using spend analysis to smooth the m&a path -...

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Using Spend Analysis to Smooth the M&A Path

4 Steps to Consolidate Your Purchasing Power

September 21, 2011

Copyright © Iasta, All Rights Reserved

Speakers

http://www.iasta.com/


Audience Profile

Has your company been involved in or have plans for a M&A within the next 12 months?

What's the biggest Spend Management challenge you face?


© 2011 Forrester Research, Inc. Reproduction Prohibited © 2009 Forrester Research, Inc. Reproduction Prohibited

The Many Sources of Value from Spend Analysis

Andrew H. Bartels Vice President and Principal Analyst

© 2011 Forrester Research, Inc. Reproduction Prohibited

Spend analysis is a critical element in any company’s efforts to improve the results of its purchasing activities –

especially for larger and more complex businesses or those undergoing

mergers and acquisitions


Spend analysis is the first stage in the eight-stage ePurchasing process

1. Spend analysis 3. Supplier

identification

4. Sourcing

5. Contract life-cycle management

6. Procurement

7. Order fulfillment (services procurement)

8. Electronic invoice processing and presentment

2. Supplier assessment

New category: Supplier risk and performance management

Supplier network services


Three approaches to spend analysis

1. Reports of transaction systems (ERP, procurement, etc.) Pros: Cheap, leverages existing systems Cons: Data quality generally poor and incomplete

2. Manual analysis of POs, invoices, receipts, etc.

Consultants help sort and categorize POs and invoices Pros: Cost-effective one-time snapshot of spending Cons: Expensive to repeat

3. Automated spend analysis

Specialist software vendors provide automated tools Pros: Fast, repeatable, complete Cons: Training system to improve accuracy; cost


Who needs automated spend analysis?

Single ERP A few ERPs Multiple ERPs

TECHNOLOGY COMPLEXITY

Definitely yes!

Probably yes!

Possibly yes.

Multiple markets, multiple

industries

Single market,

single industry

BUSINESS COMPLEXITY

Enterprises in multiple markets and multiple industries with multiple ERPs benefit the most


Who needs automated spend analysis?

Enterprises engaged in mergers and acquisitions

Acquiring company’s

spend categories

Acquired company’s

spend categories

Merged companies’

spend categories

Many corporate acquisitions

and mergers are justified on

the basis of cost savings

Consolidation of spending

and increased discounts from

higher category spend are

two important sources of

cost savings

Spend analysis tools allow

companies to assess quickly

the size and areas of

potential savings


Automated spend analysis

Benefits

Identifying opportunities to consolidate spending and get volume discounts

Sarbanes-Oxley compliance

Assessing compliance with and results of past sourcing activities

What’s involved

Defining a product taxomony, generally starting with UNSPSC

Importing file of PO/invoice/receipt data

System cleanses, normalizes, categorizes and enriches data

Detailed reports and analytical tools


Other sources of value

Improved employee and supplier compliance

with sourcing policies

Improved master data management

Improved employee satisfaction and work

performance through simplified purchasing of

needed services

© 2011 Forrester Research, Inc. Reproduction Prohibited © 2011 Forrester Research, Inc. Reproduction Prohibited

Demand for automated spend analysis tools is growing

Number of companies with automated spend analysis tools

Annual vendor revenues for automated spend analysis tools

US$ millions

Source: Forrester Research, Inc., based on vendor data from 14 vendors


What to look for in a spend analysis solution

Ability to cleanse, normalize, and categorize spend data from a variety of sources

Efficiency of analysis engine – how much data can it handle, how quickly can it generate results, what level of accuracy?

Structure of analysis engine:

– Rules-based engines work best on direct and indirect materials

– Artificial intelligence engines are best for services

In-house software or outsource service?

Experience in analyzing spend in your industry

Integration with sourcing tools

Portfolio of analytical reports and data views

If you’re a multi-national, language and currency support


April 2008 “Market Overview 2008: Automated Spend Analysis”

Different vendors use different spend classification algorithms


General issues in spend analysis

Setting up the right taxonomy of spend categories – Start with UNSPSC – But probably will need to customize

Determining frequency of analysis – Once a quarter to once a month is optimal – Once a year is too infrequent – Once a week or once a day is too frequent!

Determining who sees results – Aggregate results to CPO, CFO – Category results to relevant business units – Detailed results to sourcing project teams

Integrating with eSourcing – Take outputs of the analysis of a spend category and

port them directly into a RFx for that category


International issues in spend analysis

Multiple language support – Mutlinational companies operate in many countries with many

languages

– Ability of tool to handle invoices, POs, and receipts in many languages is critical

Cross-border mergers and acquisitions – European M&A involves regulatory constraints that limit ability

to consolidate and rationalize ERP systems

– Increases importance of a spend analysis tool to consolidate spend data from across all units


Recommendations

For large or diverse companies, automated spend analysis is a critical element in spend management

Choose an automated spend analysis tool that meets your requirements and budget

Create your spend category taxonomy before doing analysis

Start with semi-annual analysis, then move to quarterly, then to monthly

Act on the information! Avoid analysis for analysis sake

© Ciena Confidential and Proprietary

Deploying Spend Analytics in a Post-Merger Environment

Seth Balsam Director, Global IT Procurement September 21st, 2011


Ciena: a global leader in the optical networking industry

Global leader in high-capacity networking

Global leader in network/service automation and mesh switching

Global leader in OTN

Emerging leader in Carrier Ethernet and converged packet-optical and networking

Technology leadership

#1 share in metro and long-haul optical in North America1 and #3 share worldwide1

#1 share in fiber-based Ethernet access2

Only supplier with commercially available 100G solutions

Built the market’s largest optical mesh networks

Market leadership

A global supplier serving 80% of the world’s 20 largest network operators3, leading enterprises, and government agencies

1 Dell’Oro optical market share estimates as of calendar Q3 2010 2 Heavy Reading Q2 2010 market estimate 3 Ciena analysis based on network operator annual revenue


Ciena doubled in size with acquisition of Nortel

With this acquisition came the pressure to identify savings and synergy

opportunities as quickly as possible

METRO ETHERNET NETWORKS

Fiscal 2008 revenue of US $902 million

~350 customers worldwide

2,110 employees worldwide

leader in practical innovation with strengths in network automation, switching and optical/Ethernet convergence

Fiscal 2008 revenue of US $1.36 billion; first 6-mos 2009 US $556 million (unaudited) (acquired assets only)

~400 customers worldwide

~2,300 employees worldwide

leader in network innovation with strengths in high-capacity optical transport and connection-oriented Ethernet


Ciena’s indirect team is new to the sourcing group

What Was Going Well

• Improved organizational “fluency” and awareness around procurement • Strong degree of cooperation from most stakeholders • Vendor response to “new Ciena” • Synergy expectations

What Was Not Going So Well

• Lacked spend visibility • Demand for savings associated with merger synergies • Need to focus sourcing efforts on dollars & savings • Too much manual effort around data extraction and review


Struggling with spend analysis, the merger compounded the situation

• No central data repository

• Oracle extraction efforts were “blunt force” efforts, no legacy Nortel SAP data was included in the deal

• Indirect data wasn’t a focus until shortly before the deal was announced

• Data wasn’t cleansed or structured

• High degree of manual effort to determine basics (top vendors, top categories, total spend)

• Push to identify merger synergies fast

• Huge demand for analytics

• Budget made available

• Willingness to try new solutions

• On-demand solutions met the price point

• Nothing to lose, everything to gain


Search for appropriate tool was bounded by ease-of-use and timing requirements

Specific reporting formats and categories required

Ability to scale quickly, cost effectively once application gained adoption within organization

End-user friendliness guaranteed adoption

• Quick deployment – 1st time use had to be short; Ciena resource requirements to be minimized

• Minimal investment required

• Low risk


RESULTS

Credibility, Leverage for

Supplier Negotiations

Enhanced Data Insight

• First time the combined organization had easy-to-manipulate spend data at their fingertips

• Post-Merger leverage: Insight into how legacy organizations were using common suppliers

• Drill-Down functionality allowed granular analysis

Implementing Spend Analytics allowed us to disaggregate spend across suppliers & categories

Customized Reporting Improved

Adoption





• Analyst support helped accelerate adoption across direct and indirect organizations

• Category-based reports popular – “roll-ups” or “bookmarks” based on UNSPSC allow specific commodity views

• Added surprise: Adoption by spend owners outside of procurement



Adoption

RESULTS





• True, cross-organizational, cross-commodity spend views allowed us to talk credibly with suppliers about post-merger spend

• Ability to track committed spend vs. actual

• Rogue spend identification eased



Adoption

RESULTS


Lessons learned

1. Work with a partner that will be flexible and supportive as you start the journey. Imperfect data and process knowledge require a perfect partner.

2. Ensure underlying data query is accurate, especially when extraction is coming through a reporting tool.

3. A dedicated resource helps speed adoption through report design and tool discovery. Sometimes, “adult supervision” is indeed required....

4. The one-time upfront manual review effort of uncategorized transactions is required for good results, but pays huge dividends.

5. While 80:20 is good, remember that 90:10 is better: Categorization rules made for larger spend amounts also apply to smaller items – some providers don’t leverage this fact. Make sure to tailor your SLAs accordingly.


Procurement Enablement

Data visibility exists as the key ingredient to a best-in-class procurement

operation



Data – The Communicator in Unique Deployments

BPO Deployments

Communication is the primary differentiator between successful

and unsuccessful Procurement BPO efforts

Spend Analysis is an accelerant in BPO scenarios, but also a

common source of information shared by in-house and remote

teams

Multinational Deployments

When combined with other data (sourcing, resource planning

data), as with Iasta’s CPO Dashboard, a spend analysis platform

allows collaboration



Means vs. Ends

Most of the “Means” of Spend Analysis are similar…

Raw data is cleansed, rationalized, or enriched

Data transformation occurs in software to ensure iterative

refresh success

Data is delivered and experienced by end user through

interactive reporting

…but the “Ends” often differ.

Procurement Transformation

Category-Specific Savings

Regional/Departmental Politics!

Data Control



Q&A

Please submit your questions…



Question 1

We have both an ERP system & BI (business intelligence) system that

provides spend reports. Why can’t these suffice?

The key reason comes back to data and the level of data gained from ERP / BI

vs. automated spend analysis solution.

Typically the data in an ERP system is going to be at the level of detail needed

for a general ledger. For example, how much have you bought in computer

equipment? But knowing how much you bought on computer equipment is not

very useful if you want to go out and do sourcing.

Automated spend analysis gives you the ability to drill down to give much more

detailed information to explain what you bought, when you brought it, who

bought it, and for how much.

Good spend analysis providers can also bring in data from purchasing

scorecards, such as important contract data, supplier risk, etc.

There are a lot of powerful spend analysis solutions available in the marketplace

that give you the ability to bring in multiple systems with

multiple dimensions to bring in much more power.



Question 2

What was the most difficult part of the deployment and how long did it

take to implement?

I think we had our spend analysis dashboard up and running in about 6-7 weeks

from the time we had our data extracts complete and handed off to Iasta.

The most difficult part was when we needed to make a pass from that famous

category 99 – which is the question mark category. We had to pick up all of the

stuff the machine didn’t get because it wasn’t clearly articulated what was

purchased. We wound up taking that category and splitting it up across all

commodity managers to go through it manually to make sure we captured

everything. I would say that was the tough part, even though while the system

was up and running so I wouldn’t add that to the deployment timeline.

Even though it was a manual process for some category mangers to go through

and clean up those last bits and pieces to get more granular rules in place, once

you do it- it’s done. The data becomes the Holy Grail.



Question 3

What advice do you have for companies who do a POC (proof of

concept) before implementing a spend analysis solution?

Every company has different data – so it’s extremely important for us to get

involved with client / prospect to understand the data and help identify the

categories that they are looking into exploring for new opportunities.

Iasta takes the time to meet with the client to develop the reports they would

like to see during the POC demonstration, including target categories.

This process helps us become much more intimate with the data and that’s

important for a successful POC.

To have a successful POC the customer must still be involved, and not throw

data at a vendor without context.

Be realistic, a POC is designed to show the process of how your data will be

classified and how adjustments will be made to make sure it is accurate. It has

a limited time scope so that you shouldn’t expect all your data to be perfectly

classified in 2 weeks.



Question 4

How can you justify ROI (return on investment) for a spend analysis

implementation?

Through the cost savings achieved from gaining supplier and spend visibility,

compliance, risk management, and a sourcing pipeline developed through the

classification and reporting of your spend analysis partner.

Iasta works with its clients to make spend dada actionable, benchmarking past

sourcing experience against current client data to determine prime categories to

source, identify supplier rationalization opportunities, isolating price variances

and off-contract spend, and so on.

Spend analysis helps companies increase the amount of “spend under

management.” According to industry analysts, this is a leading indicator of a

successful sourcing and procurement strategy. Best in class organizations

have 85% of total spend under management and realize 60% of

formally negotiated savings while other organizations only recognize

5% of negotiated savings (Aberdeen Group, 2011).

That is a huge impact to ROI.



Question 5

How do you recommend teams build a solid case for spend analysis?

Gather references

Review case studies

Participate in a proof of concept

Read analyst research

Ensure the solution can bring in 3rd party data and other data, such as sourcing

project details gained from Iasta’s CPO dashboard. Other data to bring in

includes:

Supplier performance management

Contract compliance

Risk management

Benchmarking

Once the POC is complete and you have gathered this information, put together

a presentation for key stakeholders that includes opportunities discussed in the

POC and learned their your research. Overall, demonstrate the value that spend

analysis will bring to your organization.



Question 6

How long does it typically take to deploy a spend analysis solution?

Best-in-class spend analysis partners can deploy a solution in a timeframe of

4-10 weeks when focused on providing clean, sustainable data to the client.

Best practice is to use a combination of classification software and data

professionals to bring the data to a certain state out of the box and then

audit the work of the software to ensure accuracy from implementation

through refreshes.

Iasta will create business rules for any audited data that will be stored in

the software to ensure that future classifications are automatic, quick, and

consistent.



Question 7

How does “good” data impact the deployment process?

All companies can benefit from undergoing a cleansing and classification

process, no matter how clean the data may seem.

In terms of deployment, the more information given in a clean format will most

likely spend up the process.



Question 8

In Ciena’s case, user adoption of its spend analysis solution spread

quickly to other business units. What advice do you have for companies

looking to collaborate with other business units / stakeholders using

spend data?

The key is to start out small in procurement, get some wins and gain confidence

throughout the organization.

Then, you can slowly gain user count and train the users to build usage across

departments.

Strive to maintain procurement as a Center of Excellence and bring in other

business units with additional tabs / reporting information that is segmented by

unit, stakeholder, department, etc.

Use bookmarks, shared reports, and so on to keep driving adoption and

collaboration.



For more info

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United States of America

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Related Materials

White Papers Keys to Unlocking Your Sourcing Power

Spend Analysis: It's what you don't know that costs you

Dynamic Procurement: The CPO as Collaborator, Innovator and Strategist

Case Studies Gaining Insight into Key Suppliers & Contracts with a Spend Analysis Implementation

eSourcingWiki Articles Spend Analysis and Opportunity Assessment

eSourcingForum Posts 6 Steps to Implementing Spend Analysis: Procrastination is not the 1st step

Creating a Different Conversation around spend Analysis projects

Iasta Solutions SmartAnalytics

Spend Analysis Services


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http://www.esourcingforum.com/archives/2011/05/23/creating-a-different-conversation-around-spend-analysis-projects/

http://www.iasta.com/productsolutions_smartanalytics.phtm

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