delivering savings realities of spend analysis commonwealth of virginia forum 2010 presented by...
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Delivering SavingsRealities of Spend Analysis
Commonwealth of VirginiaForum 2010
Presented by Michael Bevis, JD
CPPO, CPSM, C.P.M., PMP
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Defining Savings
Efficiency – Doing it with less
Effectiveness – Doing it better
2
Defining Savings
Efficiency – Doing it with less• Invoice Consolidation• Long Tail Consolidation• Duplicate Payments• Contract Compliance
Primary Concerns• Hard or Soft Savings• Circle of Control v. Circle of Influence• New Business Models
3
Defining Savings
Effectiveness – Doing it Better• Categories
• Extension• Rationalization• Reengineering
• Improved Terms• Financial• Performance• Management
• Collaboration• Price Variance• Common Vendors
4
transformational readiness
5
Foundation Competent
Proficient Expert
Invoice Consolidation
1Long Tail Consolidation
2
Duplicate Payments
3
Improved Terms
4Category Extension
5
Category Rationalization
6
Compliance Contracted Suppliers
7
Assisted
Collaboration Common Suppliers
8
Price Variance
9Category Reengineering
10
© Spikes Cavell Analytic Ltd. All rights reserved.
An Example
The Naperville Data and Experience
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spending summary – City of Naperville
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Potential Savings
Key Spending Categories
Pareto Analysis
Key Metrics
Defining Savings
Efficiency – Doing it with less• Invoice Consolidation• Long Tail Consolidation• Duplicate Payments• Contract Compliance
Primary Concerns• Hard or Soft Savings• Circle of Control v. Circle of Influence• New Business Models
8
invoice consolidation
9
Situation Each invoice costs money to process
StrategyReduce the number of invoices by negotiation with suppliers or use of e-procurement systems or payment cards
Outcome Efficiency gains, plus cash savings driven by re-deployment of staff
Defining Savings
Efficiency – Doing it with less• Invoice Consolidation• Long Tail Consolidation• Duplicate Payments• Contract Compliance
Primary Concerns• Hard or Soft Savings• Circle of Control v. Circle of Influence• New Business Models
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long tail consolidation
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Situation High % of suppliers providing less than $1,000 of goods & services
StrategyReduce the number of invoices by negotiation with suppliers or use of e-procurement systems or payment cards
Outcome Efficiency gains, plus cash savings driven by re-deployment of staff
Defining Savings
Efficiency – Doing it with less• Invoice Consolidation• Long Tail Consolidation• Duplicate Payments• Contract Compliance
Primary Concerns• Hard or Soft Savings• Circle of Control v. Circle of Influence• New Business Models
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Percentage of spend that is duplicate
Percentage of spend recovered
Top 5 Categories (Aggregate Spend)
payment recovery
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Situation Duplicate and overpayments can occur during procurement
StrategyIdentify and recover inadvertent overpayments; improve payment processes to reduce overpayments in future
Outcome Cash recovered
Defining Savings
Efficiency – Doing it with less• Invoice Consolidation• Long Tail Consolidation• Duplicate Payments• Contract Compliance
Primary Concerns• Hard or Soft Savings• Circle of Control v. Circle of Influence• New Business Models
14
compliance, contracted suppliers
15
Situation Spending outside of existing contracts
StrategyMove off-contract spending to contracted suppliers or negotiate to move suppliers onto contracts where they are not currently in place or expired
Outcome Cashable savings from reduced contract pricing
1 Source: Aberdeen Research
Defining Savings
Effectiveness – Doing it Better• Categories
• Extension• Rationalization• Reengineering
• Improved Terms• Financial• Performance• Management
• Collaboration• Price Variance• Common Vendors
16
category extension
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Situation Categories with only one or two suppliers can limit price competition
StrategyIdentify categories of significant spending with few suppliers; review & renegotiate existing suppliers or initiate bid/proposal process to spread risk
Outcome Cashable savings from increased price competition
Defining Savings
Effectiveness – Doing it Better• Categories
• Extension• Rationalization• Reengineering
• Improved Terms• Financial• Performance• Management
• Collaboration• Price Variance• Common Vendors
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category rationalization
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Situation Categories with many suppliers reduce benefit of economies of scale
StrategyIdentify categories of significant spending with many suppliers; review and rationalize where appropriate
Outcome Cashable savings from economies of scale
Defining Savings
Effectiveness – Doing it Better• Categories
• Extension• Rationalization• Reengineering
• Improved Terms• Financial• Performance• Management
• Collaboration• Price Variance• Common Vendors
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category reengineering
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Situation Waste Management is a major area of spending for local governments, but is often seen as a difficult category to make savings in
Strategy Streamline purchasing to the benefit of both the buyer and supplier; detailed analysis of category needs and resultant spending
Outcome Strategic plan to develop relationships with key suppliers to deliver cashable savings
Defining Savings
Effectiveness – Doing it Better• Categories
• Extension• Rationalization• Reengineering
• Improved Terms• Financial• Performance• Management
• Collaboration• Price Variance• Common Vendors
22
Minimum rank
Maximum rank
improved terms
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Situation Second-tier suppliers are not managed as closely as main suppliers
StrategyIdentify second-tier suppliers of non-commodity goods and services; negotiate improved terms to reduce cost per unit
Outcome Cashable savings from reduced cost per unit
Defining Savings
Effectiveness – Doing it Better• Categories
• Extension• Rationalization• Reengineering
• Improved Terms• Financial• Performance• Management
• Collaboration• Price Variance• Common Vendors
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price variance
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Situation Suppliers offer different prices to each public sector organization
Strategy Identify common suppliers of commodity goods and services where price variation exists; negotiate consistent pricing from supplier
Outcome Cashable savings from reduced price per unit
Defining Savings
Effectiveness – Doing it Better• Categories
• Extension• Rationalization• Reengineering
• Improved Terms• Financial• Performance• Management
• Collaboration• Price Variance• Common Vendors
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collaboration, common suppliers
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Situation Companies supply goods & services to many public sector bodies
StrategyIdentify common suppliers across multiple organizations; work together to negotiate group-wide discount based on overall volume
Outcome Cashable savings from additional buying power
Defining Savings
Effectiveness – Doing it Better• Categories
• Extension• Rationalization• Reengineering
• Improved Terms• Financial• Performance• Management
• Collaboration• Price Variance• Common Vendors
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savings opportunity – City of Naperville
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Saving Summary Key Spending Categories
Potential Savings
Delivering SavingsRealities of Spend Analysis
Michael Bevis, JDCPPO, CPSM, C.P.M., PMP
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The Engine Room
the right foundation
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DataExtract
1
Standardize
2
Classify
3
Enrich
4Aggregate5
the program platform
DataNIGP Observatory
Spend AnalysisContract Compliance
Performance MonitoringRecording of Delivered Savings
10 Point Plan
Transformational Readiness
Assessment
Savings Opportunity Assessment
AnalyzeCollaborate
CompareContract Measure
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10 point plan
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Invoice Consolidation
1Long Tail Consolidation
2
Duplicate Payments
3Improved Terms
4
Category Extension
5Category Rationalization
6
Compliance Contracted Suppliers
7 Collaboration Common Suppliers
8
Price Variance
9Category Reengineering
10
© Spikes Cavell Analytic Ltd. All rights reserved.