Spend Analysis

New technologies always promise to disrupt – it’s nearly always hype or enthusiastic futurology manifesting itself as over excitement that hasn’t really been thought through. But it's not always hype and it's great to see optimistic expectations actually being delivered in the real world.

I tell you what you want what you really really want - Doritos!

It was 1995. Monica Lewinski was in the White House, Windows 95 was launched, the Spice Girls were becoming the biggest girl group ever and last but not least, the internet fridge was launched. Don't believe the nouveau geeks who swear that the internet of things is something new. The Internet fridge has been breaking it's promise to disrupt the world of chilled groceries for nearly two decades. It seemed like a good idea but no one really thought it through. Many of us consider internet marketing to be intrusive. We shouldn't complain. We know what the deal is it when we sign up for "free" services in the full knowledge we're inviting the marketers into our inbox and onto our desktop. But if you thought internet marketing was intrusive, try inviting the marketers directly into your fridge to manage your snack inventory. You might believe you're buying into the internet of everything but, believe me, let an internet fridge into your kitchen and within weeks it will be full of nothing but Tortilla chips and salsa dip.

It’s reckoned that more than 50% of businesses employ between 2 and 5 people to prepare and create procurement dashboards and spend reports. This was revealed just recently as an output to some research performed by Rosslyn Analytics but it will come as no surprise to many procurement professionals. And it’s not just the excessive time and resource that is dedicated to the collation of the numbers that is problematic, the accuracy of these dashboards and reports is often appalling.

In part two of this short series of guest posts from REL Consultancy, manager Michael Wydra takes a closer look at how, once an indirect spend analysis is complete the insights gained can be turned to procurement’s advantage. After analysing indirect spend on an aggregated level (see part one), the next step is to go into detail by gaining insight into the specific spend categories. Subcategories should be defined to reasonably group category spend. It can also make sense to capture certain supplier characteristics, such as region, spend contracted and contract expiration date. Even where there is a valid contract, the business may not be actually buying according to the negotiated conditions. A catalogue with negotiated items and prices may be available but not used. Maverick spend, or purchases executed outside the boundaries of a contract, can be a reason for high purchasing costs as well as increased transaction costs. Ideally, an organisation should evaluate the percentage of targeted or negotiated cost savings lost because contracted rates from preferred suppliers were not used during the purchasing process. This is particularly a problem in indirect spending categories, where, on average, 12 percent is lost. Other opportunities include investigating lower-cost markets rather than sourcing locally. Measuring compliance is not easy but necessary to point out process weaknesses.

Today we are please to publish the first in a short series from Michael Wydra of REL, part of the Hackett Group Cutting costs is a recurring and sometimes even a permanent imperative in most companies. But when firms need to slim down, their efforts usually focus on reducing direct expenditures, even though indirect spend areas provide higher improvement potential that is often easier to realise. “Indirect” spend covers goods and services that are not used in the manufacturing of an end product or development service. This area is often referred to as “nonstrategic” spend, since it has low strategic relevance. Indirect categories include office products, travel, car hire, waste management, energy, facility management, security services, insurances, telecommunications, IT, packaging, and maintenance, repair and operations (MRO) items. Because these areas are not always covered by central procurement, they may not be managed in a professional manner, resulting in a lack of visibility and control. However, these expenditures can add up to large amounts, making indirect spend worth a closer look.

The news that OB10 is to go public broke last night - actually a little prematurely - but now it's official and Tungsten and OB10 have announced their intentions. I spent 20 minutes on the phone with a delighted Luke McKeever, OB10's CEO, earlier today to understand the details of the deal that values OB10 at £99 million. Actually, the details are a little mundane - their IPO is of course subject to raising the cash - but assuming they do it will be used to buy out existing shareholders, to build bigger better infrastructure and technology and bolster Express Payments with funds to directly fund some new and innovative supply chain finance offerings. "That's not mundane" you might think - but it is - it's positively pedestrian compared to what Luke told me they are going to be doing in addition to all of this.

There are lots of reasons to do e-procurement but most of the stated reasons are not the real reason at all. Indeed, most of the reasons stated for implementing e-procurement are impossible to deliver. But there is one very good reason to implement e-procurement and oddly, the functionality that delivers it is usually not available from the e-procurement vendors.