Centrica – using Spend Analytics to drive procurement improvement

We featured the Spend Analytics tools from PRGX (who acquired the Etesius business a while back) in two posts here and here. I was impressed the speed and capability of the platform, but wanted to talk to a real life user to get their perspective.  I’m very grateful therefore to Hywel James of Centrica for agreeing to talk about his experience of implementing and using thePRGXSpendTrax product.

Centrica is a leading utilities company, the parent company of British Gas amongst other subsidiaries.  Operating in the main in regulated environments, cost control is key, and the supply chain in certain areas is critical to the business and carries some significant risks; all of this makes procurement and supply chain management very important to the organisation.

James leads on all things procurement technology related, sitting in a small central corporate procurement team, with most of the procurement activity delivered at business unit level. I started by asking him why Centrica invested in spend analytics in the first place.

-  We saw it as an important strategic element of what we wanted to do – and have been doing in Centrica procurement. Sitting in the corporate procurement team, one of the issues we initially faced was lack of visibility of spend around the organisation. If we were going to add value at the centre, we had to know what was going on in the operating companies; information about how much they were spending, what they were buying, and who their current suppliers were.

What were your objectives then when you looked at spend analytics options?

-  We had three challenges ; the quality of the spend data, the credibility of it, and our access to it. The first was about input and configuration. Then the data and information we presented back to the businesses had to be credible to our internal stakeholders; and access meant it couldn’t be locked away in an ERP system.

How and why did you choose PRGX?

- We ran a full selection process around 4 years ago – at the same time we chose a sourcing suite. We looked at 14 different Spend Analysis tools; Etesius, as it then was, came out on top. Apart from the fact that their option was a very good technical solution, we liked the fact that they were small enough as a company to really value our business and buy into our approach.

How often do you run the analysis?

- Monthly. That’s quite enough – I know in some industries like retail there may be a need for more frequent but monthly works fine for us.PRGXturn around the data in 5 days maximum, often less.

Has the data helped you achieve what you wanted?

- Before we had the tool, we would go to the business and say “we think you’re spending X on consulting”, or IT, and they’d say “no we’re not”!  It wasn’t good for our credibility. We now spend our time talking to the business about where the savings opportunities are, not whether the data is correct.

So what sort of benefits have you achieved?

- That visibility has made a lot more spend “influencable” to procurement generally and enables us to consider it in the centre where appropriate. We knew about less than £2 billion year of external spend before we started with the analytics programme, now we know of and can address around £4 billion. We can track usage of group contracts, compliance, and look for new opportunities to use the group leverage. We have what we call the “one version of the truth” across the whole group.

We  are also using it to drive leverage from acquisitions – we have actually realised those synergy savings that everyone talks about when there’s a merger or acquisition. The spend analytics process is becoming  a key element of our acquisition approach.

It was also interesting that when we engaged consultants to help us drive some category management work, they initially said they’d have to spend the first 8 weeks building their “spend cube”. When they saw what we had already, they were able to start straight away – which saved us a lot in consulting fees!

Did the move of Etesius into PRGX have any implications?

- We’re still getting good service, the platform is very flexible and quick – and the SpendTrax product launched sincePRGXtook over has a better interface than the previous platform.

What are your next steps?

We’re still adding more inputs – different ERP systems around the organisation. And we’re beginning to look at the wider services and productsPRGXcan offer. It’s interesting, because they come from a finance and audit recovery background, so they’re very strong in some of those areas which maybe aren’t traditionally procurement’s focus . So looking for duplicate invoices, over-payments, VAT coding issues . We have already recouped around £250k from our proof of concept in this area.  That in turn  may also take us into more regular or even real-time analysis, as well rather than purely the monthly analysis I described.

Many thanks to Hywel James for sparing the time to talk, and we’ll have more on Spend Analytics in the not too distant future.   

 

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