Insights & Ideas

Three Ways to a Return-Before-Investment with Spend Analytics

Preface

It is 50 years since management consultant guru Peter Drucker coined the term “knowledge worker”, and never have people who think for a living been more important or more in-demand in organizations. Today, too, there is universal recognition of the need for and importance of good business intelligence taking data and those who can manipulate it to the top of the corporate agenda.

Working with those who lead Procurement and Supply Management (P&SM), for a little over 10 years, it is more than apparent that they crave accurate data from which they can make informed decisions. And yet many have no accurate or reliable data detailing how much their organization is spending, on which goods and services, and with which suppliers. Consequently, it is difficult for them to achieve the multi-million pound savings, which are often up for grabs – let alone create or deliver the value that the function is increasingly expected to provide.

This is amplified by the fact that new information and communication technologies are creating some of the biggest shifts in human behaviour – fundamentally changing the way we live, work and interact. Location is no longer a limitation; people are increasingly connected to the global network in spite of where they live.

The world is becoming “always-on,” with a plethora of ways in which we can interconnect with torrents of available data. These new technologies bring business intelligence into context, enabling organizations of all sizes to put big data and analytics to work. This ready access to accurate insights creates an unprecedented capacity to synthesize information in support of decision-making.

P&SM has spent decades looking backward, at money spent last year, supplier performance in the past month or quarter; the capability offered by the use of analytics will bring information and models that can look forward; providing the Chief Procurement Officer (CPO) with full visibility into spend, risk and performance.

The need, too, for P&SM to become more financially focused is unequivocal. A focus on physical supply chains will remain; but P&SM must become more productively linked to financial supply chains, optimizing cash flow and working capital, implementing dynamic discounting and supply chain financing.

These profound changes in the ways we can interact and connect are eliciting a range of commercial responses that we ignore at our peril. Old business models are being transformed and powerful new ones emerging.  The opportunity to exploit these new technologies cost effectively is for many C level executives the stay-awake issue.

Moreover the ability to develop a holistic view of corporate spending and supplier data, which has long been the Holy Grail of CPOs, without accurate information, remains elusive. This may be because many are simply unaware of the availability of cloud computing or the accelerated value it delivers.

Rosslyn Analytics has developed this paper, putting forward a strong case for why chief procurement and supply chain officers (and their companies) should embrace cloud computing.   Whether you’re a potential buyer and/or an advisor to colleagues on the purchase of cloud services, the team introduces a new concept, Return-Before-Investment, which highlights fundamental differences between traditional spend analysis tools and spend analytics in the cloud as accelerators of value creation and innovation. 

The reality today is most P&SM no longer need to invest in huge upfront IT costs; instead they can buy cloud-delivered analytics regarding spend, risk and performance allowing organizations to become intelligent enterprises, thinking for themselves, along rational lines, hypothesizing and testing against real evidence. CPOs can at last adopt these new cloud-based solutions, delivering competitive advantage, sophistication and evidence based decision-making, cost effectively.

Gerard Chick, FCIPS
Expert in Procurement and Supply Management Strategy

--

Three Ways to Achieve a Return-Before-Investment with Spend Analytics in the Cloud

In today’s economic environment, companies of all sizes are doubling-up their efforts to generate bottom-line savings.   However, these efforts have been stymied by an overreliance on traditional software tools that continue to fail to deliver to the user’s expectations.

For years, procurement, supply chain and finance teams have struggled to obtain accurate visibility of spending trends and supplier-related risks because the underlying data used for decision-making is inaccessible, inconsistent, unconnected, uncategorized or downright incomplete.

Despite companies spending millions on IT, poor data remains a major issue because technology hasn’t kept pace with business demands.

The consequence isn’t just sunken costs wasted on unproven business intelligence software but the lost opportunities of not having the right information in the hands of the right people at the right time.

Cloud Computing Delivers Accelerated Cost Savings

Cloud computing is unleashing massive value across the enterprise IT ecosystem.  So disruptive is this new business model that traditional tools used by procurement to assess on-premise software technology investments such as Return-on-Investment (ROI) have now become completely outdated.

Instead, Return-Before-Investment (RBI) has emerged as the new metric for measuring the accelerated value that the cloud – and, in particular, cloud-delivered spend analytics – creates for leading companies. It offers them a far cheaper, simpler and more broadly applicable alternative to the legacy models of enterprise computing.

The driving force behind the growing adoption of RBI is the recognition that companies are no longer investing in huge upfront IT costs.  Instead, they are moving to a cloud-delivered, subscription model that shifts expenditure from CapEx to OpEx.

This executive paper introduces the concept of RBI as the new standard in assessing and benchmarking the value of your technology investment in the cloud.   In particular, it examines the case for cloud-based spend analytics, which can create rapid business value in as little as days and weeks – not months or years.

Spend Analytics in the Cloud Accelerates Business Innovation

Spend analytics-as-a-service elevates spend analysis from a tactical, departmental specific tool to a strategic asset embedded across your company. This shift is possible because the cloud enhances what procurement and other knowledge workers can report on and analyze  - more insight from data. 

No longer restrained by legacy technology that limits the type and amount of data, users of cloud-based spend analytics have unprecedented access to new layers of visibility and deeper insights. 

In the cloud, spend analysis no longer remains the domain of just procurement.  It can now be extensively used by chief executives, finance controllers, business analytics, category managers, data stewards and risk managers to make smarter, collaborative decisions. 

A key attribute of on-demand spend analytics is progressive data enrichment.  This is the process of improving the quality and efficacy of data by turning it into relevant and meaningful information. By combining data with other sources, your ability to innovate increases exponentially:  You are now able to ask new questions of your business, and of your suppliers. 

  • Spend data + Environmental data = Are you able to determine the amount of carbon emissions in your supply chain?
  • Spend data + Geo-location data = Do you have a manufacturing plan that is located in an earthquake zone?
  • Spend data + Credit scores = Are you trading with a supplier that could go bankrupt tomorrow?
  • Spend data + Accounts Payable data = Are you leaking cash by not preventing erroneous payments to suppliers?
  • Spend data + Geo-political data = Are your operations at risk of disruption as a result of political or social unrest? 

With better insight come new market opportunities, which start by freeing-up cash and delivering cost savings measured in weeks, not months. This accelerated time-to-value is only possible when information is in the hands of all decision-makers and knowledge workers, and not in restricted silos.

Not surprisingly, companies that have invested in giving their knowledge workers a single platform to interact with and share information are 2.2 times more likely to outperform their peers including generating 1.6 times more revenue (Source: IBM). This is because tools such as analytics connect employees with information, resulting in improved decision-making and operational efficiencies.

For example, when analytics involve other departments, knowledge workers no longer work in silos. In addition, by streamlining disparate reporting systems and data feeds, companies improve the quality of information while reducing infrastructure technology costs.

On-Demand vs. On-Premise Spend Analytics Cost Benefit Analysis 

Twenty years ago if a company sought to purchase a customer relationship management (CRM) system, it would conduct a lengthy request for information (RFI) process.  Nowadays, with the universal acceptance of cloud computing, companies are not only buying CRM tools online, but also spend analysis tools that offer more functionality and value than traditional on-premise software. 

The high-level benefits of cloud-delivered services such as self-service analytics include:

  • Create top-line growth through faster time-to-market for applications
  • Accelerate bottom-line cost savings through better utilization of resources 
  • Lower the Total Cost of Ownership (TCO) of technology
  • Enable organizations to focus on core business processes
  • Shift large capital expenditure to operating expenditure

This diagram shows the unique benefits of on-demand spend analytics to the limitations of on-premise spend analysis tools.

Return on Spend Analytics

Three Ways to a Return-Before-Investment with Spend Analytics in the Cloud

While RBI may be an unfamiliar concept for a number of procurement departments, below we offer a few tips how you can demonstrate the value of cloud analytics and start delivering savings today. 

1. Uncover Duplicate Payments

If you pay more than 10,000 supplier invoices each year, you are almost certainly making losses you know nothing about.   To stop leakage, look for overpayments in present and past accounts payable data.

Current accounting software does not cover the functionality and typically can only highlight simple duplicates. Your spend analytics tool should have this build-in feature to not only identify cash but prevent erroneous payments from happening in the future.

2. Prevent Procurement Fraud

Visibility into what employees are buying and from whom is central to proactively detecting fraud within an organization.  This not only prevents fraud from happening but will ensure you are complying with national regulations such as the UK’s anti-bribery act.

Traditional spend analysis tools do allow for users to link spend data with employee information, limiting the insight required to monitor for possible procurement fraud from a single central reporting and analytic platform.

3. Contract Compliance Savings

Effective contract management reduces costs, improves savings, enhances compliance and lowers exposure to risks. However, existing contract management systems provide a fragmented view of contracts, inhibiting procurement from leveraging spend to negotiate better deals with suppliers.

Cloud-delivered analytics link your spend data with contracts through one integrated dashboard with a built-in system to alert you when spend with a supplier hits a milestone such as time, value or volume. 

 

 

Our clients