how the best-in-class strike it rich with spend analysis · ariba combines industry-leading...

Andrew Bartolini, Chief Research Officer Christopher J. Dwyer, Research Director Ardent Partners February, 2015

How the Best-in-Class "Strike it Rich"

with Spend Analysis

Underwritten by:

http://ardentpartners.com/�

http://www.ariba.com/�

How the Best-in-Class "Strike it Rich" with Spend Analysis

©2015 Ardent Partners Ltd. www.ardentpartners.com

1

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 [email protected] and/or 617.752.1620.

Sponsor:

Ariba is the world’s business commerce network. Ariba combines industry-leading cloud-based applications with the world’s largest web-based trading community to help companies discover and collaborate with a global network of partners. Using the Ariba® Network, businesses of all sizes can connect to their trading partners anywhere, at any time, from any application or device to buy, sell, and manage their cash more efficiently and effectively than ever before. Companies around the world use the Ariba Network to simplify inter-enterprise commerce and enhance the results that they deliver. Join them at: www.ariba.com

Contact: Lynnette Kimmel Director, Audience Marketing, Procurement Line of Business Ariba / SAP +1 (678) 336-2773 [email protected]

http://www.ardentpartners.com/�

mailto:[email protected]�






2

The modern procurement function relies on a series of both traditional and next-generation strategies to support their core objectives and enhance enterprise spend management. Spend analysis remains a powerful tool in the Chief Procurement Officer’s arsenal, helping to capture and present a comprehensive view of enterprise spend while providing sourcing professionals with the necessary support and insight to develop and execute superior strategies. This research paper highlights the impact of spend analysis in today’s procurement world while detailing the significance of key spend analysis processes (extraction, cleansing and classification) that are critical to leveraging this “fuel” for better procurement results.

The “Black Gold” That Sits Within Every Enterprise: Spend Data

In today’s fast-paced and constantly evolving business world, information is king. Many corporate strategies, whether created in the executive boardroom or by the professionals running day-to-day operations, are often fueled by a specific level of data culled across a variety of functions, processes, and categories. For the contemporary Chief Procurement Officer ("CPO") and their departments, enterprise spend data can be a primary source of knowledge that can be used to improve operations and results across the entire source-to-settle process. In fact, for the past decade, leading procurement departments have relied on spend analysis to establish a deeper understanding of their enterprise’s current and historical spending habits, trends, and patterns, so that action can be taken to improve how, where, why, and with whom money is spent in the future. Leading procurement teams also use spend data to establish broader influence, place more spend under management, and guide better decision-making within the procurement department and by business and functional stakeholders beyond it. The companies that cite spend analysis as a prime directive in their core procurement program understand that in order to achieve true visibility into enterprise spend, suppliers, and risk, spend analysis is the driving fuel.

Like a huge, untapped oil field, raw spend data is the veritable “gold” that sits within the enterprise, buried in hidden crevasses and pumped throughout core company systems and programs. Spend data is truly the equivalent of buried oil in the corporate fields - left untouched and in its raw format, spend data, like oil in the ground, offers minimal value. The value of this “black gold” starts at its extraction, increases dramatically when it is "refined" through cleansing and classification processes, and peaks when it can fuel the processes and strategies that procurement and others within the enterprise use to prioritize projects and drive operations. A spend analysis process that is automated, repeatable, and scalable becomes a pipeline of value to




3

sourcing and procurement pros tasked with driving savings, managing suppliers, and overseeing compliance.

The “Refinement” of Spend Data

Spend analysis follows a basic series of processes, including data extraction (from various enterprise systems and sources, such as ERP, general ledger, accounts payable, etc.), data cleansing (refinement to ensure that the data actually “means” something to procurement executives), and classification (for more powerful impact in understanding supplier-, spend- and category-specific aspects of enterprise spend). For an enterprise to truly drive strategic value from their spend data, a simple extraction plan is not nearly enough. These processes are sometimes overlooked by procurement professionals, leaving their greater organizations with “barrels” of data that have no true value or impact across the enterprise.

For example, data captured by ERP systems that is related to suppliers that provide services like contingent labor, business travel, ground transportation, and facilities services, among others may show spend amounts, but not much else. In order for CPOs and their teams to deep-dive into these spend areas and gain robust insights into the nuances of these complex spend categories, the data must be cleansed and classified properly before a proper analysis can occur. Uncleansed and unclassified spend data is the equivalent of unrefined oil - messy and chock full of volatile material – and essentially very different from the finished fuels that are needed to propel rockets and drive engines.

The Best-in-Class Spend Analysis Approach: Visibility Abounds

Ardent Partners identifies Best-in-Class enterprises as the top 20% of procurement performers across a series of key procurement performance metrics. Best-in-Class enterprises in 2014 have driven:

• A nearly 70% higher rate of spend under management than all other enterprises • A nearly 40% higher rate of spend strategically sourced • A 37% higher percentage of on-contract spend than all other enterprises

The Best-in-Class procurement function has a clear and distinct advantage over their peers within the greater sourcing spectrum. A deep analysis of Best-in-Class procurement departments shows that they consistently rely on a series of prime capabilities, robust competencies, and powerful solutions and technologies to achieve an optimal level of performance across their sourcing and procurement operations.

In fact, one key differentiator of the majority (60%) of Best-in-Class performers is their use of spend analysis to drive spend intelligence across the source-to-settle process. The advantages, detailed in Figure 1 (next page), show that top-performing companies rely on the data and reporting afforded by an automated spend analysis solution to achieve their core goals and objectives.




4

Figure 1: Key Spend Analysis Capabilities (and Technologies), Best-in-Class vs. All Others

The capabilities and automation listed in Figure 1 (above) are principal cogs in the Best-in-Class procurement machine, generating strong links to visibility, cost savings, and sourcing opportunities. At the forefront, the ability to leverage spend data and spend intelligence to identify sourcing opportunities is a powerful benefit of the spend analysis process and the associated systems that automate it. The visibility and intelligence afforded by data deep-dives that uncover key spend patterns and trends can help to identify areas for supplier and spend consolidation and optimization, as well as categories that should be sourced or marked for potential savings. The data culled and refined by spend analysis efforts can also fuel long-term cost analysis and a deeper understanding of how complex spend categories and various commodities affect corporate finances and enterprise performance.

The ability to drive full visibility into enterprise spend is an attribute that not only unleashes procurement’s visionary expertise, but also propels the CPO to new and strategic grounds in regards to corporate forecasting, planning, and budgeting. Spend analytics, and the visibility it provides, can arm procurement teams with the insight and standing to become better collaborators with their functional peers and business stakeholders. And, more importantly, the underlying foundation of the Best-in-Class spend analytics initiative is frequently developed with automated tools and process standardization:

• Standardization may sometimes be considered a “catch-all” capability for a wide range of processes; however, the truth is that standardization is a completely new ballgame in regards to spend analysis. Are procurement and sourcing executives leveraging a

33%

35%

36%

45%

51%

60%

61%

64%

Standardized spend analysis processes

Automated spend analysis tools / systems

Full visibility into enterprise spend

Ability to leverage spend data to identify sourcing opportunities

Best-in-Class

All Others

© Ardent Partners - 2014




5

centralized series of processes for finding and extracting data? Is there an enterprise-wide algorithm for analyzing key spend, supplier, or category data? Is there a clear “path” of integration in regard to what types of data is able to be extracted? What industry codes or schemas are currently utilized for classifying the data?

• Automated spend analysis tools and solutions not only allow enterprises to more easily analyze spend data, they cultivate a series of repeatable and actionable processes across the procurement department and enterprise as a whole. And, in an area of procurement that requires a specific level of sophistication (“not all data is good data,” a phrase that reflects the importance of cleansing and classification), automation is a primary advantage for those companies that consistently rely on spend intelligence to make better, more-informed sourcing decisions. Furthermore, automated tools for spend analysis will ensure that procurement professionals are able to act proactively with the right information in regards to critical financial decisions.

Key Takeaways and Recommendations for Action

The modern Chief Procurement Officer and procurement functions, in general, rely on a specific level of intelligence in order to not only drive more educated sourcing decisions, but also to paint a vivid picture of enterprise spend visibility. The following recommendations are developed for those enterprises seeking to drive optimal value from their spend analysis efforts:

• Automate and link the different phases of spend analysis (extraction, cleansing, classification, and reporting). Automation is the linchpin to spend analysis success. Since there are multiple phases within the spend analysis spectrum that ultimately determine the value of spend data, it is critical that enterprises not only link the extraction, cleansing, classification, and analysis processes, but also automate these key phases to ensure that they are repeatable (and accessible) for procurement, finance and other key stakeholders across the enterprise. In an age of procurement's convergence with other departments and processes, this data can be valued by other groups for things like greater corporate planning, forecasting, and budgeting.

• Integrate Big Data strategies with spend analysis initiatives. Big Data means different things to various stakeholders, thus, it is helpful for all enterprise-wide data intelligence efforts to be part of a larger strategy. With its impact on profitability and operating margins, spend visibility should be a critical asset for the executive team, and should be considered as important as data culled from finance, operations, or marketing. The CPO and other procurement leaders should drive the effort to understand the source of spend data, determine how it is analyzed and used, and interface with the leaders of other ongoing and future Big Data projects.

• Utilize spend analysis to develop a proactive strategic sourcing program and a more comprehensive spend management approach. The age of reaction is over. Procurement sits in an ideal position to proactively mitigate enterprise risk. Spend




6

intelligence culled from spend analysis efforts will assist CPOs and procurement/sourcing professionals better anticipate future financial and operational risks…and build the expertise to effectively address them.

Conclusion

In this day and age, it should be codified procurement law that possessing a great understanding of and visibility into enterprise spend is better than not possessing these things. Procurement teams that take no action towards mining and refining the spend data that gushes within enterprise systems are destined for mediocrity, if not failure. But unlike oil prospecting, drilling for spend data is a low-risk undertaking. Many procurement teams, including a majority of the Best-in-Class, have used spend analysis to hit a sourcing and savings "well" of value that can generate royalties for many years.




7

APPENDIX

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. Register for exclusive access (and discounts) to Ardent Partners research at ardentpartners.com/newsletter-registration/ or join its LinkedIn Group.

ABOUT THE AUTHOR Andrew Bartolini, Chief Research Officer, Ardent Partners

Andrew Bartolini is a globally-recognized expert in sourcing, procurement, accounts payable, and supply management. Andrew focuses his research and efforts on helping enterprises develop and execute strategies to achieve operational excellence within their procurement and finance departments. Andrew is also the publisher of CPO Rising, the first independent media site written for and about Chief Procurement Officers and other supply management executives (www.cporising.com).

Advisor to CPOs and leading solution providers alike, Andrew is a sought-after presenter, having lectured and presented more than 190 times in seven different countries. Over the past decade, Andrew has benchmarked thousands of enterprises across all facets of their sourcing, procurement, accounts payable, 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 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. Follow him on twitter @andrewbartolini. He welcomes your comments at [email protected] or 617.752.1620.


http://cporising.com/�


http://payablesplace.com/�

http://ardentpartners.com/newsletter-registration/�

https://www.linkedin.com/groups?home=&gid=2843427�



https://twitter.com/andrewbartolini�




8

Christopher J. Dwyer, Research Director and VP of Operations, Ardent Partners

Christopher J. Dwyer is considered a premier thought leader in the world of supply management and a renowned expert in contingent workforce management, travel and expense management, and meetings/events management. He evangelizes the evolution of complex spend management and has written hundreds of research reports and interviewed, advised, and benchmarked thousands of end-user professionals and executives in regards to their complex spend

management operations over the last eight years. Christopher joins Ardent from the Aberdeen Group, where he spent more than seven years tracking the progression of complex category spend management strategies and solutions while helping to educate the global market. At Aberdeen, Christopher led Aberdeen’s Global Supply Management practice and oversaw and contributed to the company’s coverage of procurement, strategic sourcing, spend analysis, ePayables (accounts payable automation), and supplier management.

Christopher was recently named an “Analyst Superstar” by HRO Today magazine for his work in the contingent workforce management industry, and was also recognized by Supply and Demand Chain Executive Magazine as a “Pro to Know.” Christopher leads Ardent’s coverage of complex spend management, including the evolution of contingent workforce management, T&E expense management, and all other complex categories of spend and provides research and advice so that end-user organizations can enhance their capabilities and competencies and make the smart decisions that will ultimately improve their performance. He welcomes your comments at [email protected], on LinkedIn (www.linkedin.com/in/christopherjdwyer), or Twitter (@cjd_ardent).



http://www.linkedin.com/in/christopherjdwyer�

http://twitter.com/CJD_Ardent�



9

RESEARCH METHODOLOGY

Ardent Partners follows a rigorous research process developed over years spent researching the supply management market. The research in this report represents the web-based survey responses of 273 CPOs and other procurement and business leaders captured in January, 2014 as well as direct interviews with 24 CPOs and procurement leaders (20 of whom took the survey). These 273 participants shared their strategies and intentions, as well as their operational and performance results to help us define Best-in-Class procurement performance and understand what levers the leading groups pull to obtain their advantage. Roughly two-thirds of the total participants shared some personal insight and commentary to help provide greater context to the results. This primary research effort was also informed by the experience and analysis of the report author and the entire Ardent Partners research team. Complete respondent demographics are included below.

To purchase reprints of this report, please email [email protected]. For more information on this and similar topics, please visit www.cporising.com and the research library at www.ardentpartners.com.

REPORT DEMOGRAPHICS

The research in this report is drawn from respondents representing the following demographics:

• Job Function: 87% procurement; 5% finance; 4% supply chain; 4% other

• Job Role: 42% VP-level or higher; 30% director-level; 23% manager-level; 5% staff-level

• Company Revenue: 64% Large (revenue > $1 billion); 17% Mid-market (revenue between $250 million and $1 billion); 19% Small (revenue < $250 million)

• Region: 69% North America; 21% EMEA; 10% Asia-Pacific

• Industry: More than 25 distinct industries are represented. Public Sector, Health Care, Financial Services, High-tech, and Manufacturing are the largest industries in the survey pool; no industry represents more than 12% of the overall survey respondents.

Industry Standard “Fine Print:”

© 2015 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.

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.



http://www.cporising.com/�


how the best-in-class strike it rich with spend analysis · ariba combines industry-leading...

Documents