement 222
Commonly Implemented Controls 222
Payment Controls via 3-Way Match 224
Authorizations 224
P-Card Control 224
Travel and Entertainment 224
Spend Leakage 225
Contract Compliance 225
Vendor Compliance 226
Fraud 226
Case Study 227
The Future of Procurement Compliance 228
Measurement 228
Prevention 228
Summary 229
References 229
The Future of Spend Analysis 231
Supplier Discovery 232
Spend Forecasting 232
What-If Spend Analysis 232
Microanalysis 233
New Product Target Cost Analysis 233
Real-Time Classification 233
Relevance Search 234
Price Benchmarking 235
Summary 235
Index 237
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