Procurement &

Sourcing
Muhammad Zahid Malik
zahid.malik@iqra.edu.pk
Spend Analysis
Spend Analysis –
What is it?
the process of collecting, cleansing, enriching, classifying and analysing
expenditure data with the purpose of reducing procurement costs, improving
efficiency and monitoring compliance

Data Data Data Data Data

Collectio n Cleansi g Enrichment Classificati on Analysi
n s

Who procured it?

What was procured?
When and how often did we procure it?
With whom did we procured it?
How did we procure it?
How much did we pay for it?
Spend Analysis – Why?
Spend Analysis – Why?

• Cashable Savings
• Process Efficiencies
• Maximise Leverage
• Spend under Management
• Supplier Rationalisation
• Compliance/Reduce Maverick Spend
• Strategic Sourcing Programme
Visibility is King
A Strategic Base
Line
•Who procured it?
➢ Organisation Structure-Chart of Accounts
•What was procured?
➢ Nominal Ledger Hierarchy/ Procurement Taxonomy
•When and how often did we procure it?
➢PO/Invoice Transactions
•With whom did we procure it from?
➢Creditors File
• How did we procure it?
➢Contracts Register
•How much did we pay
for it?
•Transactions
Starting
Point
“there are known knowns. These are things we know that we know.
There are known unknowns. That is to say, there are things that we
know we don't know. But there are also unknown unknowns. There
are things we don't know we don't know.“ Donald Rumsfeld, 2002

•Sophisticated Financial Management Systems

•Nominal Taxonomy Orientated to Managing Funds
•Chart of Accounts out of date (Business Restructures)
•Limited Reporting and Analysis Tools
•Evolving Contract Registers
•Disparate Data Sources, partial data sets
•Business Intelligence (Suppliers, Procurement
Taxonomies)
•Accounting Practices and Behaviours
•Data Quality
Investment Justification
“Selling Spend Analysis”
Business Case – Outcome Focused
Organisation
Fin

Service

Service
Service

Service

Service
Why

Financ

HR
an
ce

3rd Party Spend

Wh at
Increase % of Procurement Spend under Management – current %?
Market Competitiveness/Value for Money – current %?
Supplier Rationalisation, Compliance
Realise Cost Savings, Reduce Supply Risks, Manage Markets

Outcome

VFM Functions: Cost & Efficiency, Quality, Performance, Customer Satisfaction

Business Case – Scope
Benefit
Realisatio
n

• Be realistic
• Targeted approach
• Quick wins, Tactical, Strategic goals
• Supply Cost Savings, Process Efficiencies, Compliance,
Supplier Risk Management,
• Take account of culture of the Organisation
“Investing to
Succeed”
Introducing
Change
• Governance
• Culture, Behaviours and Practices
• New Technology
• Supply Model
• Procedures
• Organisation

• Quick Wins, Medium Term Goals

• Challenge, Options Appraisal, Implementation, Measurement

• Communication, Transparency, Ownership, Participation

>Change Management<
Strategic Review
1
Approach Review
2
Review 3

Review
…

Target Programme
Classification
•Cashable Savings
Extraction

Contracting
g
Cleansin
• VFM Contracts

s
Analysi
Contracting
Data

Data

Data

Data
• Improved Supplier Perf.
Fast • Reduced Supply Risks
Programme
tracks • Reduced Compliance
Delivery
Risks

Financial
Practice
Procurement • Standardised processes
Practice • Standardised systems
• Improved Capacity Mgmt
Improvement • Improved Capability
Training • Improved Productivity
• Reduced Risks
Intelligence

Policy&Procedure
Stakeholder
Engagement
• Leadership
• Sponsorship
• Project Management
• Business Practitioners – Business Need, Data Collection
• Finance – Budgets/Savings Realisation
• Commercial – Market Options, Procurement Approach

• IT/Applications Specialist – Data Extraction

• HR – Workforce
• Legal
Organisational
Support
Project Board

Project Management

Review Review Review Review

Technical
1 2 3 …

Finance
Procurement Procurement Procurement Procurement
Action Action Action Action
Legal/HR Group Group Group Group

Policy
Commercial &
Practice
Current
3 Party
rd Procurement
Model

Future
Procurement
Model
Project Methodology

Project Board
 Establish PAG

Data Collection
Board
Update
PAG Data
Discovery Analysis Board
Update
Workshop
Benchmarking
Market
Testing
PAG Current Model
Consultation
Options
Board
Appraisal Approva
PAG Future Model l
Consultation
Options
Board
Appraisal Approva
l
Data
Collection
Core Data &
Metrics
Postal
“How”
Data
Contract
Supplier
Register Market
“what” “Where”
Intel
Procurement Creditors
Taxonomy “Who”
Cost Centre
COA
“what” “Transactions Hierarchy
Nominal ” Invoice
Hierarchy •N
Lines PO
Lines et
In
v
Minimum Full Year’s Spend oi
c
e
Li
n
e
V
al
One Model does not fit all…….
Category specific data sources

Prof.
Travel Services Postal

ICT Office
“Transactions Supplies
” Invoice
Lines PO
Lines
Vehicl Utilities
e
Usage
 Data
Cleansing/Normalisation
Data
Mapping/Classification
Data Enrichment
Data
Cleansing/Normalisation
• Data quality is poor
• Initially Intensive
• Remove pay related spend

• Iterative process
• Express tolerances for accuracy
– Invest in accuracy sufficient to achieve the required ROI

• Improve use of keys within core application systems

– Company ID, VAT Reg No. DUNS, Charity No.
– Product IDs, Contract ID’s
– General Application Data Housekeeping
• Increase transaction full lifecycle throughput - procure to pay –
“error reduction”

The Data Universal Numbering System, abbreviated as DUNS or D-U-N-S, is a proprietary system developed and regulated
by Dun & Bradstreet (D&B) that assigns a unique numeric identifier, referred to as a "DUNS number" to a single business
entity.
 Data
Mapping/Classification
• Classification Taxonomy
– CPV, NSV, SIC, UNSPSC, PROCLASS, E-CLASS, PSPES
• Ledger Taxonomy vs Supplier vs Spend Classification
• Sector Classification (influencable/Non Influencable Spend)
– Public Bodies, Employee Payments
• Sector Visibility
– Sole Traders, Charities, Voluntary Orgs, SME use of Factoring Orgs.
• Classify Top – Down until meaningful
• Rule Based/Fuzzy Logic Mapping
• Buy in Supplier Classification Data
• Challenging Categories
– Temp Staff / Interim Staff
– Legal
– Consultants
• “Eye Balling” /Professional Interpretation

• Align Nominal Ledger and Procurement Taxonomy !

SIC = Standard Industrial Classification

CPV = Common Procurement Vocabulary
UNSPSC = United Nations Standard Products and Services Code
Enrichme
nt

• Organisation Structures
• Geographic
• Contracts
• Category Specific Data
Spend Analysis
Toolkit
Spend Analysis Tool Characteristics
Data Collection •Accept Data in multiple Formats
• Store Large Volumes of Data
Data Data Cleansing • Validation, Normalisation, Correction
• Classification, Enrichment
Management Data Mapping
Data Modelling • Define, Integrate Multiple Data Structure
Schemas, Populate Model, Error Handling
• Rapid Development
•Repeatable

Spend Data Analysis • Graphical

Analysis • Adhoc, Production Reports
• Multi Dimensional
• Slice and Dice between dimensions
• Drill Down/Drill Up
Delivery Options
• Outsource
– Spend Analysis Service
• In-House
– Technology (Scalability)
• RDBMS – Oracle, SQL Server, Access
• Business Intelligence Tools
• MS Access
• Excel
– Have you the Skills
• IT Skills
• Data Analyst
• Commercial (Market)
• Buy in Data
– Supplier Cleansing, Normalisation, Classification
• Obtain data from your supply base (category specific
data)
Why Do Spend Analysis Projects
Fail?

• Lack of Leadership
• Lack of Sponsorship
• Unrealistic Expectations/Unclear goals
• Data quality
• Wrong Tools
• Lack of Skills/Resource Support
• Change management not addressed
Some Points in Summary
• Spend Analysis is invaluable to improvements within both Demand
and Supply Management
• Spend Analysis can be a significant investment
– Time, Skills, Technology, Human and Financial resources
– Scale investment based upon the return
• Be sure of your business objectives and outcomes before initiating
• Spend Analysis is an enabler not the Outcome
– Incorporate into a Change Programme
• Spend Analysis is not a “one off” project
– it needs to be incorporated into “Business as Usual” – to evolve
into Business Intelligence
• Introduce greater alignment between Nominal Ledger and
Procurement Taxonomy
• Classification will never be 100%, it needs interpretation and tolerances
are necessary
• Improve collection and management of Supplier Intel within core
system