Table of Contents

Foreword     xiii
Preface     xv
Acknowledgments     xvii
About the Authors     xix
Web Added Value     xxi
Part I
Fundamentals of Spend Analysis     3
What Is Spend Analysis?     5
Basics     5
History of Spend Analysis     10
Specialist Vendors     11
Consolidation     12
Similarities/Differences between Spend Analysis and Data Warehousing     12
Characteristics of an Ideal Spend Analysis Application     15
Data Definition and Loading (DDL)     15
Data Cleansing, Structure, and Enrichment (DE)     17
Spend Data Analytics (SA)     19
Knowledgebase Management (KB)     20
Summary     22
References     22
Business Imperative and Return on Investment     23
Spend Leakage and Compliance Multiplier     23
Importance of Spend Analysis within Supply Management     25
Benefits to Businesses     26
Estimation of Spend Analysis Return on Investment     27
Savings Opportunity     30
Highly Decentralized Purchasing     30
Overview and Objectives     30
Methodology     31
Global Procurement Challenges     31
Methodology     34
Results     35
Merger Planning and Integration     39
Overview     39
Situation     40
Methodology     40
Conclusion     43
Summary     44
References     45
How to Implement a Successful Spend Analysis Program     47
Set Objectives     48
Lead from the Top     48
Establish a Focused Center of Excellence     49
Carefully Evaluate Choices     50
Commodity Classification     50
Data Enrichment     50
Take a Limited-Scope, Phased-Rollout Approach     50
Requirements Scoping     50
Multicube Approach     51
Data Scoping     52
Refresh Requirement     52
Know Your Data     53
Technology Should Support Business, Not Drive Business     53
Align the Team to Support the Organization     54
Increase Organizational Visibility     54
Measure Constantly, Report Frequently     54
Engage with Your Application Provider     55
Sample Project Plan     55
Procurement Transformation for an {dollar}8 Billion Agrochemical Business     55
Overview     55
Background     57
Implementation and Key Learning     57
Spend Analysis Program Success     58
Sourcing Program Success     58
The Future-Managing Supplier Relationships     59
A Fortune 500 Provider in the Healthcare Industry     59
Overview     59
Implementation     60
Challenges     60
Results after One Year     61
A Company with Global Procurement Locations     61
Overview     61
Implementation     62
User Adoption     62
Next Steps     62
Summary     62
References     63
Opportunity Identification     65
Spend-Level Opportunities     67
Supplier Rationalization     67
Demand Aggregation (or Disaggregation)     67
Bypass of the Preferred Purchasing Process     69
Non-PO Spend     69
Off-Contract Spend     69
Diversity Spend Compliance     70
Supplier Performance     70
Spend with Poorly Performing Suppliers     71
Approved versus Nonapproved Spend     71
Spend by Payment Type     72
Transaction-Level Opportunities     72
Contractual Term Opportunities     72
Unrealized Discounts and Rebates     73
Quantity Violations     74
Delivery Date Violations     76
Payment Term Opportunities     76
Invoice Processing Opportunities     77
Consolidated Payments     77
Frequent Charges and Credits     77
PO Approval Limits     78
Prioritizing Opportunities     79
Conduct Buyer Interviews     79
Create a Segmentation Framework     80
Segment the Categories     80
Assign Category to Implementation Waves     80
Summary     81
Part II
The Anatomy of Spend Transactions     85
Types of Spend     85
Direct     85
Indirect     86
MRO     87
Procurement Processes     88
Procure-to-Pay (P2P)     88
Purchasing Cards (P-Cards)     88
Travel and Entertainment (T&E)     88
Information and Approval Flow in P2P Processes      89
Data Requirements for P-Cards     93
Data Requirements for T&E     93
Source Systems and Data Extracts     94
Accounts Payable     94
Purchasing/e-Procurement     94
Receiving     95
Materials Management     95
Freight Transactions     95
Corporate P-Cards     96
Travel and Entertainment     96
Contract Management     96
Material Requirements Planning or Manufacturing Resource Planning Systems     96
Contract Manufacturer Data     96
Other (External Sources)     96
Quality of Data     97
Item Description     98
Vendor Name     99
Cost Center and GL Code     99
Summary     100
Spend Analysis Components     101
Introduction     101
Data Definition and Loading (DDL)     103
Data Cleansing     105
DDL Considerations     107
Data Assessment     108
Data Enrichment (DE)     110
Overview     110
Classification     115
Clustering     116
Business Rules and Manual Editing      116
Dimensional Enrichment     116
Classification     119
Clustering     120
Transactional Enrichment     120
Business Rules     120
Transactional Classification     123
Knowledge Acquisition and Management     125
Concepts     126
Attributes     127
Instances     127
Knowledgebase Essential Functionality     127
Browsing     127
Editing     128
Knowledge Assimilation     128
Spend Reporting and Analytics     129
Business Intelligence Key Capabilities     131
Reporting     131
Analytics     131
Scorecarding     132
Dashboards     132
Business Event Management     132
Basic OLAP Reports     133
Pivot Tables     133
Cross-tabular Reports     133
Graphical Reports     135
Specialized Charts     141
Waterfall Chart     141
Pareto Chart     142
Treemap     142
Multidimensional Report     144
Map Report     144
Ad Hoc Analytics     144
What-If Analysis     147
Dashboards     148
Summary     148
References     150
Taxonomy Considerations     151
Ontologies and Taxonomies     151
Popular Industry Standard Commodity Taxonomies     153
UNSPSC     154
Design     154
Advantages of UNSPSC     155
Disadvantages of UNSPSC     156
eOTD     157
Design     157
Advantages of eOTD     165
Disadvantages of eOTD     166
eCl@ss     166
Design     166
Advantages of eClass     168
Disadvantages of eClass     169
RUS     170
Design     171
Advantages of RUS     172
Disadvantages of RUS     173
Quantitative Comparison of Taxonomies     173
Size and Growth     174
Hierarchical Order and Balance of Content     175
Quality of Property Libraries     175
Conclusion and Summary     177
References     178
Technology Considerations     179
Technical Considerations in the SA Module      179
Online Analytic Processing (OLAP)     179
What Is Your OLAP Schema?     180
What Do Your Dimensions Look Like?     181
Precooked Data or On-the-Fly Calculations?     182
Continental or International Deployment?     182
Pivoting or Multidimensional Navigation?     183
Technical Considerations in the DDL Module     184
Representative Sampling     185
Missing Values     185
Balanced Dimensional Hierarchies     187
Detection of Systematic Errors     189
Technical Considerations in the DE Module     190
String Matching     190
Classification     191
Statistical Algorithms     193
Distance-Based Algorithms     194
Decision Tree-Based Algorithms     194
Neural Networks-Based Algorithms     195
Rule-Based Algorithms     196
Clustering     196
Classifier Evaluation     198
ROC Graph Details     200
Association Rules     201
Summary     203
References     203
Part III
Tracking and Monitoring     209
Introduction     209
Spend Under Management     212
Integrated Supply Management     212
External Integration Using Web Services     214
Using Spend Analysis for Measuring Benefits     214
Summary     217
Spend Analysis and Compliance     219
Introduction     219
Control Violations in the Procurement Process     220
Supplier Assessment     220
Supplier Selection     221
Contract     221
Procurement or Requisition     222
Fulfillment     222
Invoicing     222
Payment     222
Implementing Controls in Procurement     222
Commonly Implemented Controls     222
Payment Controls via 3-Way Match     224
Authorizations     224
P-Card Control     224
Travel and Entertainment     224
Spend Leakage     225
Contract Compliance     225
Vendor Compliance     226
Fraud     226
Case Study     227
The Future of Procurement Compliance     228
Measurement     228
Prevention     228
Summary     229
References      229
The Future of Spend Analysis     231
Supplier Discovery     232
Spend Forecasting     232
What-If Spend Analysis     232
Microanalysis     233
New Product Target Cost Analysis     233
Real-Time Classification     233
Relevance Search     234
Price Benchmarking     235
Summary     235
Index     237