Spend Analysis Content

Services procurement creates so many headaches across companies, and business leaders’ frustrations with it have risen to a level that it needs to be addressed.

Spend Matters has heard from procurement pros that technology doesn’t properly address all services workflows, doesn’t offer enough spend visibility, can’t be easily used by anyone across the company, and doesn’t fully meet compliance and audit needs due to the complex requirements of services procurement across various groups.

With an estimated $1 trillion in annual services spent by U.S. firms, those are big issues — especially when trying to buy engineering/maintenance services for manufacturing facilities and equipment, large turnaround projects, capital-intensive projects and IT operations outsourcing.

Managing this process takes a lot of manual, time-consuming attention and often doesn’t efficiently result in the desired outcomes. The effort and time to get engineering drawings or big projects from an offline team into the source-to-pay process raises the question: Why not start the digital process sooner, in the engineering/maintenance phase so the workflow, like sourcing for materials and vendors, can begin sooner and with more visibility?

FMC Technologies’ spend analysis and SPM process is mature and fast enough that procurement leadership has promised business users that they will have access to updated reports within five days of their monthly closes (the frequency of refreshes is monthly). Yet FMC Technologies is exceeding its internal service level agreements in this area. At the moment, the process has become so streamlined that users get their data three days ahead of schedule – on “Day 2” after close!

FMC Technologies’ four business drivers are: safety, quality, delivery and price. They use these to create a total cost of ownership model. With the deployment of a hybrid supplier performance management and spend analysis solution (Spend Radar – SciQuest), FMC Technologies’ initial challenge was centered on definitions (i.e., how to ensure that the same report would generate results that were equally robust and well-defined regardless of area of operations). If FMC Technologies could not achieve this, it would be impossible to benchmark across areas or have meaningful discussions with business owners and suppliers around why there were dips in performance in certain areas.

In part one of our maverick spending series, Maverick Spending is Your Friend: Don’t Chase It, Ride It, we highlighted that while maverick spending in its own right is generally bad, its root causes often highlight problems with the procurement System (with a big “S”) that, if fixed, improves not only maverick spending, but other areas of procurement performance. In this second part of our series, we will highlight some proven practices to improve maverick spending performance beyond merely chastising malfeasant requisitioners.

Unlike many organizations that use spend analysis as a tool to drive supplier rationalization, FMC Technologies is not looking to reduce its supply base. Rather, their focus on building visibility into spending and supplier performance centers on standardizing and deepening relationships with their strategic suppliers worldwide. Some of the data points they leverage in this hybrid spend and performance analysis include quality, on-time delivery, open purchase orders (POs), forecasts and supplier risk information.

Good performance management approaches have to rest on good data – data that is indisputably referenced by business units, corporate leadership and suppliers alike. The spend analytics field has matured to the point where leading solutions can process complex data sets from a broad range of ERP solutions and provide consolidated dashboards and reports with drilldown to the lowest-detail levels within hours of designated close time. In contrast, SPM (supplier performance management) often involves manual work such as entering information in balanced scorecards, which obviously makes timely reports difficult.

It used to be that spend analysis was focused on helping category managers, consultants and others tasked with identifying and implementing savings opportunities. Fast-forward ten years to today, and spend analysis has been put in a whole new context-- namely, as a tool to bridge the analytics gap between supply chain operations and the business.

Spend Matters PRO will soon publish our technology coverage taxonomy for the procurement landscape, something we’ve been hard at work creating (and debating) internally the past few weeks. In the broader area of analytics and spend/supplier information management, on a generalized basis (obviously layered with category specific nuances for marketing and other categories), we see combined capabilities coming together to help companies solve big data challenges.

Spend Matters welcomes a guest post from Frank Buchanan, a Manager in Strategy and Operations at The Hackett Group. Experts will tout spend analysis as […]

Spend classification may appear to be a commodity technology, but at the item level, it takes years to build and many more to refine and optimize; providers considering getting into the item-level classification market need to realize that creating an analytics front-end is the easy part, and should consider the time to build their own classification toolset, or how best to incorporate third-party technology from others with a classification capability. The window is narrowing for potential classification acquisitions as very few small-named players who can enable this capability remain.

We do not recommend that partners/channels work with firms that approach basic spend analysis as selling tools as software DNA (e.g., BIQ, Rosslyn) rather than taking a services approach if they are looking for an outsourced solution (as many are). It is our observation that many consultants and services providers would prefer to wash their hands of data cleansing and classification processes rather than carry it out on their own by partnering with a spend analysis solution provider who can handle the initial heavy lifting for them as a core competence (not as an afterthought)

Spend Radar is the leading independent spend analysis provider in the market without a broader suite offering. In the early years of the business, the Spend Radar founders built the firm with a limited direct sales force and a largely channel-driven model, only recently changing to a hybrid channel/direct sales approach. In general, customer satisfaction was quite high and they won a substantial portion of the deals they competed in. Yet Spend Radar has been held back by its smaller size and limited global reach, including a sales and marketing organization that was a fraction of the size of many of their suite competitors.