Indirect Spend Management Through Analytics And Leverage Category Management: Best Practices & The Benefits One Can Achieve October 19 th 2016
Agenda CoVest Introductions Short Overview of CoVest Main presentation on Category Management for Indirect Spend Best Practices and the benefits one can achieve Questions Feel free to ask questions, add your own comments / experiences throughout the discussion Presenters Patrick Russo, VP Marketing patrick.russo@covest.com Andy Matyas, Manager Analytics & Category Development andrew.matyas@covest.com 2
CoVest: Providing Our Members Additional Leverage, Analytics, And Resources To Assist in Managing Their Indirect Spend Spend management that enables more effective use of internal resources Zero cost, transparent, data and analytic driven model validates results Strategic partnerships with suppliers that bring long term gains Continual market tests ensure contract competitiveness CoVest is leading a change in the traditional sourcing model. We are looking for progressive thinking companies to join us in this transformation 3
CoVest Partners With Industry Leading Suppliers In All Our Categories Office Supplies & Services MRO & Facilities HR & Benefits Category Supplier Category Supplier Category Supplier Office Equipment (1) Office Supplies (1) Computer Peripherals Konica Minolta Staples Advantage Staples Technology Solutions Industrial Supplies Bearings & Power Transmission Metalworking & Tools Lubricants Grainger Motion Industries MSC Petro Canada Non-Permanent Worker Management (1) Contingent Staffing Payment Solutions Staffing Provider (1) CoVest Talent Exchange powered by HCMWorks HCMWorks Kelly Services Collaborative Services (incl. Web & Voice) (1) Furniture Print Level 3 Communications Business Interiors by Staples Staples Print Solutions Lab Supplies (1) Facilities & Janitorial Supplies Electrical Supplies ThermoFisher Staples Facility Solutions WESCO Pharmacy Benefits Promotional Items & Recognition Systems CVS/Caremark & OptumRx powered by Employers Health Staples Promotion Products Direct OEM Relationships Notes: (1) International 4
Why do I want to aid my organization in enabling a process to manage spend at a category level? 5
The Goals Of A Procurement Organization Go Far Beyond Managing Pricing And Terms Procurement should enable the organization with the information to buy what it needs easily, cheaply, and with confidence. 6
The Goals Of A Procurement Organization Go Far Beyond Managing Pricing And Terms Simplify Purchasing Make Purchasing Cheaper Track and Manage Purchases Create Compliance to Programs A single transaction costs a company between $70 - $250 from shopping, to receiving, to managing the accounting implications. Studies show that managed spend carries a 20% - 50% lower cost than unmanaged spend If you do not know what you are buying, the ability to strategically manage these purchases and drive down costs are almost nonexistent If your end users are not utilizing programs, they either not driving enough value and need to be redesigned or you are missing out on large savings opportunities 7
The Goals Of A Procurement Organization Go Far Beyond Managing Pricing And Terms Simplify Purchasing Make Purchasing Cheaper Track and Manage Purchases Create Compliance to Programs Reduce the need to shop Lower transaction costs through systems and broad agreements Create data visibility and storage Manage implementation Streamline product requisition and delivery Negotiate competitive pricing Collect, categorize, and analyze spend data Identify potential opportunities to expand coverage Create broad contracts that manage both high and low volume items Leverage online or system ordering mechanisms that make finding products fast Contract with suppliers that can offer a wide variety of goods Create mechanisms to drive down pricing both at contract inception and throughout the life of the contract though leveraging as much spend as possible and placing key category management functions into the contract Embed data requirements into the supplier agreement Collect and store data Track and report savings to end users Utilize data to drive savings from product consolidation and alternatives Utilize spend information to create contracts with manufacturers Create user flexibility so that it is easy and fast to use negotiated agreements Manage pricing and reporting at location levels to ensure end users see the value in the agreements Work with end users to analyze and identify savings opportunities for noncompliant spend Report lost savings opportunities to stakeholders 8
The Goals Of A Procurement Organization Go Far Beyond Managing Pricing And Terms Create broad contracts that manage both high and low volume items, with suppliers that offer a broad set of goods and collect and make available solid information about purchases. Create user flexibility so that it is easy and fast to use negotiated agreements Manage the expected cost of goods to as low a level as possible to maintain the services needed to make purchasing easy Strategic Sourcing Leverage online or system ordering mechanisms that make finding products fast, communicate to end users the value of the program, and help them adopt the program Create mechanisms to drive down pricing throughout the life of the contract though leveraging as much spend as possible and placing key category management functions into the contract Collect and store data, track and report savings, and utilize data to create additional savings opportunities, manage pricing and reporting at location levels to ensure end users see the value in the agreements Work with end users to analyze and identify savings opportunities for noncompliant spend, record and report lost savings opportunities Work with suppliers to identify ongoing improvements that can leverage best practices to make purchasing even easier and cheaper Work with suppliers to understand changes in organizational behavior that can lower the cost to serve your end users Gather feedback from all users to ensure that their needs are addressed in the most thorough way possible Implementation Management Category Management Supplier Management Category Strategy Development 9
Procurement Lifecycle Category Strategy Strategic Sourcing Supplier Relationship Management Implementation Management Category Management 10
Effective Implementation Management Sets The Stage For Category Management How Do We Currently Buy? Is online ordering, punch-out, phone/email, or a combination of all used at the sites? Is there an organizational necessity for the current method, or can it be optimized? How Do We Want To Buy Going Forward? If integrated ecommerce platforms are not in place, take advantage of leveraging the suppliers online platform Have system in place prior to official launch How Do We Communicate How To Buy? Best Practice: Internal communication followed by It s Coming and It s Here messages How Do We Track Implementation Compliance? Set regular calls with supplier, including a tracking document by site Use supplier data to create compliance reports comparing actual spend to benchmarked expectations Leverage your preferred suppliers resources and strengths 11
Implementation Tracking Example 12
Category Management Best Practices Begins With Contract Management Contract Management Contractually building into the agreement mechanisms that maintain the integrity of the pricing over the life of the agreement Auditing Annually analyze spend to ensure one paid the correct negotiated price Annual Price Change Analysis Analyze and endeavor to negotiate the elimination of annual price increases Data Collection Gather detailed spend data regularly for program baselines Savings Analysis and Reporting Capturing saving at regular intervals and reporting results to key stakeholders Annual Core List Rewrites Annually re-write core lists to ensure they match spend patterns and reflect the continuous organization buying changes 13
Data Management And Analysis Creates The Mechanisms To Capture Value And Drive New Opportunities Data Analysis Data Management Controlling your organizations data and using it to communicate successes and identify weaknesses and opportunities Compile and store historic data for baseline comparison and tracking price changes Have suppliers provide regular line item reporting Take advantage of suppliers analysis and advanced reporting features where possible Savings Analysis and Reporting Use baseline spend and regular reporting from suppliers to analyze a view of the hard, year over year savings your contracts are driving Communicate reports to key stakeholders to demonstrate the value being realized New Opportunities Analysis Use reporting to highlight potential areas of improvement, and opportunities to drive even greater value Ex: SKU consolidation >$0.5M In Savings Category Unique SKUs - Current Unique SKUs - Consolidated Incremental Savings Barricade Tape 5 1 $4,449 Degreaser 11 4 $40,910 Ear Plugs 18 5 $36,774 Gloves 103 32 $329,073 Lubricants 10 2 $9,937 Safety Glasses 26 4 $41,175 14
Tracking Compliance To Programs Allows The Procurement Team To Identify Areas Of Lost Savings Opportunities Compliance Management Compliance tracking builds on the implementation management concepts and data analysis concepts to push adoption Existing Category Compliance Tracking Compares the spend flowing through the preferred contract to other vendor spend in the category Highlights particular sites or BU s that are less compliant Other vendor spend can be benchmarked against incumbent supplier to create a business case to move that spend to the preferred contract Lost Savings Opportunity Reporting Compile line item rogue spend outside of preferred contract, and cross reference items to preferred supplier This will show which items should be purchased through the preferred supplier, and what the savings potential is Create individualized reports for key stakeholders at sites to drive compliance 15
Compliance Reporting Examples Existing Category Compliance Tracking Industrial Supplies Spend Month Year Grainger MSC Fastenal McMaster-Carr Hagemeyer Total Spend October 2013 $264,486 $385,209 $51,661 $18,995 $0 $720,351 November 2013 $188,520 $331,091 $36,424 $18,934 $6,000 $580,969 December 2013 $226,217 $228,906 $50,974 $9,618 $503 $516,219 January 2014 $279,881 $324,227 $65,863 $42,255 $4,126 $716,352 February 2014 $244,462 $259,433 $75,266 $23,347 $0 $602,509 March 2014 $238,880 $312,143 $99,469 $26,102 $10,074 $686,668 April 2014 $271,007 $253,341 $86,010 $18,271 $5,537 $634,167 May 2014 $214,151 $249,159 $62,978 $12,336 $10,216 $548,841 June 2014 $219,690 $247,463 $106,615 $12,255 $2,619 $588,643 July 2014 $249,382 $258,099 $65,947 $23,643 $840 $597,911 August 2014 $220,122 $182,015 $47,838 $13,833 $9,350 $473,158 September 2014 $243,804 $244,930 $49,666 $9,909 $3,210 $551,519 Total $2,860,602 $3,276,017 $798,713 $229,499 $52,476 $7,217,307 Spend by Month Lost Savings Opportunity Reporting Compliance Breakdown Month Total MRO Spend Spend With Grainger Grainger Compliance % January $416,609 $89,419 21.46% February $329,584 $68,606 20.82% March $529,302 $78,873 14.90% April $428,739 $83,930 19.58% May $393,978 $95,377 24.21% June $451,360 $101,824 22.56% July $542,717 $81,658 15.05% August $349,111 $72,693 20.82% Grand Total $3,441,400 $672,380 19.54% Percent of Spend Month Year Grainger MSC Fastenal McMaster-Carr Hagemeyer Total October 2013 37% 53% 7% 3% 0% 100% November 2013 32% 57% 6% 3% 1% 100% December 2013 44% 44% 10% 2% 0% 100% January 2014 39% 45% 9% 6% 1% 100% February 2014 41% 43% 12% 4% 0% 100% March 2014 35% 45% 14% 4% 1% 100% April 2014 43% 40% 14% 3% 1% 100% May 2014 39% 45% 11% 2% 2% 100% June 2014 37% 42% 18% 2% 0% 100% July 2014 42% 43% 11% 4% 0% 100% August 2014 47% 38% 10% 3% 2% 100% September 2014 44% 44% 9% 2% 1% 100% Total 40% 45% 11% 3% 1% 100% $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 January February March April May June July August Total MRO 60% 50% 40% 30% 20% 10% 0% Grainger MSC Fastenal McMaster-Carr Hagemeyer Lost Savings Based On Direct Matches Month Spend Crossed Spend With Grainger Pricing Lost Savings Savings % January $69,065 $64,177 $4,888 7.08% February $69,257 $61,899 $7,359 10.63% March $68,001 $63,730 $4,271 6.28% April $54,009 $51,389 $2,620 4.85% May $70,094 $61,429 $8,666 12.36% June $70,467 $67,387 $3,080 4.37% July $62,203 $54,740 $7,462 12.00% August $40,902 $39,151 $1,751 4.28% Grand Total $503,999 $463,901 $40,098 7.96% 16
Perhaps Most Importantly, Spend Management Groups Provide Resources Groups can save organizations resources and time by supplementing or taking over many of the category management tasks Pre-negotiated contracts decrease contracting time Implementation plans and guidance reduce time to implement Pricing negotiations, core-rewrites, and savings reporting often handled by the group Groups provide confidence in pricing and reporting Group leverage behind the scenes works to ensure pricing is competitive and consistent Regular reporting validates and quantifies the value being driven, and provides confidence that the category is being effectively managed Added resources and confidence allows procurement to focus on other value added tasks Less time focused on transactional buying and price checking More time to focus on compliance, standardization, total cost of ownership opportunities, and developing better partnerships More time to focus on other, more strategic or specialized categories that have been neglected 17
Supplier Relationship Management Industry leading suppliers have more to offer than product Insights into best practices Tools to help manage purchases and inventory Services that offer savings beyond item price Bringing suppliers into the category management process enables your organization to leverage these value added options This only works if you are partnering with broad suppliers that have strong offerings and the ability to execute on a national scale 18
How can I accomplish this and still make transactions happen? As categories are managed through this process, transaction management dissipates Time spent managing transactions Time spent managing categories Transaction management never disappears, but it can be substantially reduced Category Lifecycle Management Sophistication 19
The End Results Of A Thoroughly Performed Procurement Cycle Drive Significant Results For An Organization Deep supplier relationships that drive more savings than possible in a transactional model Ability for users to rapidly identify the best source for a product, find it quickly, and free up time for more useful activities Streamlined purchasing process that minimizes the time and cost of completing the financial side of the transaction Detailed and useful data that helps to drive future savings through sku level and category level projects 20
Thank You Questions? 21