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June 2011

Spend Radar’s Award-Winning Spend Analysis Case Study

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Background

Spend Radar was contacted by a leading Business Process Outsourcing (BPO) provider to support their multi-year agreement to provide strategic sourcing and spend management for their client - a global 200 consumer packaged goods manufacturing company.

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The client had an ambitious plan for cost cutting.

Cost-cutting programs had been implemented that represented less than 3% percent of their cost of goods and the client was pushing for that figure to be more than 4%.

The Client’s Cost Cutting Initiative

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For their savings initiative, they put in place the following Service Level Agreements:

1. Savings percentage for 28 categories across three different types of projects

2. Seven-day turnaround from receipt of data until report delivery

3. Allocate savings by category down to the plant level4. 95% accuracy

The Client’s Savings Initiative

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Spend Radar’s Responsibilities

Specifically, Spend Radar was responsible for collecting, cleansing and classifying spend data from over 90 global locations.

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But it didn’t stop there. After identifying the savings opportunities, Spend Radar was responsible for tracking and allocating the savings back to the various operating companies, product lines, spend categories and plant locations.

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All projects at Spend Radar follow a six-step process outlined in our Project Excellence program.

This program was implemented to ensure the consistency and quality of all of our projects.

The Project

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Step One: Project Kickoff

Each client is designated a project manager that is responsible for keeping the project on target, on time and on budget, as well as ensuring that the client is kept up to date.

Introductions are made, roles are defined and communication guidelines are set.

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The project kickoff is also used to ensure that we clearly understand the client’s business, an important aspect when determining categories and classification codes. A commodity that is classified as MRO for one company may be classified as a direct spend for another.

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Step Two: Acquiring the Data

Within one day of receiving the 1.5 gigabytes of spend data, the data was uploaded to Spend Radar’s Data Manager, a master data management (MDM) module designed specifically for spend data.

All of the data had been extracted from multiple SAP instances. This data represented over $20 billion in annual global spend, representing the following four high-level indirect spend categories:

1. Manufacturing Equipment2. Corporate Services3. Information Technology and Telecommunications4. Human Resources and Professional Services

Fast Facts:

1.5G of spend data

+$20B in global spend

90 global locations

1 day to upload

4 indirect categories

4 SLAs

95% accuracy

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Step Three: Cleansing and Classifying the Data

All data is collected and stored in the Spend Radar Data Manager module and managed by an internal team of solutions consultants that have been fully informed of the company’s business-specific categorization needs.

The Data Manager’s Rule Builder creates, edits and manages company-specific supplier and transaction classification rules. Based on our extensive history with data classification, we have also included pre-built, commonly used rules into the application to assist with the classification process.

Without the use of this flexible master data management module, a quick turnaround would not have been possible.

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Step Four: Client Workshops & Business Reviews

Constant, immediate feedback from the BPO as well as the client allowed us to complete the cleansing and classification within three weeks. The BPO had visibility into the process at all times, ensuring that the data was being cleansed and classified in a manner consistent with the BPO’s sourcing strategies.

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The data was cleansed at 95% accuracy – a level of accuracy that was agreed upon by the client. We used our data accuracy model to ensure this SLA was achieved. The data accuracy model is a formula that is used to generate a representative sample of an overall data set that is approved by the client.

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Step Five: Delivery of Reporting and Analysis

The BPO leveraged the Spend Radar Reporting and Analysis module, allowing the end users to create reports, analyses and views in mere seconds, with minimal to no training. And because the tool is easy to use, end users could manipulate reports and analyses on their own, without the need for IT or senior analyst support.

“We’ve been struggling to pull this data together for

months. I’m amazed at how quickly this project was

delivered.”-Finance

Once the savings were identified, we:

Tracked and allocated the savings back to the various operating companies, product lines, spend categories and plant locations using an organizational hierarchy that we incorporated into the Data Manager module.

Integrated sourcing award savings data and cost allocation percentages by business unit, plant, etc., as per the organizational financial model and as desired.

Applied the savings and cost allocation percentages back to the business units, plants and locations as defined by the organizational hierarchy and savings allocation model.

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Step Six: Ongoing Data Refreshes

Since the initial cleansing and classification process, we have been conducting ongoing monthly refreshes of the client’s spend data. Monthly refreshes are made possible by the extensive initial cleansing and classification process that we conducted. Company-specific rules for item classification were created that can be used for all future refreshes and changes and additions can easily be made.

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Challenges

The challenge for this project was incorporating a customer-specific financial allocation model within Data Manager. This was not standard functionality and required custom development to accomplish. The client provided their organizational hierarchy and allocation model, and we were able to include this information into Spend Radar’s Data Manager.

All software customization is done in-house so we have complete control over timelines and can quickly adapt to new customer requests. And since Data Manager is offered as Software-as-a-Service (SaaS), once the enhancements were complete they became available to all clients.

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Merging global spend from over 90 locations Providing indisputable proof of realized cost

reductions Providing insight into forthcoming cost

reductions Relating impact to the bottom line by product

line, operating company, category and location

Results

This case study describes an advanced spend management project that resulted in:

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Key Takeaways

The most important lesson of this or any other spend analysis project is that spend analysis is not simply about identifying potential cost-reduction opportunities. Any savings should then be measured, validated and tracked so that true success can be quantified and managed in an ongoing, repeatable manner.

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And for some businesses, it is critical to ultimately trace back and allocate any realized cost reductions directly to the individual locations or business units. Not all organizations manage their savings and cost allocations directly to each individual organizational entity, but for the many that do, having a spend analysis solution that can fully manage this process in an indisputable manner is critical.

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Conclusion

Managing costs has always been important. In the current economic climate, it is imperative. However, the promise and hype of spend analysis has left much to be desired from previous generations of spend analysis solutions. Unlike our predecessors, Spend Radar is delivering fast, accurate and measurable impact to our customer’s bottom line. Isn’t that what spend management is all about?

This case study outlines the real-world experiences of this team and their project. We hope that you are able to learn from and leverage this insight to define and implement a successful spend management project at your company.

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Supply & Demand Chain Executive is the executive's user manual for successful supply and demand chain transformation, utilizing hard-hitting analysis, viewpoints and unbiased case studies to steer executives and supply management professionals through the complicated, yet critical, world of supply and demand chain enablement to gain competitive advantage. It is located on the web at www.SDCExec.com. Ten years ago, Supply & Demand Chain Executive announced its first "100" list of supply chain solution providers, consultants and other organizations that were helping lead the way in transforming companies' supply and demand chains. To learn more about this award, visit www.sdce.com/content/awards.jsp..

Upon completion of the initial phase of this project, the team at Spend Radar realized they had accomplished something special – a twist on the typical spend analysis project that provided even greater savings and sourcing opportunities. When submissions for the Supply & Demand Chain Executive 100 became available, we knew that we had to submit this project for consideration, illustrating the tangible benefits that can be achieved through spend analysis. We’re pleased to announce that this project resulted in winning this prestigious award.

Award-Winning

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Spend Radar311 S. Wacker DriveSuite 2270Chicago, IL 60606 +1 312.262.9810sales@spendradar.comwww.spendradar.comwww.spendradar.com/blog

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June 2011