Spend Analysis. CIPS Northumbria Branch. 21 st October Duncan Olive

Transcription

1 Spend Analysis CIPS Northumbria Branch 21 st October 2010 Duncan Olive Commercial Efficiency Manager, NHS Business Services Authority

2 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 Collection Data Cleansing Data Enrichment Data Classification Data Analysis 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?

3 Spend Analysis Why? Cashable Savings Process Efficiencies Maximise Leverage Spend under Management Supplier Rationalisation Compliance/Reduce Maverick Spend Strategic Sourcing Programme

4 Visibility is King Who What Where Where When Metrics Dimension Organsation Classification Suppliers Foot Print Period Values Service Class L1 National Year Spend Service Area Class L2 Region Qtr Volume Cost Centre Class L.. Sub- Region Month Local Post Code

5 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

6 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2002 Sophisticated Financial Management Systems Nominal Taxonomy Orientated to Managing Funds Chart of Accounts out of date (Business Restructures) Limited Reporting and Analysis Tools Evolving Contract Registers Disparate Data Sources, partial data sets Business Intelligence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

7 Investment Justification Selling Spend Analysis

8 Business Case Outcome Focused Service Service Organisation Service Service Service ITWhy Finance Finance HR What Outcome 3 rd Party Spend Increase % of Procurement Spend under Management current %? Market Competitiveness/Value for Money current %? Supplier Rationalisation, Compliance Realise Cost Savings, Reduce Supply Risks, Manage Markets VFM Functions: Cost & Efficiency, Quality, Performance, Customer Satisfaction

9 Business Case Scope

10 Benefit Realisation Risk Bottleneck Strategic Spend Analysis Investment Realisation Leverage 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 Value

11 Investing to Succeed

12 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<

13 Strategic Approach Review 1 Review 2 Review 3 Review Data Extraction Data Cleansing Data Classification Data Analysis Target Programme Contracting Fast tracks Contracting Programme Delivery Cashable Savings VFM Contracts Improved Supplier Perf. Reduced Supply Risks Reduced Compliance Risks Financial Practice Improvement Procurement Practice Training Intelligence Standardised processes Standardised systems Improved Capacity Mgmt Improved Capability Improved Productivity Reduced Risks Policy&Procedure

14 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

15 Organisational Support Project Board Project Management Technical Review 1 Review 2 Review 3 Review Finance Legal/HR Procurement Action Group Procurement Action Group Procurement Action Group Procurement Action Group Commercial Policy & Practice 3 rd Party Current Procurement Model Future Procurement Model

16 Project Methodology Project Board

17 Establish PAG PAG Discovery Workshop Data Collection Data Analysis Benchmarking Market Testing Board Update Board Update PAG Consultation PAG Consultation Current Model Options Appraisal Future Model Options Appraisal Board Approval Board Approval

18 Data Collection

19 Core Data & Metrics what Procurement Taxonomy what Nominal Hierarchy Minimum Full Year s Spend How Contract Register Where Creditors Postal Data Transactions Invoice Lines PO Lines Supplier Market Intel Who Cost Centre COA Hierarchy Net Invoice Line Value VAT Invoice Line Value Transaction Line Count Invoice Document Count PO Document Count Supplier Count Contract Count

20 One Model does not fit all. Category specific data sources Travel Prof. Services Postal ICT Transactions Invoice Lines PO Lines Office Supplies Vehicle Usage Utilities

21 Data Cleansing/Normalisation Data Mapping/Classification Data Enrichment

22 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

23 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!

24 Enrichment Organisation Structures Geographic Contracts Category Specific Data

25 Spend Analysis Toolkit

26 Spend Analysis Tool Characteristics Data Management Spend Analysis Data Collection Data Cleansing Data Mapping Data Modelling Data Analysis Accept Data in multiple Formats Store Large Volumes of Data Validation, Normalisation, Correction Classification, Enrichment Define, Integrate Multiple Data Structure Schemas, Populate Model, Error Handling Rapid Development Repeatable Graphical Adhoc, Production Reports Multi Dimensional Slice and Dice between dimensions Drill Down/Drill Up

27 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)

28 Example IBM Cognos Organisation Time Spend Suppliers Market Leading Business Intelligence Software Provider Scalable Desktop (7.0) to Enterprise (8.0) Easy to use - Limited specialist ICT skill needed Hugh number crunching capability Rapid development and deployment Text, Graphical, Spatial presentation Model data from disparate systems Multi-dimensional analysis Who, Where, What, When, How Adopted by OGC/BS

29 Measuring Impact Needs to be a repeatable process Incorporated into Business as Usual processes Evolve into Business Intelligence

30 Application to Support Wider Outcomes Sustainability Economic Development Carbon Targets

31 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

32 Feedback Received? the setting of realistic efficiency targets the ability to capture savings a workflow for realising savings potential a new comprehensive contracts programme a business case for additional resources on an invest to save bas a view of local business and the potential contracting impact an opportunity for improved budget management the basis for a considered approach to E-Procurement an opportunity for improved supplier database management reporting of meaningful data for collaborative contracting possibilities a model that can be refreshed in future years

33 Does it work Spend visibility 40 plus organisations Industry Case Studies Influenced technology adoption Carried out Strategic and Tactical Reviews during realising efficiencies in excess of 1m across 12m in 5 categories Developed Strategic Category Approach

34 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

35 Questions