* 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

TopicsSpend Management DefinedWhy does enterprise spend analysis matter?BenefitsWhat are the reasons for doing it?ApproachHow do I do it?ResultsWhat are the deliverables/output to expect?SolutionsWho 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 DefinedMore 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 MakingExampleMaverick 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 OpportunityThree 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 socio-economic initiatives

Implement process improvement to meet the dual goals of sourcing savings and best practices in compliance

Spend Data Management Business DriversStrategic SourcingProcurement Identify non-preferred supplier spend in contracted categories Identify disparate terms and conditions across unidentified duplicates and related companies Identify categories that are potentially over-represented with suppliers 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 appropriateSupplier 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 AssessmentData extractionBaseline spend visibilitySourcing group definition1. Profile Sourcing Group2. Sourcing Strategy3. Supplier Portfolio4. Selection of Implementation Path6. Operational Integration with Suppliers7. Continuous Benchmarking of Supply Market5. Competitive Supplier SelectionOpportunity AssessmentSourcing StepsSourcing group analysisSupplier RFIs Supplier analysisSupplier RFPsRFP evaluationsSavings measurement system

Spend Analysis StepsExtract, Cleanup and Validate the DataStandardize, Normalize, and Enrich your spend informationIdentify Exceptions

Rationalize your SuppliersGet all the supplier spend linked to the corporate parentCategorize supplier spendUnderstand supply base risk, dependencies, and socio-economic breakdown

Code for Insight & Assess the DetailsCategorize 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 Uncover strategic sourcing opportunities for immediate savingsImprove internal controls Comply with government controls

Implement Process ImprovementStandardize on commodity framework across the companyCapture intelligence closer to the transaction for higher compliance Supplier on-boarding & detail coding

Solid Spend Data Management DeliversData Quality Standardized consistent formatting Cleansed identify duplicates, fix errorsConsistent data represented in the same mannerCurrent ongoing updates to manage business change Grouped categorized and classifiedGranular detailed data available

Knowledge EnrichmentCompleteness fill in missing data for master information, hierarchies, demographics, relationshipsExpand provide new insightRisk identify possible disruption in supply or supplier support

Process ImprovementSpend Visibility access to enterprise view of corporate expendituresSupplier Evaluation and On-boarding pre-qualification of suppliersPolicy Compliance exception handling, workflow and monitoring

Spend Analysis allows many cuts of the data and can take many formsTransaction Data StoresData PreparationData ManagementSpendAnalysis ExtractStrategic Procurement DatabaseSupplierData CleanseManual Data EntryUserDesktop ToolIntellectual CapitalAnalysis ToolsAnalyzersDrill Down 1Drill Down ...QueriesReportsSpreadsheetsCategoriesA/PG/LMaster FilesPOsCleansed and Staged DataIndividual RDBMS**If repeatable data capture processes and data cleansing capabilities are created, the spend analysis solution can be maintained over time

Raw Database Database with end-user interface Data-ready for Spend Analyzer or OLAP* toolFinal Deliverable FormatsOthers*On-Line Analytical Processing**Relational Database Management Systems

% of Total SpendData CharacteristicsBy TransactionSupplier Name, G/L, Cost CenterUnit PriceHigh Volume, Low $By InvoiceAggregate Total OnlyAll expenditures including non-inventoried materials and servicesP-Card Spend~1-20% of TotalNon-PO A/P Spend ~30-40% of TotalA combination of top-down and bottom up spend categorization is requiredCategorizing 100% of SpendUse Supplier, G/LUse Item Description, Item MasterConfirm with Supplier, G/LCategorization MethodBy Line item # & DescriptionQuantityUnit PriceDirect/COGs materialPO A/P Spend~50-70% of TotalUse A-T #, G/L

Supplier NormalizationLink the same supplier, and customer, businesses to all representations of that business.

Benefits:Identifies, and links, duplicate records allowing supplier normalizationOpens the door to a wealth of information on your trading partnersLinks suppliers, and customers, across various business units or source systemsHome Shield Corporation123 Main Street Ste 512Memphis, TNsupplier ID 12882ASpend $75,500Source Western Division OracleAHS CorpMain Street Ste 512Memphis, TNsupplier ID 76620GFTSpend $100,000Source Eastern Legacy

Spend Analysis ExamplesFour different company codes and three different purchasing organizations

Supplier IDSupplier NameSupplier AddressSupplier CitySupplier StateSupplier ZIPSpend (2004)602127STERLING MANUFACTURING COMPANY640 STERLING STREET (RT 62)SOUTH LANCASTERMA01561$172,312.96 100768STERLING MANUFACTURING COMPANYROUTE 62SOUTH LANCASTERMA01561$33,110.48 100249STERLING MANUFACTURING COMPANY640 STERLING STREET ROUTE 62SOUTH LANCASTERMA01561$132,023.50

Company CodePurchasing OrgVendor NumberVendor NameAccount GroupSpend (2004)3510P550100249STERLING MANUFACTURING COMPANYZINV$2,724.25 3550P560100249STERLING MANUFACTURING COMPANYZINV$107,568.86 1000P300100768STERLING MANUFACTURING COMPANYZINV$24,082.98 1400P450602127STERLING MANUFACTURING COMPANYZRMT$114,023.95

Spend Analysis ExamplesThese 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

Supplier IDSupplier NameSupplier AddressSupplier CitySupplier StateSupplier ZIPSpend (2004)602127STERLING MANUFACTURING COMPANY640 STERLING STREET (RT 62)SOUTH LANCASTERMA01561$172,312.96 100768STERLING MANUFACTURING COMPANYROUTE 62SOUTH LANCASTERMA01561$33,110.48 100249STERLING MANUFACTURING COMPANY640 STERLING STREET ROUTE 62SOUTH LANCASTERMA01561$132,023.50

Corporate LinkageEstablishes supplier and customer parent and child ownership linkages.

Benefits:Compare key terms extended by different suppliers owned by the same companyAggregates spend by supplier and parent company to enhance sourcing leverage and negotiating powerConsider balance-of-trade in customer pricing and procurement sourcing decisions Enables dependency analysisHow much of a vendors business do you represent?TruGreen-ChemlawnMemphis, TNA-T #: 03567354Sales: $880MPrimary SIC: 0782 Lawn and Garden ServicesRescue RooterMemphis, TNA-T #: 12691513Sales: $550MPrimary SIC: 1711 Plumbing Heating and Air ConditioningTruGreen-Chemlawn132 North StreetDallas, TXTruGreen-Chemlawn5551 Lamar StreetChicago, IL

Spend Analysis ExamplesCorporate Family Spend

AT Ultimate NumberSupplier Name# of RecordsSpend (2004)13974153MARRIOTT INTERNATIONAL, INC.52$1,349,801.23 16115316STARWOOD HOTELS & RESORTS WORLDWIDE, INC.27$3,113,594.17 492553GENERAL ELECTRIC COMPANY27$1,460,603.69 21173372UNITED STATES, GOVERNMENT OF24$386,107.15 5597502HILTON HOTELS CORPORATION20$241,868.71 18340971TYCO INTERNATIONAL LTD.19$979,731.84 18343355WOLTERS KLUWER NV18$1,080,728.23 3567301FEDEX CORPORATION17$40,401,234.08 12527573AMERICAN HEART ASSN17$145,012.56 14166301H GROUP HOLDING, INC.16$687,262.17 10669694ARKANSAS BEST CORPORATION15$443,018.44 30882246DEUTSCHE POST AG13$3,437,699.88 18310528BUHRMANN NV13$1,712,750.39 18344116INTERCONTINENTAL HOTELS GROUP12$1,064,144.11

Spend Analysis ExamplesTyco ~ Family Example

Supplier IDSupplier NameSpend (2004)604246UNITED STATES SURGICAL$465,267.25 600085MALLINCKRODT MEDICAL INCORPORA$208,891.97 600003ADT SECURITY SERVICES$78,629.45 600975MALLINCKRODT INCORPORATED$65,409.40 104127TYCO HEALTHCARE GROUP LP$47,975.76 600876SIMPLEX GRINNEL$32,690.20 100043TYCO MALLINCKRODT HEALTHCARE$29,547.12 607430SIMPLEXGRINNELL LP$24,831.38 603485MALLINCKRODT INCORPORATED$13,402.41 101779MALLINCKRODT MEDICAL$6,057.82 302799SIMPLEX$5,255.76 317413SIMPLEX GRINNELL LP$1,330.00 608168ADT SECURITY SYSTEMS$443.33 304106ADT FIRE AND SECURITY LIMITED$0.00 713316ADT SECURITY SERVICES INCORPOR$0.00 737481ADT SECURITY SERVICES INCORPOR$0.00 102987MALLINCKRODT BAKER$0.00 725201SIMPLEX GRINNELL LP$0.00 603877UNITED STATES SURGICAL$0.00

Commodity Categorization

Enterprise Spend VisibilitySpend Visibility Examples

OrganizationEntity Total CompanySub-Entity Division 2 GeographyRegion North AmericaCountry United StatesState Texas SupplierSupplier Siemens Dematic Product CategoryCluster Ground FleetCategory Fleet Goods & ServicesSub-Category Spare Parts TimeYear 2003Quarter 2ndMonth AprilAnalyzing spend along any combination of dimensionsSupplier DimensionResolution of redundancies and corporate linkageSiemens Siemens DematicsLocation/Org. DimensionOrganizes expenditures along geographic or business linesN America US TexasTotal Co. Division 2Commodity DimensionOrganizes expenditures into sourceable commodity bucketsGround Fleet Fleet Goods & Services Spare partsSimplified Illustration of Spend CubeSpend Figures can be viewed at the intersection of any combination of cube dimensions

Analysis DimensionsTypes of AnalysisSpend cube can be analyzed across its dimensions which provides a comprehensive view of purchasing

LevelPurposeExamplesOverallProvide a top-level picture of spendSpend and Number of Suppliers by categorySpend and Number of Suppliers by location / business unitSpend to Sales ratio by location/ business unitCategoryCompare categories to identify sourcing opportunitiesTop categories by spendSpend to supplier ratio by categoryPareto analysis by categorySupplier overlap by categorySupplierIdentify supplier base and fragmentation issuesTop suppliers by spendPareto analysis overall and by location/ business unitSupplier overlapItemIsolate item discrepancies and prepare category baselines for sourcingNumber of items by categoryNumber of suppliers by itemPrice variance of an item across locations/ business units

Presentation AlternativesSpend Visibility OptionsTransactional & Master DataCategorySuppliersOrganizationThe Spend CubeData SourcesOutputOperating Co. 1 (A/P data mart)Operating Co. 2 (A/P systems)Operating Co. 3 (A/P systems)Data Mapping/ CategorizationOutput FilesStandard Reports/ViewsAnalytics PlatformTransformation

Spend CategorizationSegment high priority spend categories, identify savings opportunities, and evaluate business risk. Total Spend by Each CategoryTotal Spend by Each SupplierTotal Spend by Each BUCategory Spend by SupplierSupplier Spend by CategoryBU Spend by SupplierCategory Spend by BUSupplier Spend by BUBU Spend by CommoditySupplier Spend by EntityCategory Spend by EntityBU Spend by EntityTotal Spend by Each EntityRegion/Country Spend by EntityBU Spend by EntitySpend by Supplier Parent across EntitiesSpend Ranked by Supplier DependencyDeep Dive in Selected Categories/ SuppliersSupplier Spend by Diversity GroupingsSpend with at Risk SuppliersTotal Overall Spend

Spend Analysis SolutionThe Basic Elements:Web delivered reporting and analysisGlobal corporate family linkageSupplier master cleansing and rationalizationA repeatable and refreshable update processSupplier data enrichment with unique tracking IDDiversity spend identification and classificationSupplier portfolio risk assessment including denied/debarred party identification and balance of trade assessmentItem level spend classification to UNSPSC taxonomy or other enterprise defined standard that takes advantage of internal and external coding routines

ERP: SAP, Oracle, PeopleSoftContent / Data ServicesApplicationsSpend Analysis Boutiques:Analytics, Ariba (Softface), ZycusBusiness Intelligence:SAS, Cognos, Business ObjectsSRM/Spend Management:Ariba, Emptoris, Frictionless, i2, Ketera, VerticalNetManagement Consultants: ATKearney, Accenture, CGE&Y, Deloitte, IBM GSDeep NicheBroad SuiteProfessional ServicesSourcing Services /Technology Hybrids: Ariba (FreeMarkets), Silver Oak, UGS, VerticalNet (Tigris)Supplier Data Management:Austin-Tetra, D&BSCM/PLM: i2, UGSA/P Audit:PRG-Schultz,Apex AnalytixSource: AMR Research 2004U.S. Procurement and Sourcing Space

Spend Analysis BenefitsBaseline for strategic sourcing initiativesEnabler for process improvementMeasurement device for cost reduction programsComprehensive spend visibility across direct and indirect commodities and servicesSignificant cost-savings opportunities through supplier and commodity consolidationEnhanced compliance through effective spend and supplier monitoring

Austin-Tetra Company ProfileEstablished 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 businessData aggregated from over 320 seed sources including infoUSA, Experian, LexisNexis and Bertelsmann AGData 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 customers115 of the Fortune 500All three major credit card associationsHorizontal across all marketscomprehensivedatasolutions

Austin-Tetra Clients(Representative Listing)

Sheet1

Automotive and TransportEnergyHigh Tech and Telecom

nBurlington Northern Santa FenConocoPhillipsnAT&T Wireless

nFord Motor CompanynDuke EnergynCox Communication

nGeneral Motors CorporationnEl Paso CorporationnEDS

nInternational Truck & EnginenExxon MobilnMotorola

nShell Oil CompanynSun Microsystems, Inc.

Business ServicesnXcel EnergynSBC

nCendant CorporationManufacturing

nFedExFinancial ServicesnEaton Corporation

nPremiernAmerican ExpressnInternational Paper Company

nNovationnJPMorgan ChasenW.W. Grainger, Inc.

nMasterCard InternationalnYork International

ChemicalsnMorgan Stanley

nDow Chemical CompanynVisa USAMedia

nEastman ChemicalnTime Warner, Inc.

nMonsanto CompanyHealthcarenNew York Times Company

nScotts CompanynMemorial Health Systems

nOwens & Minor

Consumer ProductsnPremier, Inc.Pharmaceuticals

nArcher Daniels MidlandnGlaxoSmithKline

nConAgra Foods, Inc.Hospitality and TravelnPfizer

nGeneral MillsnAmerican AirlinesnSchering-Plough

nKellogg CompanynDelta Air Lines

nNestle USAnHMS HostRetail

nPepsiCo, Inc.nKroger Co.

nTarget Corporation

nSuperValu

Contact InformationRip GreenfieldPhone: 512.695.7999Email : rip.greenfield@austintetra.comwww.austintetra.com

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