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Survey of spend analytics

Thursday, April 7, 2011

OFS Portal surveyed 6 oil and gas operators who had recently done spend analytics programs to ask them how it went - By Elaine Rothman, writing for OFS Portal

elainerothman.jpgOil and gas e-commerce organisation OFS Portal conducted a survey of 6 oil and gas operators in different parts of the world that were known to have active spend analytics projects (to analyse how they spend their money).

The objective was to determine why they had embarked on the projects, what they were trying to accomplish, how they had implemented the project (with a project team or consultants), what were their results, what % of their spend was under management, what KPIs they used, what could they have done better, what were the project pain points and where are they going from here.

Unanimously the companies contacted said they were looking for visibility.

Companies were looking for a clearer vision of spend while allowing greater visibility to more category managers, business units and often to provide business intelligence to improve purchasing.

Two of the companies interviewed used spend analysis to implement business transformation, either creating a new central purchasing organization or expanding the scope of an existing purchasing organisation.

Some of the companies were managing a project with 5 operating divisions where others were collecting data from over 700 operating units.

In all cases the companies interviewed had embarked on spend analytics as they were deploying e-procurement and electronic transactions with their supply base.

At the lower end the objective was for 25% of spend “managed in the system”, to up to 98%, where the last 2% of spend was considered to be outside procurement.

Implementation project teams were used in general, but not always. The teams when present were often multidisciplinary – purchasing, project management, IT, and external consultants.

External consultants were from the software provider or technology implementation consultants.

With or without a team, the implementation time was from 12 – 18 months but for varying “spend coverage”.

Some companies implemented a spend analysis project to help prepare for implementation of an e-procurement project, segmenting suppliers into types of spend, and looking for the best purchasing strategy for each type of spend.

Some companies implement a spend analysis project to help expand an existing e-procurement project, focussing on the best ways to control spend and increase adoption of its e-procurement project.

spendanalytics.jpg
Sell the project

Not surprisingly, when the spend analytics project was “sponsored” by the executive committee, buy-in was less of an issue, though at times some business units were reluctant to have their numbers added to a corporate project.

When the project was not sponsored by top management there was a need to “sell” the project internally – either to new business units or to new category managers.

The task was to convince them to add their data to the pool, and also to be trained on the system to generate reports that they could use.

In the case of one of the companies interviewed who had neither top management support nor a real project team, currently after 3 years only 30% of spend was under management.


Software solutions

Many different types of (software) solutions were implemented. All were with the addition of a specific tool, whether from the same supplier as the enterprise resource planning (ERP) software, or another software vendor (in this case integrated to the ERP) or a SaaS provider (meaning the software is hosted by a third party and used as a service, Software as a Service, now sometimes referred to as “in the Cloud”).

The ERP alone is not seen to be sufficiently flexible to provide the needed reporting facilities as those of a tool designed specifically for spend analytics.

All the companies interviewed were SAP users, though some had other systems in place also.

Some chose an integrated spend analysis solution from SAP and others a third party SaaS provider.

Interestingly the results of an integrated versus a non-integrated solution from a SaaS provider, in term of the benefits of spend analytics were equivalent.

In the case of the companies that were interviewed, those who had a real project management focus and a “top down” view where top management was behind the project reached above 80% spend under management whether they were using a third party SaaS provider or had an integrated solution. The implementation side and the use of the tool, however, were different.

Some of the companies interviewed had multiple ERP systems, as many as 50, others had just 1.


Key performance indicators

The KPIs for spend analytics that were put in place, were largely the percentage of spend “captured” by the system, and a growth rate of that spend.

In some companies it was the number of business units reporting into the tool and their respective % of spending being reported.

For companies with a “commodity ” approach it was the number of purchasing segments covered by the reports.

In all cases implementation was tracked and KPIs reported.


Data problems

Surprisingly, whether a company had a single instance of an ERP or 50, the difficulties encountered in all cases were data related.

Data is the key to spend analytics, taking steps to enhance and control Master Data Management prior to implementing, or in conjunction with implementing spend analytics is the key to success.

Even in companies using just a single ERP instance, in this case SAP, data was still a key issue, as many items are coded multiple times, supplier names can be abbreviated, and supplier affiliations are not always documented, product information records may be created by multiple business units and users.

If no program is implemented to control item creation in the ERP even with only 1 system, problems arise.

For spend analytics to provide the maximum value, the classification of products and services must go to line item or SKU level. Items need to be classified to know what is being purchased, without this classification widget A may be the same as widget B but the system will be unable to recognize it, and items may be counted twice or even more times.  

As the goal of spend analysis is visibility and accuracy – the data issues need to be addressed.

In the companies interviewed, some began cleansing once they began
to realize the effect it would have on the spend analytics project, others used the project to kick-start a program they had on a back burner, but all agreed that data and the accuracy of the data was the largest hurdle.


Ease of use

Training for users and access to the spend analytics tool depended both on the solution deployed and the size and complexity of the company.

Even at smaller operators the roll out to more users seemed to be an issue, so this was not size dependent.

Ease of use was cited more than once as an important criterion to gain user acceptance, and widespread use.


Done differently?

When companies were asked what they would have done differently, the responses were varied.

One responded, “Next time I would have a consultant who really knew my business”.

At another, more initial training to familiarize users with the tools would have improved acceptance.

One said, “We really needed true data strategy before beginning the project”. Master data needs to be clean prior to implementation.

In some SaaS models the data can be cleaned in the spend analytics tool. However this may not be reflected in the ERP, as the process is to extract data from and not to re-inject it to the ERP.

Spend analytics tools typically “remember” and “correct” data errors before adding new data to the data set. An early implementer of a new technology felt they should have waited for the technology to mature; “we would have had a faster and cheaper deployment”.

All companies plan to continue with their projects, and in some it has become business as usual and are no longer considered a project.

Respondents said that the points that could have been improved on were:

-    Better control on the input data, whether in the ERP, on invoices or on orders or any other system the data was being extracted from.

-    Extend the programs to include supplier evaluations such that spend and supplier performance data are all in one database for reporting purposes

-    Enlarge the scope to include all suppliers working with the company.

-    Make the system faster and more flexible – meaning that they need a better reporting tool, even though they now have something that is better than their ERP.

-    Check and recheck data before loading.


E-commerce
 
There is no clear trend on which goes first, spend analytics or e-procurement but clearly both do go together for the companies interviewed.

Deploying electronic transactions with business partners forces companies to use or develop standards, and possibly adopt an industry standard.

This in turn requires suppliers to use the standards mandated by the company.

This standardization can have a very positive effect on data and particularly on invoice data.

When invoice data arrives electronically the quality and quantity of data available for input into spend analytics is automatically of a higher standard and can accelerate the breadth and quality of spend analytics.

An e-procurement project with supplier catalogues can go even farther down the standardization route.

Supplier catalogues contain data that can be used in spend analytics to the line item level. This allows for easier recognition that widget A is indeed the same as widget B, or not.

Depending on the company this data can be used to purify the ERP master data, and thus also the Spend Analysis data.

With the advent of the broad adoption of e-commerce, true collaboration within the supply chain gives the buyer community the opportunity to agree on product classification and description standards with its supplier community.

This then allows for all inbound invoices with its SKU detail from the suppliers, when electronic, to be ready to drop straight into the spend analytics program, giving accurate and timely reports.



Benefits of spend analytics program:

Solid reporting (which means both accurate and timely data), spend visibility (which allows consolidation, globalization and improved sourcing strategies), true business understanding (who are my key suppliers, and which are strategic), faster response time – to retrieve the required data, a way towards contract compliance – without visibility, control is not possible.

Things you can find out about:

. Spend visibility – meaning what was bought, by whom, from whom, how much did it cost, where was it consumed.

. Controlling spend – do we know what we are buying? Is it on contract? Do we control who spends what?

. Off contract purchasing – do our contracts cover what we need? Are all business units implementing the negotiated prices and products? Are we correctly aggregating spend?

. Are processes and programs in place to address “strategic” spend as the company needs to collaborate more closely with the suppliers of complex products and services?

. Consolidating spend for better negotiations – if we know what we buy and from whom, it is easier to renegotiate and plan.

. Reduce numbers of suppliers – Some of the companies interviewed have upwards of 250,000 suppliers, each supplier relationship needs to be created and maintained. Having spend visibility enables aggregation and naturally reduces the number of suppliers. Aggregation is critical to obtain scale for non-Critical spend strategies.

Link to full white paper  - http://www.ofs-portal.com/OFS-Portal/Whitepapers/

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