SpendHQ & Ardent Partners: Where Can Spend Analysis Take You?

Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

Underwritten by:

Andrew Bartolini, Chief Research Officer Matthew York, Research Analyst Ardent Partners October 2017

Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

REPORT SPONSORSHIP The views and opinions in this report represent those of Ardent Partners at the time of publication. Sponsoring companies have had no measurable influence on the content and research in this report. The contents of this research report are the exclusive property of Ardent Partners. Please direct any comments or questions regarding our research sponsorship policy to Ardent’s Chief Research Officer, Andrew Bartolini, at abartolini@ardentpartners.com and/or 617.752.1620.

Sponsor:

SpendHQ is a spend analysis solution that provides rapid, accurate and detailed visibility into enterprise spend data. This full-service SaaS (Software-as-a-Service) spend analytics solution delivers actionable insight for sourcing and procurement professionals.

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As a standalone extension of Insight Sourcing Group, SpendHQ is built by industry leaders with unmatched sourcing knowledge. Inc. Magazine has ranked Insight Sourcing Group among the fastest-growing private companies in America every year since 2008. Learn more about SpendHQ’s spend analysis solution and start taking control of your enterprise spend data at www.spendhq.com and request a free spend analytics demo today.

Contact (Talk to us): info@spendhq.com (888) 880-2190

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Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

Where Can Spend Analysis Take You? Not all spend analysis processes and solutions are the same; yet there is the tendency to view spend analysis generally and as a set of specific data inputs and outputs. The truth of the matter is that there are many variables beyond the core technology that should be considered before commencing a spend analysis “journey.” That is because, when the right spend analysis technology is coupled with category, process, and supply market expertise, more and better insights can be revealed and smarter business decisions can be made. With many departure points and even more paths to follow, procurement teams today need the right “guide” to prepare them for their trip and to ensure that they reach the right destination. This report will examine the blend of strategies, processes, and technologies that Best-in-Class procurement teams employ to complete a successful spend analysis journey and gain the actionable business insights that enable them to make smart decisions.

Defining Spend Analysis Ardent Partners defines spend analysis as the process of extracting spend data from the different enterprise systems, and then classifying, cleansing, enriching, and analyzing it in order to distil business intelligence. This intelligence can be used to gain insight into enterprise spend, business processes, savings opportunities, and risks, and allow procurement and other business leaders to make more-timely and better-informed decisions.

Spend analysis is not only a business process, it is also a business technology – one that has been available for nearly two decades. In this time, it has advanced significantly in feature functionality, usability, and delivery models.

While it is possible to manually conduct a spend analysis, Ardent Partners believes that it is generally imprudent to do so given the complexity of the core task (that frequently involves multiple and varied systems, data sets, classification structures, and IT resources), as well as a general inability to efficiently repeat the process. Today, many automated spend analysis solutions can perform most of this “heavy lifting” by supporting the full range of the process

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Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

from data collection to analysis and reporting. Users are involved initially in establishing their desired parameters and reporting features; but, over time, the bulk of the process becomes more fully-automated, with fewer human touch points while also delivering deeper insights faster and with greater fidelity.

The Value of Spend Analysis The output from spend analysis can be used to identify category and supplier trends, savings opportunities and savings leakage (the gap between identified and realized savings), risk, internal or external compliance rates, and key procurement performance metrics. They can “arm” Chief Procurement Officers (CPOs) and their teams with actionable intelligence and empower them to quickly make critical business decisions – in a word, to be more agile.

Spend analysis is also an invaluable way to gain visibility into the health of the procurement operation and the overall business, to better understand the direction in which each is heading, and whether and where course correction is needed. Without spend analysis, CPOs and procurement teams are “flying blind,” and are, in Ardent’s opinion, guilty of conducting procurement malpractice.

Despite the utility and value of automated spend analysis solutions, current and planned adoption rates remain low. Just 38% of respondents to a 2017 Ardent Partners survey of more than 300 CPOs indicated that they deploy an automated spend analysis solution; although 42% stated that they intend to deploy one within the next two years. Another 20% neither deploy a solution nor plan to do so in the future, leaving too many procurement teams exposed to financial, operational, and supplier risks. CPOs and their teams can do better.

Figure 1: Automated Spend Analysis Adoption – All Respondents 38%

Currently Use

42%

Plan to Use (next 24 months) © Ardent Partners - 2017

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Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

Not All Spend Analysis Solutions are the Same For CPOs and procurement teams interested in adopting a spend analysis solution or upgrading their existing tools, there are many automated spend analysis solutions available to procurement practitioners today. The technology has advanced since its inception, certainly; and it continues to evolve as solution providers integrate innovative technologies, like smart algorithms, automated data extraction, machine learning, predictive analytics, and advanced reporting and visualization capabilities to solutions that are also quite robust and easy to use.

Organizations have more options today and can choose between an on-premises install or migrate to the cloud for an on-demand, subscription-based software-as-a-service (SaaS) model. They can also choose between a standalone, “best of breed” solution or take a suitebased approach to their processes. Beyond the technology itself, there are other important considerations.

The Spend Analysis Journey: Guideposts for Optimal Solution Selection Apart from the unique innovations available with some solutions and the different deployment models and supporting capabilities, this report focuses on three key factors that should also be considered when selecting an automated spend analysis solution, specifically the category, process, and supply market expertise that can enhance value and the return on investment (ROI) on a spend analysis technology investment. How a procurement organization structures its category and supplier reports, and how it manages the data extraction, classification, and enrichment processes can impact the quality of the output, user adoption rates, as well as the amount of savings and overall value generated.

Category Expertise As a refresher, category management is a process whereby someone or some team in procurement owns the management of an entire category of spend – from sourcing to purchasing to the warehousing and use by the business. The process blends traditional sourcing approaches, like contracting, purchasing, and supplier management, with more robust category strategies, more penetrating views of supply markets, and deeper collaborative ties with suppliers. By extension, category managers manage the current

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Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

supplier relationship and ensure they continue working with the highest value suppliers. They also track the market to understand trends, changes, and innovation.

But, category expertise is also valuable in the initial phases of a spend analysis deployment, particularly when it comes to the classification phase. The ability to organize and group certain spend categories using industry standards or common buying behaviors enables the spend analysis system to present more and better information to system users in the context of how they actually need to access and use it. For example, the knowledge that an item is used differently across industries or is frequently coupled with another item or service can help to establish an overall category structure that is tailored to the specific enterprise’s buying behaviors. The result is higher quality reporting and better context and information to make smarter decisions.

Process Expertise With any technology deployment, speed to value can have a significant impact on the ROI of the project. Teams that are experienced working with both different organizational structures and industries should be able to drive a spend analysis project to completion more efficiently and more effectively. One key part of the spend analysis process is identifying the right stakeholders (e.g., those in AP, IT, and procurement, but perhaps also manufacturing, operations, and product management) within the organization who possess the best spend, sourcing, and category and incorporate their views and feedback throughout the process.

Teams with process experience will be more adept at doing so.

Another key element to spend analysis success is the ability to extract data from a potentially vast array of back-end systems. Deployment teams with process expertise should be better able to identify and prioritize the key systems that currently warehouse the spend information and develop a strategy to cleanse and consolidate it. Experience managing the raw data output of specific back-end systems can enable spend analysis teams/integrators to leverage previous client work to the benefit of the current project. Understanding the specific challenges that unique data sets present can help teams anticipate problems and/or deliver prebuilt solutions that solve them.

Additionally, whether the project is global in nature or more focused, process expertise can be valuable in the “go-live” portion of the project, helping procurement teams deliver clear messaging and support during the system roll-out. Process experts can also help manage expectations or work to course correct when a project runs astray. This expertise can be

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Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

particularly useful for large or multinational organizations that have a global presence but are “center-led” and rely on data from departments and stakeholders across the enterprise.

Supply Market Expertise Like category expertise, supply market expertise can be used to efficiently group different categories of spend for the organization and to better develop and structure spend reports by supplier, price, commodity, and category. This expertise is also useful in identifying the many “parent-child” relationships that can exist within the supply base, and to identify leverage opportunities across those relationships. For example, if an organization conducts business with a large holding company and two of its subsidiaries, the procurement team may be able to leverage the overall relationship to extract better pricing or SLA levels that can lead to tangible savings. Additionally, when spend reports are structured in a certain way, procurement teams may be able to better identify supplier category coverage and more easily spend with fewer suppliers and contracts, often with greater savings.

How the Best-in-Class Achieve Superior Performance with Spend Analysis Top performing procurement teams earn the title, “Best-in-Class” largely for their ability to pull more spend under their influence or management (87% on average), but they have other competitive differentiators that help them save more and deliver more value. Compared to all other teams, the Best-in-Class are: 

24% more likely to utilize a fully-automated spend analysis adoption



21% more likely to be able to leverage their spend data to identify sourcing opportunities

The Best in class also report higher levels of spend analysis process standardization.

Procurement teams that have standardized and automated their spend analysis processes and can use historical spend data to identify new sourcing opportunities (or optimize existing ones) are farther along in their spend analysis “journey” than their peers, many of which are still looking at fold-up maps.

In addition to (and perhaps because of) these capabilities, Best-in-Class procurement teams possess greater visibility than their peers into many of the critical metrics that help define procurement success (see Figure 2, next page). If problems can be identified in their infancy, they can be managed or curtailed before they grow in scope and complexity. The Best-inClass are generally able to identify savings opportunities, savings leakage, and maverick spend

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Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

sooner; and they can take remedial action sooner to avoid incurring unnecessary costs, plug savings leaks, and help “course correct” a wayward business user, unit, or team.

Figure 2: The Best-in-Class Visibility Advantage

© Ardent Partners – 2017

The Results the Best-in-Class Achieve with Spend Analysis When compared to their peers, Best-in-Class procurement teams use their superior levels of visibility and automation to help influence/manage more enterprise spend, deliver higher levels of savings, and ensure higher spend compliance (see Table 1).

Table 1: 2017 Procurement Performance – Best-in-Class vs. All Others Metrics

Best-inClass

All Others

Spend Under Management

87%

58%

Savings 2016 (Actual)

6.3%

6.1%

Savings 2017 (Targeted)

7.0%

6.0%

Spend that is contract compliant

66%

45%

© Ardent Partners - 2017

Best-in-Class Strategies for Success Best-in-Class procurement teams regard spend analysis as both a fundamental and valuable business process. That they can more frequently standardize it, automate it, and link it to sourcing events is one of the advantages that sets them apart from their peers, whose

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Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

performance lags. However, achieving high performance is not as simple as adopting a spend analysis solution. As described in this report, there are many business aspects and technology features to incorporate into the selection and deployment processes. Here are some Best-inClass strategies to guide CPOs and other technology evaluators in their spend analysis journey: 

Automate spend analysis to gain better, and ideally, comprehensive visibility into enterprise spend.



Use spend analysis results to identify and prioritize sourcing (and savings) opportunities and allocate resources accordingly.



Use spend analysis to better understand, manage, influence, and optimize current buying behaviors.



Leverage spend analysis reporting to track and improve contract compliance.



Use spend visibility to develop a plan to place more spend under management.



Share spend intelligence with key stakeholders working in the business or in a functional partner so that they can better understand supplier performance and the impact of supplier selection decisions.

Conclusion When selecting a spend analysis solution, make sure to consider any accompanying category, process, and supply market expertise that is offered in support of the deployment. If the necessary expertise has not been used to structure category and supplier reports; if the tool cannot pull and read the necessary spend data from back-end systems; and if users are distracted with extraneous data and inputs, then users will be unable to take full advantage of even the most robust spend analysis solution.

The spend analysis journey can be a long haul for short gains, and with many bumps and detours along the way. Even the most innovative and robust solutions can leave ill-prepared procurement teams stranded on the side of the road. Thus, technology evaluators and integrators should work to incorporate category, process, and supplier expertise into their solution selection and integration calculus to ensure that they enter the right coordinates, clearly see the road ahead, avoid the bumps and detours, and arrive at their desired final destination.

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Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

Appendix About The Authors Andrew Bartolini, Chief Research Officer, Ardent Partners Andrew Bartolini is a globally-recognized expert in accounts payable, sourcing, procurement, and supply management. Andrew focuses his research and efforts on helping enterprises develop and execute strategies to achieve operational excellence within their finance and procurement departments. Andrew is also the publisher of CPO Rising, the news and research site for Chief Procurement Officers and other procurement leaders (www.cporising.com).

Advisor to corporate executives and leading solution providers alike, Andrew is a sought-after presenter, having lectured and presented more than 250 times in eight different countries.

Over the past decade, Andrew has benchmarked thousands of enterprises across all facets of their accounts payable, sourcing, procurement, and supply management operations and his research is currently part of the Supply Chain/Management curriculum at several US universities. He actively covers the technology marketplace as well as trends in sourcing, procurement, supply management, and accounts payable and has been published or quoted in leading business publications including The Wall Street Journal, Business Week, Investor’s Business Daily, Forbes, and Fortune, as well as the major trade publications focused on accounts payable and supply management.

Prior to becoming an industry analyst, Andrew developed, packaged, deployed, and used supply management solutions on behalf of enterprises in the Global 2000 while working for Ariba and Commerce One. Additionally, his experience in strategic sourcing (where he managed sourcing projects totaling more than $500 million in aggregate client spend), business process transformation, and software implementation provides a “real-world” context for his research and writing.

Andrew has been named a “Pro to Know” by Supply and Demand Chain Executive three times and holds a B.A. in Economics from The College of the Holy Cross and an M.B.A in Finance from Indiana University. He welcomes your comments at abartolini@ardentpartners.com or 617.752.1620.

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Where Can Spend Analysis Take You? Procurement Strategies and Solutions to Lead the Way

Matthew York, Research Analyst, Ardent Partners Matthew York is a Research Analyst at Ardent Partners who for more than a decade has been fascinated by emerging technologies like artificial intelligence, Blockchain, and connected devices, and how they can enrich business operations. At Ardent Partners, Matt researches, analyzes, and writes about the intersection of people, processes, strategies, and technologies in supply management and how they are changing the business landscape of tomorrow. He has been lead author on data-driven, thought leadership reports ranging from advanced analytics to contract management to strategic sourcing to supply risk management. Matt has been named a “Pro to Know” by Supply and Demand Chain Executive magazine and is a sought-after speaker. He earned a B.A. in Political Science/International Relations from Stonehill College and an M.A. in Political Science/International Politics from the University of New Hampshire. Matt can be reached at myork@ardentpartners.com.

About Ardent Partners Ardent Partners is a Boston-based research and advisory firm focused on defining and advancing the supply management strategies, processes, and technologies that drive business value and accelerate organizational transformation within the enterprise. Ardent also publishes the CPO Rising and Payables Place websites. It also hosts the prestigious annual CPO Rising Summit. Register for exclusive access to Ardent Partners research and events at ardentpartners.com/newsletter-registration/.

Industry Standard “Fine Print:” The information contained herein has been obtained from sources believed to be reliable. Ardent Partners, Ltd. disclaims all warranties as to the accuracy, completeness, or adequacy of such information. Ardent Partners, Ltd. shall have no liability for errors, omissions, or inadequacies in the information contained herein or for interpretations thereof. The contents expressed herein represent Ardent Partners’ best analysis at the time and are subject to change without notice. © 2017 Ardent Partners, Ltd. All rights reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. Solution providers and consultancies should take special note that Ardent Partners reserves the right to seek legal remedies including injunctions, impoundment, destruction, damages, and fees for any copyright infringement (which includes but is not limited to usage of any Ardent Partners content in company collateral, presentations, and websites) in accordance with the laws of the Commonwealth of Massachusetts and the United States.

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