Confidential

Measuring purchasing impactProcurement as a source of business value

Matti Sillanpää

TU-E2040 • Management of External resources • 2016-09-14

Confidential

1. Brief pesonal and Sievo intro

2. Procurement as a source of

business value

3. The challenge of measuring

procurement value

4. Future of procurement value

delivery

5. Sievo – the company

Agenda

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Brief personal and Sievo intro

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Personal introduction

© Sievo | Page 4

Matti Sillanpää

• CEO and Co-founder, Sievo

• Studied Industrial Management

and Engineering 1998 – 2002

here at Otaniemi

• Founded Sievo in 2003 together

with Sammeli Sammalkorpi

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Sievo provides the solution to create business value from procurement

© Sievo | Page 5

We help

procurement create business value

by enabling you to take control of all procurement information

with our leading Spend Management solution offering best-of-breed

software, world-class services, and value-added content

Contract

management

Spend

analysis

Savings

lifecycle

Spend

forecasting

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We’ve got proven global delivery capabilities

© Sievo | Page 6

No lost clients since 2014

Partial client list

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ERP

Active

integrations >90 >40 >20 >15 >10Data Extractor

coverage 67% 68% 75% 100% 80%

We have extensive experience on spend data integration

© Sievo | Page 7

+500 106 bEUR 77 426 940 75 354

...but we do not stop there

Following systems are the ones we are working with the most...

active system

integrations in placespend managed

yearlylines managed

yearly

files managed

yearly

… and many

more, including

legacy systems

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Procurement as a source of

business value

© Sievo | Page 8

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Exemplary breakdown of company’s costs from spend perspectiveAll numbers in millions euros

© Sievo | Page 9

Sales:

6 933

EBIT:

953

Costs:

5 980

Salary:

1 984

Total

purchase

spend*:

3 994

Direct:

2 839

Indirect:

1 155

* Total purchase spend = Costs – salary – Net investments.

Net investemnts = - (Depreciation & Amortization) + Invesments.

For Kone in 2013, the Net investments = -2

67 % of costs

are spend

70 % of spend

is direct

materials,

supplies, and

subcontracting

Source: Kone Corporation Financial Statements 2013

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Procurement is THE value driver for most companies

© Sievo | Page 10

+ 30% increase in sales

-5% cost of goods and services

Profit

Typically 5% procurement savings produce the same

improvement in profits as an increase of 30% in sales.

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Which is reflected in the fact that CPO’s top priority remains at

creating cost reduction, i.e. savings

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Source: The Deloitte Global CPO - Survey 2013

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The challenge of measuring

procurement value

© Sievo | Page 12

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How big share of the sourcing savings created hits the bottom line?

Page 13

6.4%

3.7%

Average yearly

savings claimed

by procurement

Average yearly

savings

recognized

by Finance

42%

Source: savings numbers from Aberdeen Group, March 2011

1) Significant

misalignment

creating distrust

2) Significant value

leakage

For company of Kone’s

size, this missing

leakage equals 110

mEUR/year

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Spend & Savings

Why

change?

Savings?

565.4

mEUR

Spend year

2015

604.9

mEUR

Spend year

2016

Challenge 1:

Establish detailed

Spend Analysis

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Conceptually Spend Analysis is simple

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What (product/service) has been

purchased, from whom (supplier),

and by whom (buying

organisation).

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In practice, good Spend Analysis rarely exists in companies

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Multiple languagesMultiple data sources

Lack of common

categorizationM&A

Heterogeneous

processes

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Who is this gentleman?

17

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Good taxonomy is a must for Spend Analysis

Exemplary indirect taxonomy

Marketing

Print

Marketing materials

Marketing agency

ICT

Hardware

Software

Services

Fixed

Mobile

Travel

Airlines

Train

Hotels

Car rentals

Cars

Leased cars

Acquired cars

External Labor

Temps

Sub-contractors

Facilities

Catering

Rent

Utilities

Cleaning

Office

Furniture

Supplies

MRO

Tests

Spare parts

Maintenance Service

Operating Services

Insurance

Consulting

HR

Data

Agency fees

Exhibitions & events

Representation

Tax & Audit

LegalAdvertising

Equipment

Equipment

Supplies

IPR

Operating services

Research

Natural benefits

Food & accomodation

OtherMembership

fees

Energy

Other

Oil

Other fuels

Gas & Steam

Taxi

Security

Newspapers & books

Electricity

Sales services

Taxonomy should be built from supply market perspective and be aligned with organizational

responsibilities. Generic taxonomies rarely provide this alignment

Facility Management

Facility Maintenance

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Examples of real life data challenges

Client example: purchases classified

”Print”

■ 25000 stk■ 25000 stk.Menukort■ 4X3000 stk. forsider■ 5000 stk. postere■ MailHerbsteventTAB-WerbungGmbH■ Parkplan3.AuflageSCHODERDRUCKGMBH&COKG■ PromotionPageforTVSpielfilm■ ProspektverteilerBodenseeregion■ reklamaprasowaClaudia-Rodzice-G+J■ 72000 stk brevpapir, 90g laseregnet■ additional costs for reprint D version■ CHRISTMAS CARD/04 KOREA■ CHRISTMAS CARD/04 UK TEXT■ D-1801 Gavepapir■ LLW FREE TICKET VOUCHERS/D■ prøver til Anette: 6 stk af hver■ SL0672■ ...

Client example: Ernst & Young

• 98922: ERNST & YOUNG LLP • 43244: XXXX - ERNST & YOUNG LLP • 17297: XXXX - ERNST & YOUNG • 69305: ERNST & YOUNG LLP • 30692: ERNST & YOUNG spolka doradztwa• 36234: XXXX - ERNST & YOUNG LLP • 47664: ERNST & YOUNG LIMITADA • 35996: ERNST & YOUNG AG • 61589: ERNST & YOUNG • 62526: ERNST & YOUNG • 89630: ERNST & YOUNG • 21568: Ernst & Young Consulting • 33054: ERNST & YOUNG • Belastingadviseurs• ...• In total 38 Ernst & Young companies; and this

customer has 1 global ERP-system

PRODUCT

10 000 – 500 000 item codes

0 – 1 000 000 Purchase Order descriptions

10 – 5 000 accounts

SUPPLIER

10 000 – 200 000 supplier codes

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Conceptually Spend Analysis is simple

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What (product/service) has been

purchased, from whom (supplier),

and by whom (buying

organisation).

But in practice there is a

huge data, process and

knowledge challenge

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Spend & Savings

Why

change?

Savings?

565.4

mEUR

Spend

Year 2015

604.9

mEUR

Spend

Year 2016

Challenge 2:

Link changes in

spend to PnL

development

Challenge 1:

Establish detailed

Spend Analysis

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… and secondly isolating different drivers of spend

565.4

mEUR

Spend

Year 2015

604.9

mEUR

Spend

Year 2016

-35.8

Performance

45.5

Volume -0.4

Currency

20.2

Market

10

Delta One Off

Procurement

contribution

Total cost change

Why

change?

Savings?

Why

change?

Savings?

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Future of procurement value

delivery

© Sievo | Page 23

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Procurement needs to change it’s role from savings chaser to

proactive business partner...

© Sievo | Page 24

Key role of procurement

professionals of the future:

Not only about telling how must savings

procurement has created

...

but more about having a dialogue with

internal business stakeholders on what

are the opportunities and threats related

to external resources and how those

can be managed proactively

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... And to do so new language and analytic approach is required

© Sievo | Page 25

1 Category savings Cost reduction on PnL

2

3

Backward looking Forward looking

Static reports Continuous opportunity feed

4 In-house performance measurement Cloud-

based analytics with external benchmarks

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Spend & Savings

reporting

▪ Focus on reporting

backward looking,

procurement

specific metrics

▪ Mostly internal,

transactional data

sources

▪ Static reports with

quarterly updates

Past

▪ Complementing procurement

savings metrics with financially

aligned metrics

▪ Forecasting impact of spend

changes on profitability

▪ Integration of non-transactional

data, mostly from internal

sources

▪ On-line analytical tools with

frequent updates

▪ Data driven decision making

culture

Cost & Forecast

analytics

Present Future

▪ Exploit Big Data for

automated opportunity

and risk identification

▪ Dynamic benchmarking

▪ Predictive and scenario

based analytics

▪ Full integration and real-

time analytics

Big data driven

value capture

Sievo is changing the way procurement analytics and Big Data are

exploited to drive procurement value

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Sievo – the company

© Sievo | Page 27

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Sievo – the leading Spend Management SaaS solution provider

© Sievo | Page 28

• Truly international business

• Global delivery projects

• Strong client portfolio

• Cloud software business

• Rapid, profitable growth

Partial Clients List

2008, 2009, 2010, 2011,

2012, 2013, 2014, 2015

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Our values and our culture are important for us!

© Sievo | Page 29

We are honest to ourselves, honest to each other and

honest to our customers. We communicate openly and

proactively, recognize our current limits and build trust

around us.

We care about what we do, we care about each other

and we care about our customers. We take

responsibility, offer help, share knowledge, listen

actively and provide constructive feedback to each

other and our customers.

We aim at exceeding our own limits and the

expectations of others and our customers. We innovate,

work with passion and agility and embrace continuous

learning.

Honesty

Caring

Exceed

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Helsinki-based company with global client and user base

© Sievo | Page 30© Sievo | Page 30

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Our Team of 70 employees

© Sievo | Page 31

Average

age 32

Team of 70, 14 nationalities

75 %

with

Master’s

Degree

• Full and part time positions

• Summer internships

• Master’s thesis

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Thank you!

Stay in touch

http://www.sievo.com/blog/

http://www.sievo.com/career/

matti.sillanpaa@sievo.com

+358 40 534 5689