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Confidential
Measuring purchasing impactProcurement as a source of business value
Matti Sillanpää
TU-E2040 • Management of External resources • 2016-09-14
Confidential
1. Brief pesonal and Sievo intro
2. Procurement as a source of
business value
3. The challenge of measuring
procurement value
4. Future of procurement value
delivery
5. Sievo – the company
Agenda
Confidential
Brief personal and Sievo intro
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Personal introduction
© Sievo | Page 4
Matti Sillanpää
• CEO and Co-founder, Sievo
• Studied Industrial Management
and Engineering 1998 – 2002
here at Otaniemi
• Founded Sievo in 2003 together
with Sammeli Sammalkorpi
Confidential
Sievo provides the solution to create business value from procurement
© Sievo | Page 5
We help
procurement create business value
by enabling you to take control of all procurement information
with our leading Spend Management solution offering best-of-breed
software, world-class services, and value-added content
Contract
management
Spend
analysis
Savings
lifecycle
Spend
forecasting
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We’ve got proven global delivery capabilities
© Sievo | Page 6
No lost clients since 2014
Partial client list
Confidential
ERP
Active
integrations >90 >40 >20 >15 >10Data Extractor
coverage 67% 68% 75% 100% 80%
We have extensive experience on spend data integration
© Sievo | Page 7
+500 106 bEUR 77 426 940 75 354
...but we do not stop there
Following systems are the ones we are working with the most...
active system
integrations in placespend managed
yearlylines managed
yearly
files managed
yearly
… and many
more, including
legacy systems
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Procurement as a source of
business value
© Sievo | Page 8
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Exemplary breakdown of company’s costs from spend perspectiveAll numbers in millions euros
© Sievo | Page 9
Sales:
6 933
EBIT:
953
Costs:
5 980
Salary:
1 984
Total
purchase
spend*:
3 994
Direct:
2 839
Indirect:
1 155
* Total purchase spend = Costs – salary – Net investments.
Net investemnts = - (Depreciation & Amortization) + Invesments.
For Kone in 2013, the Net investments = -2
67 % of costs
are spend
70 % of spend
is direct
materials,
supplies, and
subcontracting
Source: Kone Corporation Financial Statements 2013
Confidential
Procurement is THE value driver for most companies
© Sievo | Page 10
+ 30% increase in sales
-5% cost of goods and services
Profit
Typically 5% procurement savings produce the same
improvement in profits as an increase of 30% in sales.
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Which is reflected in the fact that CPO’s top priority remains at
creating cost reduction, i.e. savings
Page 11
Source: The Deloitte Global CPO - Survey 2013
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The challenge of measuring
procurement value
© Sievo | Page 12
Confidential
How big share of the sourcing savings created hits the bottom line?
Page 13
6.4%
3.7%
Average yearly
savings claimed
by procurement
Average yearly
savings
recognized
by Finance
42%
Source: savings numbers from Aberdeen Group, March 2011
1) Significant
misalignment
creating distrust
2) Significant value
leakage
For company of Kone’s
size, this missing
leakage equals 110
mEUR/year
Confidential
Spend & Savings
Why
change?
Savings?
565.4
mEUR
Spend year
2015
604.9
mEUR
Spend year
2016
Challenge 1:
Establish detailed
Spend Analysis
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Conceptually Spend Analysis is simple
Page 15
What (product/service) has been
purchased, from whom (supplier),
and by whom (buying
organisation).
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In practice, good Spend Analysis rarely exists in companies
Page 16
Multiple languagesMultiple data sources
Lack of common
categorizationM&A
Heterogeneous
processes
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Who is this gentleman?
17
Confidential 18
Good taxonomy is a must for Spend Analysis
Exemplary indirect taxonomy
Marketing
Marketing materials
Marketing agency
ICT
Hardware
Software
Services
Fixed
Mobile
Travel
Airlines
Train
Hotels
Car rentals
Cars
Leased cars
Acquired cars
External Labor
Temps
Sub-contractors
Facilities
Catering
Rent
Utilities
Cleaning
Office
Furniture
Supplies
MRO
Tests
Spare parts
Maintenance Service
Operating Services
Insurance
Consulting
HR
Data
Agency fees
Exhibitions & events
Representation
Tax & Audit
LegalAdvertising
Equipment
Equipment
Supplies
IPR
Operating services
Research
Natural benefits
Food & accomodation
OtherMembership
fees
Energy
Other
Oil
Other fuels
Gas & Steam
Taxi
Security
Newspapers & books
Electricity
Sales services
Taxonomy should be built from supply market perspective and be aligned with organizational
responsibilities. Generic taxonomies rarely provide this alignment
Facility Management
Facility Maintenance
Confidential 19
Examples of real life data challenges
Client example: purchases classified
”Print”
■ 25000 stk■ 25000 stk.Menukort■ 4X3000 stk. forsider■ 5000 stk. postere■ MailHerbsteventTAB-WerbungGmbH■ Parkplan3.AuflageSCHODERDRUCKGMBH&COKG■ PromotionPageforTVSpielfilm■ ProspektverteilerBodenseeregion■ reklamaprasowaClaudia-Rodzice-G+J■ 72000 stk brevpapir, 90g laseregnet■ additional costs for reprint D version■ CHRISTMAS CARD/04 KOREA■ CHRISTMAS CARD/04 UK TEXT■ D-1801 Gavepapir■ LLW FREE TICKET VOUCHERS/D■ prøver til Anette: 6 stk af hver■ SL0672■ ...
Client example: Ernst & Young
• 98922: ERNST & YOUNG LLP • 43244: XXXX - ERNST & YOUNG LLP • 17297: XXXX - ERNST & YOUNG • 69305: ERNST & YOUNG LLP • 30692: ERNST & YOUNG spolka doradztwa• 36234: XXXX - ERNST & YOUNG LLP • 47664: ERNST & YOUNG LIMITADA • 35996: ERNST & YOUNG AG • 61589: ERNST & YOUNG • 62526: ERNST & YOUNG • 89630: ERNST & YOUNG • 21568: Ernst & Young Consulting • 33054: ERNST & YOUNG • Belastingadviseurs• ...• In total 38 Ernst & Young companies; and this
customer has 1 global ERP-system
PRODUCT
10 000 – 500 000 item codes
0 – 1 000 000 Purchase Order descriptions
10 – 5 000 accounts
SUPPLIER
10 000 – 200 000 supplier codes
Confidential
Conceptually Spend Analysis is simple
Page 20
What (product/service) has been
purchased, from whom (supplier),
and by whom (buying
organisation).
But in practice there is a
huge data, process and
knowledge challenge
Confidential
Spend & Savings
Why
change?
Savings?
565.4
mEUR
Spend
Year 2015
604.9
mEUR
Spend
Year 2016
Challenge 2:
Link changes in
spend to PnL
development
Challenge 1:
Establish detailed
Spend Analysis
Confidential
… and secondly isolating different drivers of spend
565.4
mEUR
Spend
Year 2015
604.9
mEUR
Spend
Year 2016
-35.8
Performance
45.5
Volume -0.4
Currency
20.2
Market
10
Delta One Off
Procurement
contribution
Total cost change
Why
change?
Savings?
Why
change?
Savings?
Confidential
Future of procurement value
delivery
© Sievo | Page 23
Confidential
Procurement needs to change it’s role from savings chaser to
proactive business partner...
© Sievo | Page 24
Key role of procurement
professionals of the future:
Not only about telling how must savings
procurement has created
...
but more about having a dialogue with
internal business stakeholders on what
are the opportunities and threats related
to external resources and how those
can be managed proactively
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... And to do so new language and analytic approach is required
© Sievo | Page 25
1 Category savings Cost reduction on PnL
2
3
Backward looking Forward looking
Static reports Continuous opportunity feed
4 In-house performance measurement Cloud-
based analytics with external benchmarks
Confidential
Spend & Savings
reporting
▪ Focus on reporting
backward looking,
procurement
specific metrics
▪ Mostly internal,
transactional data
sources
▪ Static reports with
quarterly updates
Past
▪ Complementing procurement
savings metrics with financially
aligned metrics
▪ Forecasting impact of spend
changes on profitability
▪ Integration of non-transactional
data, mostly from internal
sources
▪ On-line analytical tools with
frequent updates
▪ Data driven decision making
culture
Cost & Forecast
analytics
Present Future
▪ Exploit Big Data for
automated opportunity
and risk identification
▪ Dynamic benchmarking
▪ Predictive and scenario
based analytics
▪ Full integration and real-
time analytics
Big data driven
value capture
Sievo is changing the way procurement analytics and Big Data are
exploited to drive procurement value
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Sievo – the company
© Sievo | Page 27
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Sievo – the leading Spend Management SaaS solution provider
© Sievo | Page 28
• Truly international business
• Global delivery projects
• Strong client portfolio
• Cloud software business
• Rapid, profitable growth
Partial Clients List
2008, 2009, 2010, 2011,
2012, 2013, 2014, 2015
Confidential
Our values and our culture are important for us!
© Sievo | Page 29
We are honest to ourselves, honest to each other and
honest to our customers. We communicate openly and
proactively, recognize our current limits and build trust
around us.
We care about what we do, we care about each other
and we care about our customers. We take
responsibility, offer help, share knowledge, listen
actively and provide constructive feedback to each
other and our customers.
We aim at exceeding our own limits and the
expectations of others and our customers. We innovate,
work with passion and agility and embrace continuous
learning.
Honesty
Caring
Exceed
Confidential
Helsinki-based company with global client and user base
© Sievo | Page 30© Sievo | Page 30
Confidential
Our Team of 70 employees
© Sievo | Page 31
Average
age 32
Team of 70, 14 nationalities
75 %
with
Master’s
Degree
• Full and part time positions
• Summer internships
• Master’s thesis
Confidential
Thank you!
Stay in touch
http://www.sievo.com/blog/
http://www.sievo.com/career/
+358 40 534 5689