evaluating spend solution providers

Power Advocate, Inc. Confidential 1 1

Evaluating Your Spend Solution Options


Today’s top energy executives recognize the huge value in effective spend analysis…

Millions in Cost Savings

Operational Efficiencies

Optimized SRM


…but often overlook the most important criteria when considering vendors

! ! !


Many variables seem important; others actually are important

Total Spend Analyzed

Speed of Data Cleansing

Number of Features

Number of Rules

Energy Spend Analyzed

Usability for Energy Professionals

Energy-Specific Rules

Quality of Data Cleansing

vs

vs

vs

vs

Most Important!

Integration w/ Transactional Platforms Integration w/ Strategic Platforms vs


And when executives prioritize the wrong variables, they end up with solutions that pose meaningful risks

Millions in Lost Savings

Bad Data

Inaccurate Reporting

Total Spend Analyzed

Speed of Data Cleansing

Number of Features

Number of Rules

Integration w/ Transactional Platforms


“Experience in analyzing spend in your industry”

What to Look For in a Spend Analysis Solution

“To succeed at spend intelligence, it would help if you were to hook up…a solution provider that has familiarity with your industry”

Steps to Success for All Enterprises

So what do the industry experts recommend?


Is it really that risky to choose a cross-industry provider?

Well, let’s take a look…


Here are some of the biggest customers that one cross-industry provider has…


The things these companies buy…


…are VERY different from the things these companies buy


Different suppliers

Different products

Different services

Different data

And…


Complexity of Spend Data High

Plus, data from some industries is more complex

Commodities Engineered products

Specialized vendors Vendors providing many products & services

Centralized purchasing Distributed purchasing

Basic services Highly-Technical Services

Products purchased

Services purchased

Suppliers

Organization

Data Complexity Low High


Complexity of Spend Data High Data Complexity High Data Complexity Low High

Turns out, energy company data is especially complex


And we’re not talking about a small difference

Vs.


10” .375 X42 ERW DRL HYUNDAI W/FBE 14-1

Accurately classifying cryptic, energy-specific items like this requires highly specialized rules and schemas…


…which cross-industry vendors cannot profitably develop

Energy

Consumer Goods

Automobiles

Airlines

Beverages

Fast Food

= Cross-Industry Vendors’ Profitability Threshold

Complexity of Spend Data High

Data Complexity Data Complexity Low High


After all, items like this need to be decoded piece-by-piece, and even then – hundreds of permutations are possible

Material Group

Shape Steel

Wire Rod

Tubing

Piping

Casing

Alloy Ingot

Manufacturer

Hyundai Automobile

Hyundai Railway

Hyundai Steel

Hyundai Ship

Hyundai Plant

Hyundai Electric

Outside Diameter

6 inches 8 inches 10 inches 12 inches 14 inches



Now imagine this 1 transaction…

…multiplied by millions



So what happens when energy firms actually buy cross-industry spend solutions?


They’re left with shocking (real-life) examples like this:

HVAC Mechanical Construction Service

Cross-Industry Vendor Classification: Correct Classification:

Cooling Tower Maintenance ✓

Line Item: Cooling Tower Maintenance

Price: $38,300,000

Supplier: Bunneys Inc.



Development Environment Software Real Estate ✓

…and many, many (real-life) examples like this:

Line Item: Improvement Allowance

Price: $3,200,000

Supplier: Red Hat Software


Chemicals

Not Chemicals

9%

91%

$51.5M

CHEMICALS, GENERAL


…which combine to form (real-life) categories like this:

Production Chemicals $2,641,910

Painting and Coatings $1,487,143

Nitrogen Services $443,150

Pumps $10,088,197

Motors $9,037,047

Electric Submersible Pumping (ESP) Lift Services $3,704,851

Variable Frequency Drives $3,165,546

Pump Seals $3,034,483

Drill Bits $2,691,688

Valves $2,641,910

Separators $1,487,143

Wire and Cable $1,390,791

Casing and Tubing Services $882,221

Coil Tubing services $822,310

Motor Maintenance $708,009


The analysts for these energy firms spend days fulfilling simple requests…

…and have no choice but to circulate incomplete reports


Meanwhile, unactionable categories like this one…

Engineering Spend Misclassified Elsewhere

+$32.6 M

$58.9 M Spend Classified as “Engineering”

Portion that Wasn’t Actually Engineering

-$11M

…cost them millions in lost savings every year


Ok, so can I do it myself?

Well, let’s take a look…


Let’s look at 1 transaction.


Curious how an analyst might decode and classify this?

It’s a bit complicated…


Manufacturer

Hyundai Automobile

Hyundai Railway

Hyundai Steel

Hyundai Ship

Hyundai Plant

Hyundai Electric

…

He would likely recognize “HYUNDAI” as a Hyundai Corp manufacturing facility, but that still leaves hundreds of plausible classifications

?



Material Group

Shape Steel

Wire Rod

Tubing

Piping

Casing

Alloy Ingot

Manufacturer

Hyundai Automobile

Hyundai Railway

Hyundai Steel

Hyundai Ship

Hyundai Plant

Hyundai Electric

… …

So, he would need to know that the code “ERW” denotes casing, tubing, and piping; this narrows material groups, but still leaves 3 possible variations

? ✓



Material Group

Shape Steel

Wire Rod

Tubing

Piping

Casing

Alloy Ingot

Manufacturer

Hyundai Automobile

Hyundai Railway

Hyundai Steel

Hyundai Ship

Hyundai Plant

Hyundai Electric

… …

Outside Diameter

Third, he would need to know that 10” indicates an outside diameter, and that this measurement rules out piping and casing

✓

6 inches 8 inches 10 inches

12 inches 14 inches

Tubing ✓

✓ ✓



This single transaction could have been classified in more than 200 different ways…

See how difficult accurate energy spend classification is?


Now imagine that 1 transaction…

…multiplied by millions (50% of which is unclassified, blank, and/or inaccurate)

It’s a decoding job not fit for a human



Out of curiosity…

Let’s see what it would take a human (your analyst) to cleanse this data to a 98%+ level of accuracy?


Scrubber, 24" x 4', Horizontal, 300 # MAWP Scrubber, 24" x 4', Horizontal, 300 # MAWP

An analyst would need to cleanse 312 transactions per hour (or 1 transaction every 12 seconds) for a full year to cleanse just 1 year of data!

1 average year of data = 1.3 million transactions Assume (conservatively), ~ 50% of transactions – 650,000 lines – require cleansing and classification With no vacation, there are 2,080 hours in a work year Which means…

Here’s the math:


That’s right – he would need to decode one of these:

every 12 seconds, with no breaks, for a full year

(and that would just get you one year of cleansed data that is a year out-of-date)

10'' .375 X42 ERW HYUNDAI W/FBE 14-16 MILS.


Data scientists spend 80% of their time mired in “data janitor work.”

This is a problem across the board for attempted in-house solutions...


There’s another cost that hurts your bottom line

The average, entry-level data analyst makes $60,000/yr. Let’s assume you have a modest team of 5 analysts, who spend 80% of their time cleansing spend data rather than analyzing it Which means…

Let’s look at your best-case scenario:

You spend (at least) $240,000 every year for analysis you never receive


But why listen to us?


Well, because when it comes to energy spend…

$2+ Trillion Energy Spend

Cleansed $320 Billion Energy Spend

Cleansed

“Largest” Cross-Industry Vendor in the World

…we’re the big kids on the block


And, our industry focus allows us to do things that others simply can’t…


(an investment that isn’t cost-effective for cross-industry vendors)

…like perfecting a rules engine that exclusively parses and classifies Power, Oil, and Gas data

50+ engineers, analysts, developers Millions of energy-specific rules


Remember that line item example from earlier?

Material Group

Shape Steel

Wire Rod

Tubing

Piping

Casing

Alloy Ingot

Manufacturer

Hyundai Automobile

Hyundai Railway

Hyundai Steel

Hyundai Ship

Hyundai Plant

Hyundai Electric

Outside Diameter

6 inches 8 inches 10 inches 12 inches 14 inches



Our rules deconstructed and classified it in seconds…

Material Group

Shape Steel

Wire Rod

Tubing

Piping

Casing

Alloy Ingot

Manufacturer

Hyundai Automobile

Hyundai Railway

Hyundai Steel

Hyundai Ship

Hyundai Plant

Hyundai Electric

… …

Outside Diameter

✓

6 inches 8 inches 10 inches

12 inches 14 inches

Tubing ✓

✓ ✓



…when a cross industry vendor would have misclassified it as this:


Mainline Pipe x


(cross-industry vendors often claim the whole process can be automated, but to achieve 98+% accuracy, human expertise is required)

Raw Spend Data Rules Engine Expert Analyst Cleansed Data

And just to be sure, our energy experts verify all classifications


So what does all this mean for YOU?


It means you can expect things from us…

…that you could never get from a cross-industry vendor…


…like no more time wasted on “data janitor work”…

…and no more anxiety over inaccurate reporting

Clean Data Analyze

✓


Plus, you’ll finally be able to manage all of your spend…

“For every dollar of spend under management, Aberdeen has historically quantified 5% to 20% cost savings”

…and save millions of dollars for your organization


Ready to see what Best-in-Class Data can do for you?

Complete

All of your enterprise data…

Accurate

…classified to a 98+% degree of accuracy…

Repeatable

…kept up-to-date with regular refreshes

Granular

…organized in useable, natural buying groups…

Contact us and We’ll show you!

mailto:[email protected]

evaluating spend solution providers

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