Delivering Savings Realities of Spend Analysis Commonwealth of Virginia Forum 2010 Presented by Michael Bevis, JD CPPO, CPSM, C.P.M., PMP 1

Defining Savings Efficiency – Doing it with less Effectiveness – Doing it better 2

Defining Savings Efficiency – Doing it with less Invoice Consolidation Long Tail Consolidation Duplicate Payments Contract Compliance Primary Concerns Hard or Soft Savings Circle of Control v. Circle of Influence New Business Models 3

Defining Savings Effectiveness – Doing it Better Categories Extension Rationalization Reengineering Improved Terms Financial Performance Management Collaboration Price Variance Common Vendors 4

transformational readiness 5 FoundationCompetent ProficientExpert Invoice Consolidation 1 Long Tail Consolidation 2 Duplicate Payments 3 Improved Terms 4 Category Extension 5 Category Rationalization 6 Compliance Contracted Suppliers 7 Assisted Collaboration Common Suppliers 8 Price Variance 9 Category Reengineering 10 © Spikes Cavell Analytic Ltd. All rights reserved.

An Example The Naperville Data and Experience 6

spending summary – City of Naperville 7 Potential Savings Key Spending Categories Pareto Analysis Key Metrics

Defining Savings Efficiency – Doing it with less Invoice Consolidation Long Tail Consolidation Duplicate Payments Contract Compliance Primary Concerns Hard or Soft Savings Circle of Control v. Circle of Influence New Business Models 8

invoice consolidation 9 SituationEach invoice costs money to process Strategy Reduce the number of invoices by negotiation with suppliers or use of e- procurement systems or payment cards OutcomeEfficiency gains, plus cash savings driven by re-deployment of staff

Defining Savings Efficiency – Doing it with less Invoice Consolidation Long Tail Consolidation Duplicate Payments Contract Compliance Primary Concerns Hard or Soft Savings Circle of Control v. Circle of Influence New Business Models 10

long tail consolidation 11 SituationHigh % of suppliers providing less than $1,000 of goods & services Strategy Reduce the number of invoices by negotiation with suppliers or use of e- procurement systems or payment cards OutcomeEfficiency gains, plus cash savings driven by re-deployment of staff

Defining Savings Efficiency – Doing it with less Invoice Consolidation Long Tail Consolidation Duplicate Payments Contract Compliance Primary Concerns Hard or Soft Savings Circle of Control v. Circle of Influence New Business Models 12

Percentage of spend that is duplicate Percentage of spend recovered Top 5 Categories (Aggregate Spend) payment recovery 13 Situation Duplicate and overpayments can occur during procurement Strategy Identify and recover inadvertent overpayments; improve payment processes to reduce overpayments in future Outcome Cash recovered

Defining Savings Efficiency – Doing it with less Invoice Consolidation Long Tail Consolidation Duplicate Payments Contract Compliance Primary Concerns Hard or Soft Savings Circle of Control v. Circle of Influence New Business Models 14

compliance, contracted suppliers 15 Situation Spending outside of existing contracts Strategy Move off-contract spending to contracted suppliers or negotiate to move suppliers onto contracts where they are not currently in place or expired Outcome Cashable savings from reduced contract pricing 1 Source: Aberdeen Research

Defining Savings Effectiveness – Doing it Better Categories Extension Rationalization Reengineering Improved Terms Financial Performance Management Collaboration Price Variance Common Vendors 16

category extension 17 Situation Categories with only one or two suppliers can limit price competition Strategy Identify categories of significant spending with few suppliers; review & renegotiate existing suppliers or initiate bid/proposal process to spread risk Outcome Cashable savings from increased price competition

Defining Savings Effectiveness – Doing it Better Categories Extension Rationalization Reengineering Improved Terms Financial Performance Management Collaboration Price Variance Common Vendors 18

category rationalization 19 Situation Categories with many suppliers reduce benefit of economies of scale Strategy Identify categories of significant spending with many suppliers; review and rationalize where appropriate Outcome Cashable savings from economies of scale

Defining Savings Effectiveness – Doing it Better Categories Extension Rationalization Reengineering Improved Terms Financial Performance Management Collaboration Price Variance Common Vendors 20

category reengineering 21 Situation Waste Management is a major area of spending for local governments, but is often seen as a difficult category to make savings in Strategy Streamline purchasing to the benefit of both the buyer and supplier; detailed analysis of category needs and resultant spending Outcome Strategic plan to develop relationships with key suppliers to deliver cashable savings

Defining Savings Effectiveness – Doing it Better Categories Extension Rationalization Reengineering Improved Terms Financial Performance Management Collaboration Price Variance Common Vendors 22

Minimum rank Maximum rank improved terms 23 Situation Second-tier suppliers are not managed as closely as main suppliers Strategy Identify second-tier suppliers of non-commodity goods and services; negotiate improved terms to reduce cost per unit Outcome Cashable savings from reduced cost per unit

Defining Savings Effectiveness – Doing it Better Categories Extension Rationalization Reengineering Improved Terms Financial Performance Management Collaboration Price Variance Common Vendors 24

price variance 25 Situation Suppliers offer different prices to each public sector organization Strategy Identify common suppliers of commodity goods and services where price variation exists; negotiate consistent pricing from supplier Outcome Cashable savings from reduced price per unit

Defining Savings Effectiveness – Doing it Better Categories Extension Rationalization Reengineering Improved Terms Financial Performance Management Collaboration Price Variance Common Vendors 26

collaboration, common suppliers 27 Situation Companies supply goods & services to many public sector bodies Strategy Identify common suppliers across multiple organizations; work together to negotiate group-wide discount based on overall volume Outcome Cashable savings from additional buying power

Defining Savings Effectiveness – Doing it Better Categories Extension Rationalization Reengineering Improved Terms Financial Performance Management Collaboration Price Variance Common Vendors 28

savings opportunity – City of Naperville 29 Saving Summary Key Spending Categories Potential Savings

Delivering Savings Realities of Spend Analysis Michael Bevis, JD CPPO, CPSM, C.P.M., PMP 30

The Engine Room the right foundation 31 Data Extract 1 Standardize 2 Classify 3 Enrich 4 Aggregate 5

the program platform Data NIGP Observatory Spend Analysis Contract Compliance Performance Monitoring Recording of Delivered Savings 10 Point Plan Transformational Readiness Assessment Savings Opportunity Assessment Analyze Collaborate Compare Contract Measure 32

10 point plan 33 Invoice Consolidation 1 Long Tail Consolidation 2 Duplicate Payments 3 Improved Terms 4 Category Extension 5 Category Rationalization 6 Compliance Contracted Suppliers 7 Collaboration Common Suppliers 8 Price Variance 9 Category Reengineering 10 © Spikes Cavell Analytic Ltd. All rights reserved.