Margin improvements and savings detection through Spend

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Margin improvements and savings detection through
Spend Price Controlling with OLAP Spend
Controlling

• Michael Lauer, Orpheus GmbH
• E-Mail michael.lauer_at_orpheus-it.com

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The OLAP Spend Controlling cube is the
information base for sourcing questions like
(examples)
Where are bundling potentials?
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Where are variances from the baseline?
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1
What has been purchased?
How much was purchased at which price(s)?
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2
Are there any fraud patterns?
SpendCategories
Transactional Spend Data
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Who has purchased how much?
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Who has delivered when and with which quality?


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Are the frame contracts well used? or is there
a lot of maverick buying?
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From where (region) was delivered to (region,
plant) ?
Suppliers
Company Organisation
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How well is the process compliance?
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How well is the sourcing performance compared to
benchmarks?
Where are price inefficiencies? and price
increases?
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One main objective in strategic sourcing is
generate cash flow relevant savings each year
between 2 10 of the external spend volume
with the following levers
Volume Concentration
Improving Product Description
Best Príce
relevant for controlling solution
not relevant for controlling solution
Strategic Sourcing
Collaborative Process Optimization
Global Sourcing
Supplier Rationalisation
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Which margin levers are available?
Compliance (Contracts/Processes)
and where they can be used?
Controlling Methodology
Condition Mana- gement
Payment terms
Benchmarking int.
Transparency
Categorisation Consolidation Data quality
Currency effects (Variances, Hedging)
Stock level
Unit Prices (LCC, Bundeling, Standardisation,
Index-/ marktet comparison)
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How does the savings mining system OLAP Spend
Controlling look like?
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The Orpheus OLAP Spend Controlling is a framework
which consists of serveral modules. The cube and
the reporting are open source software.
AI-based Categorization of Invoice- and
Order-Lines
AI-based Harmonization and Consolidation
of Supplier Master Data
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OLAP Spend Controlling is feeded by master data
as well as transaction data from the underlying
ERP-Systems
Transactional data
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Invoices
Orders
SpendCategories
Transactional Spend Data
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Supplier Master Data
Material/ServiceMaster Data


Commodity group
Name
Material
Address


Suppliers
Company Organisation
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Organizational and additional data

• Company tree/ organization
• Currency table
• Doc types
• Controlling area

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Categorisation, Consolidation, Data quality
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Content Management concerns the cleansing, the
enrichment, harmonisation, consolidation and
categorization of all purchasing relevant data
Back-End Systems
Supplier- Consolidation
Data Extraction
Validation checks
Upload
monthly extraction


Spend Data Warehouse
Invoice/Order Categorisation

• Data selection in local systems
• Data transfor-mation

• Key Perfor-mance Indi-cators check (KPI) on data
  sets and data volume
• Manual validation of extracted data

• Data enrichment e.g. DB
• Supplier Consolidation
• Use of categorization methods
• Use of keyword database

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For the categorisation of invoice and order data
OLAP Spend Controlling uses rules and word
statistics
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Transparency for sourcing and purchasing
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THE PROBLEM In complex company structures with
heterogeneous IT, savings mining controlling is
impossible without advanced data enrichment.
Complex, multi layered company organizations

• The lack of transparency makes
• savings detection impossible.
• Strategic Sourcing/Outsourcing
• Which are your top suppliers?
• Where lies bundling potential?
• Are all Service Levels achieved?
• Customer Analysis/CRM
• Which are your strategic accounts?
• Where are overlaps in customers?
• Optimization of sales mix
• Logistics
• Where is bundling potential?
• Which are the best local suppliers
• Where are redundancies?

Lega-cy
Lega-cy
SAP
SAP
Lega-cy
Lega-cy
Lega-cy
Lega-cy
Baan
SAP
Lega-cy
SAP
Oracle
SAP
Na- vision
Brain
SAP
Lega-cy

• come along with fragmented IT infrastructure.
• Lots of ERP, CRM and logistics systems
• Different vendors from SAP, Oracle to legacy
  providers
• Every system has its own data structures
• Multi nationality leads to various taxonomies
• Many different languages in the systems
• No harmonized classification of data

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One typical example in strategic sourcing
because of the lack of transparency,
international holdings loose significant savings.
Starting from the external spend volume of the
holding,
30 of which
50 of which
80 of which
12,5 of which
50 of which
100 Basis external spend volume
50 bund-able part
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12
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savings only to be realized by spend transparency
savings average by contracts
covered by frame contracts
addressable by Strategic Sourcing
3-10 savings are lost without spend
transparency!
For our standard clients with external spend of
more than 10 bn. Euro per year, we saved more
than 300 mn. per year creating spend
transparency!
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Savings lever in purchasing and strategic sourcing
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Levers of transparency instrategic sourcing
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Margin lever Condition Management How does the
material price correlates with the price index of
the underlying raw material?
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Margin lever Currency Effects Usage of the
Spend-Flussrechnung in purchasing/sourcing as an
analogy to marginal costing for products in sales
FXFOREX
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Margin lever Compliance Detection and
Prevention of Maverick-Buying
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Margin lever Decrease Unit Price Visualisation
methods like a Geo-Analysis are useful to
illustrate and force global sourcing activities
ResultThe purchasing volume is concentrated in
europe and the US (green color)
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Margin lever Category spend / unit costs Which
companies in the holding are Best in Class?
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Margin lever Supplier Rationalisation ABC
analysis as the starting point for a shift and
re-allocation of spend from C- to A- and
B-supplier
ResultSupplier chicago blower is the last
A-supplier. 4,6 A-supplier are responsible for
80 of the whole spend.
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Margin lever Payment Terms The time series
analysis allows detailed checks of the payment
behavior of different holding companies
ResultCompany_green and Company_blue are
performing well. They increased their payment
days in the last months. Company_red was doing
well in the past. But in the last month they
missed the target because of sharply decreasing
payment day