Managing Indirect Spend - Joe Payne

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1 2 HVAC services $ 896,586 2 2 Advertising $2,170,000 1 3 Plumbing services $ 320,276 1 3 Janitorial services $ 200,555 1 3 Graphic design $ 270,312 1 4 Market research $ 62,123 1 4

      On their simplest level, spend analysis tools automate the process detailed earlier in this chapter. Data are uploaded into the tool, and information is cleansed and categorized based on criteria developed by the toolset provider. You can also develop customized rules based on your industry, the types of data being entered, and the type of analysis you want to see.

      Besides saving a lot of time that would have been spent manually cleansing and categorizing data, these toolsets provide several other advantages.

      First, spend analysis tools can be used over and over again on new data as you continue to make purchases. Once you have established that a supplier should be named and categorized a certain way, you can rerun reports with real‐time data. The manual process is based on data from a specific time and, subsequently, can become stagnant or outdated.

      Another key advantage to spend analysis is the types of reporting you can get from the data throughout the initiative. In Chapter 8, we discuss monitoring implemented programs and methodologies to track success. Spend analysis tools can provide these tracking mechanisms and even help report savings produced through.

      Depending on the amount of data and the goals of your initiative, you may want to consider utilizing a toolset during the spend analysis phase of the project.

      We provide more information about spend analysis tools and their benefits in Chapters 11 and 16.

      The executive team should be aware of your initiative and offer their support to see it through. The reason is simple: change does not always come easy. Over time, you will find that the biggest roadblock to achieving savings is not the supply base. Suppliers rarely offer the best price possible. As such, they're always inadvertently paving the way to savings. In many cases, the greatest impediment turns out to be implementing change within your organization. All too often, Procurement or Finance teams uncover an opportunity to reduce costs substantially and, naturally, believe that the facts will speak for themselves. They come to realize, however, that it takes much more effort and convincing than they initially thought. Even with the best business case, you will find that having the support of the executive team or other higher‐ups within the organization pays off.

      While you probably will not get the attention of the executive team on a weekly basis, try to establish a monthly meeting to report status and present findings. At the very least, you should be providing a regular, written status update. This way, if you run into a roadblock that requires their attention, they will already be aware of your progress.

      End users and other interested parties should be aware of the initiative as well. As we discuss later, end users have a stake in the project. After all, they are dealing with the day‐to‐day realities of working with the supply base. Try to form a cross‐functional team that includes members of several different departments: Finance, Procurement, Operations, and other affected parties. Having a cross‐functional team allows you to get the perspectives of a diverse group within the organization and aids in consensus building as initiatives continue.

      Depending on the scope and breadth of the initiative, you will likely assign other resources to help collect data and perform research. These resources could include members of the cross‐functional team, end users, or others within your organization, and they should participate in the kickoff and meet at least biweekly throughout the project. During these meetings, members of the team can report status, troubleshoot issues, and solicit advice on current initiatives.

      You have now identified project categories, developed a project road map, identified end users (and other interested parties), and introduced your plans to the executive team. Other than supplier name and spend, you still do not have a clear concept of the specific products purchased, nor do you know the details of that particular supplier relationship. The next step is to add some context to the data you have analyzed. The best way to do this is through end‐user interviews.

      In most cases, a particular initiative would have multiple end users within the organization. These end users include everyone from buyers to Finance to engineers and beyond. Depending on your history with the supplier and the category you're sourcing, one or all of these types of end users could provide important information. It is critical to get feedback from anyone who has a stake with the supply base, directly or indirectly. Otherwise, you may overlook some aspect of servicing, or a unique attribute of the current supplier, that could cause a lot of anguish during an implementation phase if it were absent.

      Initial end‐user discussions should seek to accomplish several things. First, they should build buy‐in and sponsorship for your initiative. Second, they should provide you with a detailed understanding of the current relationships with suppliers, including a history of the relationship, the reason that a particular supplier is used, and the quality and service requirements that are required if an alternate is to be considered. Third, you should set ground rules regarding the roles and responsibilities of the end user during the sourcing and negotiations phase. Let's discuss each of these points in detail.

      Building Sponsorship

      People tend to fear the unknown. Poking your head into an area that someone else manages can make that person feel uncomfortable. An end user who is reluctant to engage has the ability to negatively affect the initiative by providing incomplete information, talking to suppliers without your knowledge, or providing the incumbent supplier with

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