Session Code: DG

Spend Analysis: First Step in Strategic Sourcing

Rip Greenfield
Vice-President of Global Alliances
and Business Development

Austin-Tetra, Inc.
Monday, May 9th
10:40 11:40

Topics
Spend Management Defined
Why does enterprise spend analysis matter?

Benefits
What are the reasons for doing it?

Approach
How do I do it?

Results
What are the deliverables/output to expect?

Solutions
Who can help me?

Why The Need to Manage Your Spend Data?

"Few enterprises know what they spend, on
which products, with which vendors ...
Spend Data Management is critical for
supply management and business success ...
Insufficient visibility into spending is a
corporate epidemic."
- Tim Minahan, The Aberdeen Group

Spend Data Management Defined

More simply, can you answer these questions?
Which suppliers provide the greatest value to the enterprise?
How does total spend roll-up in corporate families create
increased leverage to reduce supply costs?
Which commodity and service areas represent the greatest
sourcing opportunities for spend reduction?
What is my total spend by industry classification?
Where is spend occurring with non-preferred suppliers?

How Can You Manage What You Dont Measure?

Fact Based Decision Making

Example
Maverick Spending as a Key Performance Indicator

To measure it, you need to know whether a

purchase for item specification A in
commodity B, placed by person/department
C in geography D, properly used contract E
that hopefully existed for supplier F, to be
used given these conditions.

The Opportunity
Three key reasons for planning and implementing best
practices in spend management are:
Baseline spend to establish visibility to current enterprise
purchasing and identify cost savings and sourcing
opportunities
Support compliance initiatives to meet internal savings
targets, Federal government regulations, SOX 404, and socioeconomic initiatives
Implement process improvement to meet the dual goals of
sourcing savings and best practices in compliance

Spend Data Management Business Drivers

Strategic
Sourcing
Identify non-preferred
supplier spend in
contracted categories
Identify disparate terms
and conditions across
unidentified duplicates
and related companies
Identify categories that
are potentially overrepresented with
suppliers

Procurement
Identify spend with
contracted suppliers at
various locations to
establish transaction
counts and consider
restructuring payment
plans
Combine A/P and
P-Card transactions to
identify opportunities to
migrate PO spend to
P-Card where
appropriate

Supplier
Management
Evaluate supplier
performance via financial
and operational metrics
Collect and manage key
supplier documents in
order to meet contractual
and social obligations
Evaluate supply base
for risk (denied/debarred
parties)

Each step in the sourcing process has an element of data

management starting with the Opportunity Assessment
Opportunity
Assessment

Data extraction
Baseline spend visibility
Sourcing group definition

1. Profile Sourcing Group

Sourcing Steps

2. Sourcing Strategy
3. Supplier Portfolio
4. Selection of
Implementation Path
5. Competitive Supplier
Selection
6. Operational Integration
with Suppliers
7. Continuous Benchmarking
of Supply Market

Sourcing group analysis

Supplier RFIs
Supplier analysis
Supplier RFPs
RFP evaluations
Savings measurement system

Spend Analysis Steps

1.

Extract, Cleanup and Validate the Data

2.

Rationalize your Suppliers

3.

Categorize spend data to a sourceable commodity structure

(e.g. United Nations Standard Products and Services Code or UNSPSC)
Does your system capture good descriptions?
Do you use them to allocate to the right category?

Identify and Act

5.

Get all the supplier spend linked to the corporate parent

Categorize supplier spend
Understand supply base risk, dependencies, and socio-economic breakdown

Code for Insight & Assess the Details

4.

Standardize, Normalize, and Enrich your spend information

Identify Exceptions

Uncover strategic sourcing opportunities for immediate savings

Improve internal controls
Comply with government controls

Implement Process Improvement

Standardize on commodity framework across the company

Capture intelligence closer to the transaction for higher compliance
Supplier on-boarding & detail coding

Solid Spend Data Management Delivers

Data Quality

Standardized consistent formatting

Cleansed identify duplicates, fix errors
Consistent data represented in the same manner
Current ongoing updates to manage business change
Grouped categorized and classified
Granular detailed data available

Knowledge Enrichment
Completeness fill in missing data for master information, hierarchies,
demographics, relationships
Expand provide new insight
Risk identify possible disruption in supply or supplier support

Process Improvement
Spend Visibility access to enterprise view of corporate expenditures
Supplier Evaluation and On-boarding pre-qualification of suppliers
Policy Compliance exception handling, workflow and monitoring

Spend Analysis allows many cuts of

the data and can take many forms
Transaction
Data Stores

Data
Preparation

Data
Management

Spend
Analysis

Categories

pl i
er

Strategic
Procurement
Database

Su
p

A/P

User

Manual
Data Entry

Analysis Tools
Analyzers
Drill Down 1
Drill Down ...
Queries
Reports
Spreadsheets

G/L
Extract
Master
Files

Data
Cleanse

Cleansed
and
Staged
Data

Final Deliverable Formats

Raw Database

POs

Individual
RDBMS**

Intellectual
Capital

**Relational Database Management Systems

Desktop Tool

Database with end-user

interface
Data-ready for Spend
Analyzer or OLAP* tool

Others

*On-Line Analytical Processing

If repeatable data capture processes and data cleansing capabilities are created,
the spend analysis solution can be maintained over time

Categorizing 100% of Spend

A combination of top-down and bottom up spend categorization is required
Categorization
Method

Use A-T #, G/L

Use Item Description, Item Master

Confirm with Supplier, G/L

P-Card Spend

% of Total Spend

~1-20% of Total

Data
Characteristics

Use Supplier, G/L

Non-PO A/P
Spend
~30-40% of
Total

PO A/P
Spend
~50-70% of
Total

By Transaction

By Invoice

Supplier Name, G/L,

Cost Center

Aggregate Total Only

Unit Price
High Volume, Low $

All expenditures including

non-inventoried materials
and services

By Line item # &

Description
Quantity
Unit Price
Direct/COGs material

Supplier Normalization
Link the same supplier, and customer, businesses to all representations of
that business.
Benefits:

Identifies, and links, duplicate

records allowing supplier
normalization
Opens the door to a wealth of
information on your trading
partners
Links suppliers, and
customers, across various
business units or source
systems

Home Shield Corporation

123 Main Street Ste 512
Memphis, TN
supplier ID 12882A
Spend $75,500
Source Western Division
Oracle

AHS Corp
Main Street Ste 512
Memphis, TN
supplier ID 76620GFT
Spend $100,000
Source Eastern Legacy

American Home
Shield Corporation
123 Main Street
Suite 512
Memphis, TN
A-T #: 14000647
Sales: $1.27 B
Primary SIC: 6351
Surety Insurance

Spend Analysis Examples

Supplier
ID

Supplier Name

Supplier Address

Supplier City

Supplie
r State

Supplier
ZIP

Spend
(2004)

602127

STERLING
MANUFACTURING
COMPANY

640 STERLING STREET

(RT 62)

SOUTH
LANCASTER

MA

01561

$172,312.96

100768

STERLING
MANUFACTURING
COMPANY

ROUTE 62

SOUTH
LANCASTER

MA

01561

$33,110.48

100249

STERLING
MANUFACTURING
COMPANY

640 STERLING STREET

ROUTE 62

SOUTH
LANCASTER

MA

01561

$132,023.50

Four different company codes and three

different purchasing organizations
Company
Code
3510
3550
1000
1400

Purchasing
Org
P550
P560
P300
P450

Vendor
Number

Vendor Name

Account Group

Spend (2004)

100249

STERLING MANUFACTURING
COMPANY

ZINV

$2,724.25

100249

STERLING MANUFACTURING
COMPANY

ZINV

$107,568.86

100768

STERLING MANUFACTURING
COMPANY

ZINV

$24,082.98

602127

STERLING MANUFACTURING
COMPANY

ZRMT

$114,023.95

Spend Analysis Examples

Supplier
ID

Supplier Name

Supplier Address

Supplier City

Supplie
r State

Supplier
ZIP

Spend
(2004)

602127

STERLING
MANUFACTURING
COMPANY

640 STERLING STREET

(RT 62)

SOUTH
LANCASTER

MA

01561

$172,312.96

100768

STERLING
MANUFACTURING
COMPANY

ROUTE 62

SOUTH
LANCASTER

MA

01561

$33,110.48

100249

STERLING
MANUFACTURING
COMPANY

640 STERLING STREET

ROUTE 62

SOUTH
LANCASTER

MA

01561

$132,023.50

These Three Records match to:

AT Number: 46768
AT Name: STERLING MANUFACTURING CO
AT Street Address: 640 STERLING STREET RT 62
AT City, State, ZIP: SOUTH LANCASTER, MA 01561

Corporate Linkage
Establishes supplier and customer parent and child ownership linkages.
Benefits:
Compare key terms extended by different
suppliers owned by the same company
Aggregates spend by supplier and parent
company to enhance sourcing leverage
and negotiating power
Consider balance-of-trade in customer
pricing and procurement sourcing
decisions
Enables dependency analysis

The ServiceMaster Company

Downers Grove, IL
A-T #: 17138484
Sales: $3.3B
SIC:
0782 Lawn and Garden Services
1711 Plumbing, Heating, and A/C
1731 Electrical Work

TruGreen-Chemlawn
Memphis, TN
A-T #: 03567354
Sales: $880M
Primary SIC: 0782 Lawn
and Garden Services

TruGreen-Chemlawn
132 North Street
Dallas, TX

How much of a vendors business do you

represent?

Rescue Rooter
Memphis, TN
A-T #: 12691513
Sales: $550M
Primary SIC: 1711 Plumbing
Heating and Air Conditioning

TruGreen-Chemlawn
5551 Lamar Street
Chicago, IL

Spend Analysis Examples

Corporate Family Spend
AT Ultimate
Number

Supplier Name

# of Records

Spend (2004)

13974153

MARRIOTT INTERNATIONAL, INC.

52

$1,349,801.23

16115316

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

27

$3,113,594.17

GENERAL ELECTRIC COMPANY

27

$1,460,603.69

21173372

UNITED STATES, GOVERNMENT OF

24

$386,107.15

5597502

HILTON HOTELS CORPORATION

20

$241,868.71

18340971

TYCO INTERNATIONAL LTD.

19

$979,731.84

18343355

WOLTERS KLUWER NV

18

$1,080,728.23

3567301

FEDEX CORPORATION

17

$40,401,234.08

12527573

AMERICAN HEART ASSN

17

$145,012.56

14166301

H GROUP HOLDING, INC.

16

$687,262.17

10669694

ARKANSAS BEST CORPORATION

15

$443,018.44

30882246

DEUTSCHE POST AG

13

$3,437,699.88

18310528

BUHRMANN NV

13

$1,712,750.39

18344116

INTERCONTINENTAL HOTELS GROUP

12

$1,064,144.11

492553

Spend Analysis Examples

Tyco ~ Family Example
Supplier ID

Supplier Name

Spend (2004)

604246

UNITED STATES SURGICAL

$465,267.25

600085

MALLINCKRODT MEDICAL INCORPORA

$208,891.97

600003

ADT SECURITY SERVICES

$78,629.45

600975

MALLINCKRODT INCORPORATED

$65,409.40

104127

TYCO HEALTHCARE GROUP LP

$47,975.76

600876

SIMPLEX GRINNEL

$32,690.20

100043

TYCO MALLINCKRODT HEALTHCARE

$29,547.12

607430

SIMPLEXGRINNELL LP

$24,831.38

603485

MALLINCKRODT INCORPORATED

$13,402.41

101779

MALLINCKRODT MEDICAL

$6,057.82

302799

SIMPLEX

$5,255.76

317413

SIMPLEX GRINNELL LP

$1,330.00

608168

ADT SECURITY SYSTEMS

$443.33

304106

ADT FIRE AND SECURITY LIMITED

$0.00

713316

ADT SECURITY SERVICES INCORPOR

$0.00

737481

ADT SECURITY SERVICES INCORPOR

$0.00

102987

MALLINCKRODT BAKER

$0.00

Commodity Categorization

Enterprise Spend Visibility

Analyzing spend along any combination of dimensions

Simplified Illustration of Spend Cube

Supplier Dimension
Resolution of redundancies and
corporate linkage
Siemens Siemens Dematics

Spend Visibility Examples

Commodity
Dimension
Organizes
expenditures
into
sourceable
commodity
buckets
Ground
Fleet Fleet
Goods &
Services
Spare parts

Organization

Geography

Spend Figures can be viewed at

the intersection of any
combination of cube dimensions

Region North America

Country United States
State Texas

Supplier

Supplier Siemens Dematic

Product Category

Location/Org. Dimension
Organizes expenditures along
geographic or business lines
N America US Texas
Total Co. Division 2

Entity Total Company

Sub-Entity Division 2

Cluster Ground Fleet

Category Fleet Goods & Services
Sub-Category Spare Parts

Time

Year 2003

Quarter 2nd
Month April

Analysis Dimensions
Spend cube can be analyzed across its dimensions which provides a comprehensive
view of purchasing
Types of Analysis

Level

Purpose

Examples

Overall

Provide a top-level picture of

spend

Spend and Number of Suppliers by category

Spend and Number of Suppliers by
location / business unit
Spend to Sales ratio by location/ business
unit

Category

Compare categories to identify

sourcing opportunities

Supplier

Identify supplier base and

fragmentation issues

Top suppliers by spend

Pareto analysis overall and by location/
business unit
Supplier overlap

Item

Isolate item discrepancies and

prepare category baselines for
sourcing

Number of items by category

Number of suppliers by item
Price variance of an item across locations/
business units

Top categories by spend

Spend to supplier ratio by category
Pareto analysis by category
Supplier overlap by category

Spend Visibility Options

Transactional &
Master Data

Transformation

Presentation Alternatives
Output Files
CLIENT NAME
3M COMPANY J CH0336
CONAGRA BEEF
CONAGRA DAIRY
COUNTRY SKILLET
LAMB WESTON
FERNANDO'S FOODS CORP.

Data
Data Mapping/
Sources Categorization
Operating Co. 1
(A/P data mart)

Output
The Spend Cube

Operating Co. 2
(A/P
systems)

Operating Co. 3
(A/P
systems)

Suppliers

at
C

ry
go

AT ATNUM

AT NAME

AT SUBNUM

AT SUBNAME

AT ULTNAME

3M COMPANY
CONAGRA BEEF
CON AGRA DAIRY FOODS CO
COUNTRY SELECT COMPANY
LAMB-WESTON INC
CONAGRA MEXICAN FOODS INC

0
0
0
0
8520330
8071130

0
8071131
8071131
8071131
LAMB-WESTON INCORPORATED
8071131
CONAGRA FOODS FROZEN FOODS GROUP
8071131

MEADOW GOLD DAIRIES

RYAN MILK COMPANY, INC.

3321387
4389247

MEADOW GOLD DAIRIES

RYAN FOODS COMPANY

7320009
0

DEAN DAIRY GROUP

10878311
10878311

DEAN FOODS COMPANY

DEAN FOODS COMPANY

FLOWERS BAKING - NORFOLK

FLOWERS BAKERY
BUTTER KRUST BAKING

10531344
2781568
2054204

FLOWERS BAKING CO.

FLOWERS BAKING CO
BUTTER KRUST BAKING COMPANY

1825068
1825068
11365197

FLOWERS BAKERIES LLC

FLOWERS BAKERIES LLC
BUTTER KRUST BAKERY

13890077
13890077
13890077

FLOWERS FOODS, INC.

FLOWERS FOODS, INC.
FLOWERS FOODS, INC.

KELLOGG SALES (FROZEN)

KELLOGG SALES (FROZEN)
KELLOGG SALES COMPANY
KELLOGG SALES COMPANY
AUSTIN FOODS COMPANY

14166597
14166597
14166597
14166597
2889871

KELLOGG USA INC

KELLOGG USA INC
KELLOGG USA INC
KELLOGG USA INC
AUSTIN QUALITY FOODS

0
0
0
0
17142989

KELLOGG SNACKS

16125443
16125443
16125443
16125443
16125443

KELLOGG COMPANY
KELLOGG COMPANY
KELLOGG COMPANY
KELLOGG COMPANY
KELLOGG COMPANY

SIMPLEX GRINNELL

8537335

SIMPLEX GRINNELL

SIMPLEXGRINNELL LP

18340971

TYCO INTERNATIONAL LTD.

38721

Standard Reports/Views

Analytics Platform
Organization

AT ULTNUM

7052825
16748788
16571351
17130902
2433489
5603941

CONAGRA FOODS, INC.

CONAGRA FOODS, INC.
CONAGRA FOODS, INC.
CONAGRA FOODS, INC.
CONAGRA FOODS, INC.

Spend Categorization
Segment high priority spend categories, identify savings
opportunities, and evaluate business risk.
Total Overall Spend

Total Spend by
Each Supplier

Total Spend by
Each Category

Total Spend by
Each BU

Total Spend by
Each Entity

Spend Ranked by
Supplier Dependency

Supplier Spend
by Category

Category Spend
by Supplier

BU Spend by
Supplier

Region/Country
Spend by Entity

Deep Dive in Selected

Categories/ Suppliers

Supplier Spend
by BU

Category Spend
by BU

BU Spend by
Commodity

BU Spend by
Entity

Supplier Spend by
Diversity Groupings

Supplier Spend
by Entity

Category Spend
by Entity

BU Spend by
Entity

Spend by
Supplier Parent
across Entities

Spend with at Risk

Suppliers

Spend Analysis Solution

The Basic Elements:
Web delivered reporting and analysis
Global corporate family linkage
Supplier master cleansing and rationalization
A repeatable and refreshable update process
Supplier data enrichment with unique tracking ID
Diversity spend identification and classification
Supplier portfolio risk assessment including denied/debarred party identification and balance of trade assessment
Item level spend classification to UNSPSC taxonomy or other enterprise defined standard that takes advantage
of internal and external coding routines

U.S. Procurement and Sourcing Space

Source: AMR Research 2004

SRM/
Spend Management:
Ariba, Emptoris,
Frictionless, i2,
Ketera, VerticalNet

Applications

Content / Data
Services

Professional
Services

Spend
Analysis
Boutiques:
Analytics,
Ariba
(Softface),
Zycus

Supplier Data
Management:
Austin-Tetra,
D&B

A/P Audit:
PRG-Schultz,
Apex Analytix

Deep Niche

SCM/PLM:
i2, UGS

Business
Intelligence:
SAS, Cognos,
Business Objects

Sourcing Services /
Technology Hybrids:
Ariba (FreeMarkets),
Silver Oak, UGS,
VerticalNet (Tigris)

ERP:
SAP,
Oracle,
PeopleSoft

Management
Consultants:
ATKearney,
Accenture,
CGE&Y, Deloitte,
IBM GS

Broad Suite

Spend Analysis Benefits

Baseline for strategic sourcing initiatives

Enabler for process improvement
Measurement device for cost reduction programs
Comprehensive spend visibility across direct and
indirect commodities and services
Significant cost-savings opportunities through
supplier and commodity consolidation
Enhanced compliance through effective spend and
supplier monitoring

Austin-Tetra Company Profile

Established in 1993, privately held, management controlled, headquarters in Irving, Texas

Supplier & Customer intelligence domain expertise

Best-of-class global business content

Coverage of 50 million active global businesses available
Up to 220 data elements for each business
Data aggregated from over 320 seed sources including infoUSA, Experian, LexisNexis and
Bertelsmann AG
Data is updated daily an average of 10% of records experience business changes monthly
(management, address change, change in ownership, linkage, diversity certification, etc.)

Provider of outsourced business information management

Content and web based solutions

200 blue chip customers

115 of the Fortune 500
All three major credit card associations
Horizontal across all markets

comprehensive

data

solutions

Austin-Tetra Clients
(Representative Listing)

Contact Information

Rip Greenfield
Phone: 512.695.7999
Email : rip.greenfield@austintetra.com
www.austintetra.com