How Machine Learning Gives Organizations a New (And Better) Perspective of Spend Management

When it comes to running a successful business or organization, the bottom line is everything. That’s why keeping track of where the money goes after it leaves your organization’s wallet is paramount – but not always easy. With the help of artificial intelligence and machine learning, large businesses and companies can gain a better, uninhibited view of their financial profiles. Together, machine learning and spend data create a powerful blend of intelligent decision-making and, even more importantly, strategic foresight.

First, let’s take a look at the spend management challenges facing your company.

It’s a pretty simple concept: In order to make money, businesses have to spend it. Whether you’re procuring raw materials to create a product or buying more copy paper for the office printer, every financial decision your organization makes is aimed at one goal: raising the bottom line. Without the right tools, spend management isn’t an exact science – even if it seems like it should be.

Think about the last time you took a business trip. Between plane tickets, accommodations, Uber fare, meals, and other minute expenses along the way, swapping out receipts for reimbursement was probably a hassle at best. In fact, most people probably wouldn’t bother turning in a $12 receipt for a meal at the airport because it’s simply too tedious. At what point is the cumbersome process of saving receipts and reporting costs worth it, then?

The same problem applies to procurement and spend management: Navigating organization-wide spending runs the risk of inaccuracy unless you’ve got the right tools to ensure crystal-clear visibility. That’s where machine learning comes in.

Machine learning helps you use data, not just understand it.

There’s a difference between gathering data, displaying it, and using it. With the right technology, you can obtain massive amounts of data and analyze it. But analytics aren’t solutions, which is why machine learning is such an integral part of procurement spend management. As you continue to gather and understand data, machine learning stores it and adapts to your organization’s goals, so you can effectively manage every facet of your spending profile:

  • Budget
  • Inventory
  • Purchase History
  • Cost
  • Supplier Performance
  • Contract Terms
  • Promotions / Discounts
  • And More

Machine learning isn’t just a buzzword; it’s a solution.

Machine learning can benefit your spend management in many ways, but three of the most important are:

  • Decision-making
  • Forecasting
  • Managing risks and pitfalls

Decision-making needs data, and nothing is better at gathering data than computers. In fact, artificial intelligence and machine learning are the epitome of data-based decisions. What’s more, machines like these are capable of gathering and analyzing more sets of data than any person could on their own. This is especially true for strategies that require information from a diverse collection of data sets. Because of this, solutions powered by AI are critical for organizations looking to make information-based decisions.

Just as your organization needs data to make decisions, it needs data to create strategies and make predictions, too. Data forecasting happens when you take information, find patterns within it, and make an educated – and most likely accurate – assessment of the future. From reading intricate sets of data to identifying hidden trends between them, machines have an unparalleled ability to read and interpret big data, giving users an unparalleled ability to use data.

When combined, intelligent decision-making and accurate predictions allow your organization to do something else: manage risks. From anticipating shortages to detecting fraud, risk management is one of the most beneficial and coveted benefits of machine learning. In regards to spend management, machine learning can help you uncover potential financial hazards and prepare for them. In the end, you can select suppliers, negotiate prices, and make purchases with more confidence.

Spend classification isn’t easy, but machine learning can change that.

Spend classification can make all the difference in your spend management strategy. On the one hand, accurate classification can lead to clean, concise financial planning. On the other, poorly categorized spending can push numbers the wrong direction and influence your strategy negatively. Even though it’s important, classifying spend in a complex procurement system is, at best, difficult to understand – but not for machine learning.

By combining data from both sides of the transaction (outgoing and incoming), machine learning can crunch the numbers for any transaction, sort them, and categorize expenditures accurately. Over time, you’ll have a sophisticated network of spend categories, subcategories, and the relationships between them at your disposal. Using this information, you gain a better understanding of your products, their performance, and your larger business objectives.

Find spend management and procurement software that works.

Xeeva’s focus is on creating results-driven solutions in the procurement space. Our technology can help you not only understand your organization’s spending profile but let you use it to make accurate predictions and informed decisions. Using our human-powered artificial intelligence, our technology starts out intelligent but continues to learn and adapt to your organization while it works for you. As your organization continues to expand, the software learns and develops with it so you can focus on what matters most: delivering results.

Want AI and machine-learning to work for you? Contact us today!

It’s Time to Think Differently About Indirect Procurement

Senior management’s top priority remains the same – drive value for the business. And while indirect procurement manager’s feet are held to the fire to achieve cost reduction targets and improve productivity, many struggle because they are still using outdated tools and technology. Alternatively, for end users, their focus is simply to get their job done right, and as quickly and easily as possible. By applying new technology, insights, and thinking to the challenge of indirect spend, manufacturers can corral indirect and MRO purchasing and finally meet everyone’s needs:

  • Senior management can have access to informative, standardized dashboards and reports that provide a clear view of indirect expenditures and consistent processes that help reduce indirect expenses and improve the bottom line.
  • Procurement managers can create a closed-loop, real-time indirect procurement process that applies discipline across all requests and purchases, helps ensure the right data is captured in the right way at the right time, and provides valuable performance measurements at every level—by supplier, user, plant, and enterprise.
  • End users can use tools that help them make more effective procurement decisions (including smart forms, online coaching, and real-time feedback loops) and communicate easily and more adequately with every supplier.

Wrangling the complexity of indirect spend is no easy task. It’s a distinct challenge that requires skill, insight, and the right tools to do the job. Yet it’s clear that for those willing to take the next step, there’s a gold mine. The time has come. By taking advantage of the convergence of supply chain innovation and the ever-growing power of consumer, social, and big data technologies, manufacturers now have the opportunity to harness the data, processes, and significant costs of indirect procurement—and settle the “next frontier” of supply chain optimization.

Read what it takes to wrangle your indirect spend with our whitepaper, Indirect Spend: the Next Frontier in Supply Chain Optimization for Manufacturing. Download your copy now.

Driving Value with Exceptional Customer Service

Fast paced, essential, and intelligent are all words to describe our Results Desk team. Prepared to help with any functional or technology questions our customers or suppliers might have, the Results Desk acts as a value multiplier, helping to ensure clients unlock the maximum return on their eProcurement investment. This team of results-focused personalities plays a key role in successful P2P implementation here at Xeeva.

The Results Desk team’s purpose is to respond to user emails and calls with empathy and urgency to all inquiries regarding the Xeeva solution in place and to bridge the gap between user experience and system value by using our proprietary process called VITIC. VITIC is a simple, but effective step-by-step process by which the team handles all inquiries, and it stands for validate, investigate, troubleshoot, implement, and close.

Following each customer launch is a two week period referred to as hypercare. During this time, the customer may have one or more of our Results Desk personnel on-site to assist with the transition and change management to Xeeva’s P2P system. In addition, the off-site support includes a main go-to advocate on the Results Desk that remains with the client past the hypercare period. While everyone on our Desk team is qualified to assist our customers, having a primary contact helps Xeeva understand the unique needs, culture, and operations of each client.

Each Results Desk advocate goes through vigorous training on each role and module of our platform. From requestors to suppliers, our advocates are always eager to troubleshoot, provide on-the-spot training, and further assist in customer readiness and value creation.

Xeeva’s promise is to deliver supercharged results and value to its customers. And the importance of strong customer service and success cannot be underestimated. According to customer service platform leader, Zendesk, 48% of survey respondents believe the most critical time to gain customer loyalty is during their first purchase or service and another 40% believe loyalty is sealed during the customer service experience. No wonder Xeeva and customers alike view our Results Desk as a critical and differentiated resource among our competition.

Wrangling the Complexity of Indirect Procurement

It’s no mystery why indirect spend is often ignored. By its sheer nature, optimization has proven to be incredibly challenging. Unlike direct materials which are often highly engineered, associated with a specific set of approved suppliers, and controlled precisely through ERP and MRP technologies, indirect spend is comprised of a highly fragmented group of suppliers that vary by business unit and plant. These suppliers represent 1000s of sub-categories of goods and services and are often easier to substitute than their direct counterparts. From a manufacturing viewpoint, this can mean anything from machinery spares to consumables, from repair services to facilities maintenance, and from IT to basic office supplies. Compared to direct materials, the number of suppliers is both huge and decentralized, with major inconsistencies in size—from small mom-and-pop shops with limited technology know-how, to large, multi-national suppliers with significant selling power. And there is little to no standardization on which to base indirect procurement methods whether through catalogs, P-Cards, paper-based POs, phone, fax – you name it.

Not only does the sheer number of suppliers create complexity, but the lack of control in the way organizations purchase these materials and services compounds the problem. Repair services, office supplies, and specialty MRO materials are all part of the spend profile of a manufacturer, but they are infrequently controlled in the same way direct materials and services are controlled. So it’s not uncommon to go to the head of corporate purchasing for a large multi-plant company and find they have no idea how much is spent in the area of indirect and MRO. And if they do have a high-level estimate, none of them can provide a granular view of that spend by BU, plant, geography, supplier, or commodity. The result? Little if any indirect spend is optimized.

Many companies have left control of indirect and MRO to their plant managers and GMs; and on occasion national contracts in obvious categories such as office suppliers, travel, industrial gases and technology. And it’s no wonder. Clunky ERP systems were designed to manage direct, not indirect spend, so they’ve been largely incapable of addressing the indirect supply chain in the right way. So legions of plant controllers, buyers and administrative staff walk around with spreadsheets tracking spend, have huge paper catalogs sitting on their desk from the local distributor, or even worse, have ceded control of their indirect to third party consolidators and distributors who promise savings and control—but surely at some cost and without transparency.

Another challenge is that many executives have treated indirect spend as non-strategic. Why? Because they have been rewarded for focusing on the largest chunk of spend—namely direct materials and services. Plus, indirect is just plain tough or thought to be too small in volume. But with the direct side under reasonable control, executives and progressive managers are turning their heads to the largely unaddressed indirect, which represents between 8% and 20% of a manufacturer’s revenue. And since there’s no aggregate visibility into that amount of spend, many CFOs and CPOs are left wondering what to do about that 8 to 20 cents of every dollar. Let’s put it in different terms, if a $1B manufacturer with 20% gross margins can reduce their indirect cost by 10% then that’s $10M to the bottom line which is the equivalent of having to increase revenue by $50M to generate the same amount of profit. Which is easier 5% growth or 10% cost take out on a neglected segment of the business?

It is time to tackle indirect spend head-on by activating intelligent e-procurement software that moves beyond automation; that facilitates smarter, real-time change; and that drives an immediate and significant impact to the bottom line by effectively addressing the complex challenges of indirect spend.

Read what it takes to wrangle your indirect spend with our whitepaper, Indirect Spend: the Next Frontier in Supply Chain Optimization for Manufacturing. Download your copy now.

Amazon and Big Data: Technologies for a New Frontier in Indirect Spend

Technology innovations, especially those driven by advancements in consumer buying, social technology, and big data management, can now be applied to pull together the complex web of suppliers, intangible deliverables, and inconsistent pricing and processes of indirect spend. These readily available technologies can meaningfully simplify the buying experience while optimizing other aspects of indirect spend cost such as supplier fees, terms and conditions, performance specifications, and performance management. If executed correctly, optimizing indirect spend adds a significant improvement to the bottom line through cost reductions, productivity gains, and control – often 6% to 13% of overall indirect costs.

The consumer “procurement” aka shopping, that takes place today has taken over two decades to mature. Amazon was founded in 1994 and back then, the experience left more than a little bit to be desired. But the extensive knowledge, technology, and expertise developed over that time improved the customer experience and those learnings and innovations are now being transferred to the B2B world. Simply put, with any target audience – employees, customers, partners, and more – the use of cloud-based technology offers an immense opportunity for business optimization and while solving some of the greatest client service challenges. Where an “Amazon-like” experience has now become cliché, it’s taking that baseline of ease of doing business and wrapping it into an enterprise experience where controls remain in place that are the goal for eProcurement technologies.

The lessons from consumer retail sites like Amazon, Zappos, and a myriad of others don’t stop with just ease of use. For example, technology’s ability to support real-time chat communication simplifies processes on both sides of the business transaction. In the manufacturing world where a cutting tool from an incumbent supplier is out of stock, emergency orders from alternative suppliers may be a phone call away – however that phone call is messy, creates significant back-end headaches, and most often results in significantly higher costs. Imagine real-time communications like chat in this manufacturer example, where you can conduct expedited transactions through an entirely digital experience – where emergency POs can be placed, orders expedited, and collaboration can occur between requestor, buyer, and seller – without negatively impacting the plant. This collaboration also reduces errors and saves time, which translates into dollars saved and in the case of a production line, less down time. From connecting people to improving processes, the opportunity for applying new (consumer-tested) technologies to the indirect supply chain is tremendous.

Xeeva Indirect Spend White Paper ManufacturingRead what it takes to wrangle your indirect spend with our whitepaper, Indirect Spend: the Next Frontier in Supply Chain Optimization for Manufacturing. Download your copy now.

Strategic Sourcing And Supplier Engagement

Strategic sourcing:  A disciplined approach to supply market analysis that continuously improves and re-evaluates the purchasing activities of an organization. Strategic sourcing provides the best possible values in the marketplace to produce sustainable savings and reduce cycle times. Sourcing optimization starts from a diverse strategic perspective and usually takes the form of strategic decisions. It is important to identify untapped opportunities to improve vendor access and increase the value of each dollar spent. Drive benefits from emerging practices and key technologies to optimize strategic sourcing initiatives and supplier engagement.

Key elements of a strategic sourcing approach and stages of implementation are as follows: 

  1. Strategic in-house benchmarking: Performed to identify and evaluate sourcing initiatives. This also supports gap analysis and performance improvement opportunities. Before choosing a projected course of action, it’s necessary to understand what’s being sourced and where, the pricing model, and service level agreement standards, including future requirements. Benchmarking gets you there.
  2. Spend analysis and opportunity assessment: Spend analysis includes both the classification and enrichment of spend data. The purpose is to understand total spend and thereby reduce procurement costs, rationalize the supplier base and improve overall procurement performance.
  3. Market impact assessment: Analyze supplier and marketplace dynamics, including everything from economic stability to supplier performance to labor issues. Opportunities and risks may hinder the domestic and global sourcing efforts in the future. These and many other factors are essential to a good sourcing strategy.
  4. Building a sourcing strategy: Sourcing strategies should be developed on the basis of potential suppliers’ concerns and market conditions. Keep your strategy up-to-date with new ideas if market conditions fluctuate, or if the goals of your organization change.
  5. Create RFX documentation: After building the sourcing strategy, it is time to create the user-friendly RFX (RFI, RFP, RFQ, etc.) document that at a minimum would include product or service specifications, benchmarks, a value-based pricing strategy, and standard terms and conditions for financial services.
  6. Selection and negotiation: During this stage, sourcing professionals select and negotiate with suppliers as a result of an initial bid process. Compare outcomes in terms of total value, or implementation cost differences from both qualitative and quantitative aspects.
  7. Implementation: This is the final milestone of the sustainable sourcing initiative. Implementation should stay true to the action plan with suppliers. In order to make certain transitions and optimize the project results, consider change management requirements.

Applying a strategic sourcing process can have a remarkable effect on your business. If you’re interested in learning more, why not browse www.xeeva.com?

Making an Earth Day Impact: Paperless Invoicing

Are your finance operations bogged down in paper and invoice processing delays? Today, as we pause to consider Earth Day, one way that procurement and finance organizations can make a positive impact on conservation and waste reduction is to move to eInvoicing, or paperless invoicing. According to research from Hackett Group, SharedServicesLink.com and others, large organizations process over 10,000 invoices annually per A/P FTE. This is a massive amount of paper. In real terms: 10,000 invoices = 100 lbs of paper = 20 reams of paper = 1.5 trees. Now multiply that times the number of A/P staff on your team.

Xeeva’s eInvoicing solution fosters touchless and paperless automated payment transactions. Paperless invoicing technology has evolved well beyond simple workflows to now include 3-way matching to ensure complete accuracy of the transaction between companies and their suppliers. Purchase order data is matched to goods receipted data, which forces suppliers to only input invoices (electronically) that match the exact quantities, prices, and items you’ve received.

So in addition to the obvious business benefit, you’ve also taken a big step to reducing your company’s carbon footprint reduction or you can say your ecological footprint across your business operations.

For more information about eInvoicing or to share your Earth Day advice please contact us at results@xeeva.com.

How to deliver world class procure-to-pay performance

According to research from The Hackett Group, accounts payable best performers operate with 62% lower costs per invoice than their peers. This indicates a significant opportunity for companies not considered best performers to make significant improvements to their operations.

Key Metrics to Determine Procure-to-Pay Process Efficiency

1. Price per financial transaction basis
2. Transactions per full time equivalent (FTE)
3. Purchasing’s span of control
4. The period between placing one set of orders and the next
5. The average cycle time from receipt to payment
6. Percentage of automated purchases
7. Degree of automation

What Differentiates Top Performers?

1. Process Ownership

A clear process owner for the end-to-end procurement through payment process.

2. Integrated Channel Strategy

Top performers are able to drive requisitions with the right supplier, at the right price, with the right buy method. This is done by establishing a channel design and payment strategy to improve both service delivery and compliance.

3. Defined Payment Strategy

A defined strategy is essential for developing suitable working capital solutions. These strategies may suggest a high degree of automation, process changes, and talent management opportunities.

4. Accounts Payable Automation

E-invoicing technology is often deployed across top performers, including automating invoice approval through 3-way match and a defined exception management process. Research shows that the best performers leverage electronic transactions far more than their peers.

5. Visibility

Supplier portals provide insights into supplier performance and relationship management. Top performers take advantage of key capabilities such as the ability to view and track everything from order status to standing purchase order, suppliers’ acknowledgment, and invoice status.

Summary of Findings

1. Simplify and standardize the procure-to-pay end-to-end processes at a global level.
2. Increase the potential for technology-driven consolidation.
3. Close the loop to process the requisitions in a timely and compliant manner throughout source-to-pay channel optimization.
4. Offshore-centric procure-to-pay delivery is less of a priority.
5. Electronic invoice processing implementation is the latest technology, while self-service could be upcoming.

How to drive results with procurement transformation

Are you prepared for a successful procurement transformation? As procurement organizations become increasingly more strategic, many struggle to fully understand how their current procurement operations rate relative to operational and financial benchmarks. Even those that do understand what “good” looks like still have to perform a gap analysis, develop their vision and strategic roadmaps, and then deploy the right resources to execute the plan.

At Xeeva, our domain expertise goes well beyond just technology innovation. We are comprised of career procurement practitioners and as part of many client engagements, we’ll first conduct assessments which include operational and spend analysis to determine client performance vs. benchmarks and define for each client what “good” looks like.

With a clear understanding of client performance vs. benchmarks, we can offer a compelling proposition for organizations to undertake ‘real’ procurement transformation. These plans usually involve process efficiency, cost reduction, and technology enablement.

The Bottom Line:

  • Measure your organization’s performance vs. industry benchmark
  • Determine gaps to that benchmark
  • Develop a plan that looks at people, process, and technology
  • Concentrate on enhancing not only procurement efficiency but contribution to enterprise objectives
  • Be aware of the requirements and valuations of stakeholders
  • Make use of gradual procurement practices and technologies to support desired outcomes

Risk by Industry

Deloitte completed their 2014 Global Chief Procurement Officers (CPO) study, which included CPO feedback on top risk by industry.

IndustryReported Top Supply Risk
Business and Professional ServicesReputational and Service Delivery
Consumer BusinessCommodity Price Volatility
Energy and ResourcesService Delivery
Financial ServicesRegulatory and Reputational
Government and Public SectorService Delivery
Health and LifesciencesReputational
ManufacturingCommodity Price Volatility
Real EstateService Delivery
Technology, Media and CommunicationsService Delivery

The survey results show just half of CPOs play an active role in the wider risk management process, and their level of investment in related technologies and processes remains low. Unsurprisingly, the primary approach to risk management is to address risk during the supplier pre-qualification and onboarding phase, with some 77 percent using this approach. Less than 20 percent use predictive analytics to assess potential supply-side risks, suggesting there is room for greater proactivity to mitigate risk events.

To download a copy of the complete study, click here.

Collaborating to Source a Bargain

Everyone negotiates – whether they know it or not. So why is it often difficult to obtain a rewarding bargain?

In the process of negotiating, it’s important to display likability and confidence to stress the sincerity of the encounter. While a strong argument may rationalize a viewpoint, people who show friendliness towards others are proven to have greater influence.

A main part of showing friendliness is having empathy and collaboration. Building collaboration through technology is a key component missing from typical procurement and sourcing technologies. Most, if not all, promote a “black box” approach to interacting with suppliers. So transactions are automated and workflowed – but there is little show of support for one another whether it be through direct collaboration, soliciting supplier requirements, or simply providing a positive encounter when exchanging detailed information. These are small examples, but if practiced, would show empathy in negotiations.

Perhaps this is the greatest opportunity for extending the idea of social media into the procurement space. Not for the sake of social, but to drive real business value by making collaboration more intuitive, seamless, and done in the context of the exact activity you are involved in and at the right time. That’s also in part why we acquired Kontextual.

Supply Risk Strategy

Formulation of a supply risk strategy is essential for a company to perform at its optimal potential. Failure to construct an appropriate strategy can turn your risk into reality. Some may argue risk in the indirect and MRO world is less risky. But in fact, shutting down a factory line due to lack of critical tooling is just as bad a shutting it down due to lack of direct materials.

When formulating supply strategy, here are some things we keep in mind when working with our clients:

  1. Having visibility of spend across all service and material categories, e.g., shutting down an email network due to a server failure without replacement parts is just as bad as the MRO example above.
  2. Communicating the business strategy to procurement. The worst business strategy is the one kept close to the vest. The CPO needs a seat at the table, or at the very least needs to ensure that the company, product, and go-to-market strategies are known to the procurement and sourcing teams.
  3. Knowing the capabilities of your supply base to create an appropriate strategy. Many suppliers can bring value add and in many cases even help with mitigation plans.
  4. Obtaining adequate market information regarding supply and demand along with ensuring you have the right set of skills and experience in the team to develop the strategy.

P2P Implementation Challenges

You’ve created a comprehensive strategy for your procurement organization and it’s aligned to corporate objectives. The team is fired up to execute on the plan. You’ve either performed an initial market scan for P2P technologies or you’re even further down the road and have selected a best-in-class P2P technology platform (full disclosure: we’re excited it might be Xeeva). Well, truth be told, even if you’ve picked a technology, there’s still a lot left to do to be successful. Now, at Xeeva, we’ll argue our technology and implementation approach makes this a helluva lot easier, but despite that, here are 5 things to consider:

  1. Clear communication and collaboration within the company is very important. This is also an essential element to maintain between suppliers and customers.
  2. Keep plans organized. It is important to coordinate, schedule, and plan all events in order to prevent unnecessary implementation risk. Be transparent and share steering committee, core team, and execution level team schedules as fully as possible.
  3. Keep in mind technology implementation can be encumbered by insufficient language translation, bandwidth, systems, and lack of common processes that can slow the time and affect the quality of implementation.
  4. Global supply management programs may have a lack of on-site expertise that may raise implementation problems. This may increase the time it takes to produce, detect defects, along with decrease the overall quality of the product.
  5. Ineffective management resources and skills are also risks that may cause problems with implementation projects.

P2P Catalogs and eProcurement

Most folks that don’t know eProcurement will think of it simply as purchasing necessary goods and services in the most cost effective manner. However, what most don’t think about is the importance of the buying experience (much more than making it Amazon-like) and the specifics that go on behind the scenes.

When using eProcurement for the P2P process, buyers (requestors) rely heavily on the accuracy of the catalogs to provide the most informed information. They also expect that using eProcurement will provide them with the most dependable suppliers. In order to uphold the buyers’ expectations, the quality of the catalog itself, the availability of product, and the effectiveness of its search capabilities are key. The more organized and accurate the catalog listing, the better the buying experience.

From the procurement and finance teams’ perspective, eProcurement isn’t just about putting more spend through the system, the end game is the ability to control the goods and services offered and thus create more leverage for the business across the entire supply base.

Quality catalogs, in this case, are a means to both ends, i.e., a better requestor experience and better leverage for the business. Quality catalogs start with the implementation of good clean data upfront and continue with controls in place to avoid data proliferation and ongoing maintenance of price agreements and supplier status. Learn more about our Imperfect Data Management and how our data analytics capabilities can get you started off on the right foot.

Watch for Hazards?

According to the “Rules of Golf,” a hazard can be only one of two things, water or a bunker. In the world of supplier management, particularly when dealing with a global business, there are potentially dozens of hazards ranging from currency risk and conflict minerals to transportation strikes and supplier financial strength. Managing and monitoring these risks is highly complex and requires significant business intelligence to get sourcing professionals the right information at the right time to evaluate future and existing suppliers, identify potential areas of risk, and develop mitigation plans for critical/key suppliers and the materials they provide.

Supplier dashboards are the current cliché term to identify the performance of suppliers and how they support your business relative your objectives. Typically, these dashboards focus on operational metrics, e.g., quality, on-time delivery, and cost reductions. However, we increasingly see (and are leading the way in this area) the need to incorporate risk metrics into these dashboards. These metrics go well beyond the somewhat standard view of D&B credit ratings, which change infrequently. Focus is on social, operational, management, and political changes that can impact these suppliers – and many others. Ask an expert at Xeeva to learn more about our views on supplier risk management.

How to Gain Actual Compliance

How many clients with indirect spend do we run across that conduct strategic sourcing, develop pre-negotiated contracts, and implement savings plans that can’t get those savings flow to the bottom line?  Answer: all of them.

When it comes to locking in cost reductions from hard fought sourcing engagements, companies don’t just identify opportunities, but rather they implement savings. Here are 5 tactics to drive compliance and benefits to the bottom line.

  1. Engage directly at the plant level. Whether center-led or decentralized, any new contracts that drive cost savings across the business need to be articulated at the local level. As an example, plant management with direct profit and loss (P&L) responsibility will make adherence with new suppliers and pricing terms a requirement if they easily understand the benefit to them.
  2. Load new pricing immediately into your P2P system. In a well-maintained catalog environment, pricing will have expiration dates, new pricing should be updated immediately, and any subsequent request for similar materials or services should be driven by buyers (who are involved on an exception basis only) to the newly contracted rates.
  3. Verify that pricing negotiated is the price received from supplier invoices. Although doing this manually can be painful, it is not uncommon for suppliers to mistakenly continue to invoice old prices. In an electronic invoicing environment, particularly one with 3-way matching, this is made all that easier.
  4. Require all spend to go through your P2P tool. Any rogue spending, with very few exceptions, should be addressed immediately and with consequences for the employee and their management.
  5. Implement budget controls (and dynamically change them when you get cost savings). Most employees will do the “right thing” if provided timely and accurate information. Knowing where you are relative to your budget prior to making new material or service requests has been shown to result in fewer budget overruns. Changing budgets dynamically further locks in controls at a cost center level.

Our clients choose to operationalize some of these, and in some cases all of these. It depends on the importance of cost reduction to the bottom line and the metrics and success criteria put in place for the procurement organization.

Spend Under Management Part 4 of 4

We’re in the home stretch now… The spend under management (SUM) framework provides executives with a simple outcome-based model to drive the necessary changes in their organization to capitalize on the significant savings opportunities available to most organizations. The benefits of moving to best-in-class under the SUM framework include:

Alignment of indirect spend objectives with core financial metrics 

  • Defines and details actual spend at a granular level utilizing robust spend analytics
  • Defines enterprise objectives by business unit and P&L
  • Links cost savings targets directly financial objectives
  • Details what, when, how, and by whom cost savings will be pursued
  • Increases visibility and accuracy into forecast savings by BU and P&L

Significant improvement in key operational levers and financial results 

  • 30-40% greater addressable spend visibility
  • 20-40% less maverick spending and savings leakage
  • 5-10% reduction in working capital requirements
  • Improved spend coverage to levels 85%+
  • Incremental ROI on existing technology investments
  • Lean processes and consistent execution approaching Six Sigma performance

Bottom line results measurable at an EPS level 

  • 2-3x improvement in sourcing savings from the indirect procurement organization
  • Indirect costs as a percentage of COGS reduced by 10-15% per year
  • Corporate overhead as a percentage of sales down 2-3%
  • Capital dollars 30-40% more productive

SUM transforms what could be a complex and overwhelming task for many organizations down to a few basic principles with very clear actions. For more information about SUM and how to implement, please contact us at results@xeeva.com.

[Download the complete whitepaper here]

Spend Under Management Part 3 of 4

In our last post. we discussed adopting spend under management (SUM) and the first of five principles. Here are the other four:

2) Purchase through a formalized requisition to purchase order approval process. The purchasing processes of an organization should be governed by policies and procedures that are complete and enforced universally. Simply having them in place is a starting point but the key issue is enforcement. Are all the spend areas incorporated? Does my procurement system reinforce these through workflows and business rules? Is that system intelligent enough to accommodate the differences in requirements by category or region? In reality, an organization should be targeting to flow 100% of spend through a controlled process.

3) Source in a competitive environment. Sourcing in a competitive environment is easy to understand but for a myriad of reasons is not always applied. Using quick quotes in a procurement tool, web-enabled RFPs, and auctions are a start, but how you maximize the business value of sourcing varies significantly based on category, region, and end customer needs. Are there well-articulated category strategies customized to the business needs and is there an accurate assessment of the competitive environment? Are savings strategies developed and assigned to each functional leader through spend portfolios? Are there category playbooks and are they linked to core financial metrics and improvement objectives? Is there real-time visibility into performance across regions? Moreover, are functional managers committed to running all of their spend through the process?

4) Ensure contracts are in place and used across the full spend. Well-structured and managed contracts are essential to gaining efficiencies, reducing risk, and managing effective partnerships with suppliers. In almost any category, 70-90% of spend should flow through contracts or pre-negotiated catalogs. This is where specialized talent in indirect procurement can really add value to functional areas and the goods or services they request. But does the indirect procurement team have the skills base and market knowledge to rapidly bring key market insights to the functional organization? Has the organization captured best practices in the contracts and are those contracts being proactively managed? Does the organization execute against the contracts and do our systems and processes enable efficient transactions against those contracts? Is there leakage or maverick spend that is bypassing defined processes? Are the suppliers being managed to their commitments and are they providing value add?

5) Provide for closed loop metrics and management. A closed loop performance measurement and management system is a key success factor in achieving maximum sourcing strategy acceptance and savings capture. Alignment of indirect spend objectives with core financial metrics by business unit (BUs) or function is critical to driving organization buy in. Enterprise objectives are parsed by BU and P&L by utilizing robust spend analytics so that information can be viewed at any level of the hierarchy. Cost savings targets are explicitly linked to financial objectives of the business. Without this direct linkage to the operations, indirect procurement is a competitor for savings rather than partner and an enabler of business results.

The elegance of the SUM model for an executive is that it’s an outcome-based model – the organization is either performing or it’s not – and every aspect is measurable.

In our last post, we’ll discuss some of the types of benefits companies can expect to experience as part of getting more spend under management.

[Download the complete whitepaper here]

Spend Under Management Part 2 of 4

So now that you know what spend under management (SUM) is, how would you go about adopting such a framework?

SUM is built on creating a partnership between indirect procurement and operations along five key operating principles across sourcing, contracting, buying, and spend decision-making.

At its foundation is executive leadership with joint operating targets established between indirect procurement and the operating groups they support. The actual SUM model measures the maturity of the organization across these five operating principles. The concepts are simple but the challenge is how to bring them to life in a company.

The first of these principles:

1) Channel spend through procurement technology. Basic procurement technologies bring some benefit through automation, more sophisticated systems extend those benefits by enabling process and policy control. But the real value comes from intelligent procurement technologies that allow the organization to capture data and knowledge, and then transform them into action and positive outcomes. In a world of imperfect data, technology that brings clarity to what, when, who, and how goods and services are bought and the associated results has significant value. According to the Hackett Group, for world-class organizations, there is a “9x payback on investment in procurement processes.” Moreover, so much organizational talent is wasted on collecting information, following up on transactions, handling exceptions, and routinely executing non-value added activities like accounts payable matching. Do you really know what you’re buying at a line-level for parts or by class and work element for services? How many of the organization’s resources are tied up performing routine or non-value added tasks? How much time is tied up in meetings and follow up with suppliers? Is there a way for the organization to see a shared view of the data? Are there suppliers that are still transacting manually with you?

Stay tuned for our next post to learn about the other four principles…

[Download the complete whitepaper here]

Spend Under Management Part 1 of 4

Ever wonder why many companies view indirect procurement as a non-strategic back office function? Maybe it’s that indirect practitioners often focus too narrowly on measuring cost savings from indirect spend sourcing initiatives and lose sight of how those initiatives impact core financial metrics such as total cost of ownership (TCO), operating profit, working capital, and cash flow, among others. Therefore, adopting a well-structured indirect spend management framework that establishes that connection can bring real value to the business. The concept of Spend Under Management (SUM) provides exactly that framework. Through the next four blog entries, we’ll outline the framework in greater detail.

What is SUM?

SUM is an enterprise initiative, impacting and driving the spend under management in each BU/P&L, touching every category and supplier who supplies a product or service, and with a goal of achieving 85%+ enterprise SUM. Past research from analyst firms like Aberdeen identify that companies can achieve a 5% to 20% cost out savings for each new dollar of spend brought under management. This can result in millions or even tens of millions in cost savings that can be either reinvested or dropped to the bottom line as realized savings impacting EPS.

Moreover, SUM is much more than a traditional sourcing framework. It emphasizes the use of intelligent technology, actionable data, and robust processes to meet business objectives. It also considers often overlooked non-pricing levers such as ensure adherence to contract terms and pricing, purchase order compliance, effective demand management, and supplier performance management – where leakage most often occurs.

More in our next post…

[Download the complete whitepaper here]

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