90th Annual International Supply Management Conference and Educational Exhibit May , 2005

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Session Code DGSpend Analysis First Step in
Strategic SourcingRip GreenfieldVice-President
of Global Alliancesand Business
DevelopmentAustin-Tetra, Inc.Monday, May
9th1040 1140
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Topics

• Spend Management Defined
• Why does enterprise spend analysis matter?
• Benefits
• What are the reasons for doing it?
• Approach
• How do I do it?
• Results
• What are the deliverables/output to expect?
• Solutions
• Who can help me?

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Why The Need to Manage Your Spend Data?

• "Few enterprises know what they spend, on which
  products, with which vendors ...
• Spend Data Management is critical for supply
  management and business success ...
• Insufficient visibility into spending is a
  corporate epidemic."
• - Tim Minahan, The Aberdeen Group

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Spend Data Management Defined

• More simply, can you answer these questions?
• Which suppliers provide the greatest value to the
  enterprise?
• How does total spend roll-up in corporate
  families create increased leverage to reduce
  supply costs?
• Which commodity and service areas represent the
  greatest sourcing opportunities for spend
  reduction?
• What is my total spend by industry
  classification?
• Where is spend occurring with non-preferred
  suppliers?

How Can You Manage What You Dont Measure?
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Fact Based Decision Making

• Example
• Maverick Spending as a Key Performance Indicator
• To measure it, you need to know whether a
  purchase for item specification A in commodity B,
  placed by person/department C in geography D,
  properly used contract E that hopefully existed
  for supplier F, to be used given these conditions.

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The Opportunity

• Three key reasons for planning and implementing
  best practices in spend management are
• Baseline spend to establish visibility to current
  enterprise purchasing and identify cost savings
  and sourcing opportunities
• Support compliance initiatives to meet internal
  savings targets, Federal government regulations,
  SOX 404, and socio-economic initiatives
• Implement process improvement to meet the dual
  goals of sourcing savings and best practices in
  compliance

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Spend Data Management Business Drivers
Strategic Sourcing
Procurement
Supplier Management

• Identify non-preferred supplier spend in
  contracted categories
• Identify disparate terms and conditions across
  unidentified duplicates and related companies
• Identify categories that are potentially
  over-represented with suppliers

• Identify spend with contracted suppliers at
  various locations to establish transaction counts
  and consider restructuring payment plans
• Combine A/P and P-Card transactions to
  identify opportunities to migrate PO spend to
  P-Card where appropriate

• Evaluate supplier performance via financial and
  operational metrics
• Collect and manage key supplier documents in
  order to meet contractual and social obligations
• Evaluate supply base for risk (denied/debarred
  parties)

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Each step in the sourcing process has an element
of data management starting with the
Opportunity Assessment

• Data extraction
• Baseline spend visibility
• Sourcing group definition

Opportunity Assessment
1. Profile Sourcing Group

• Sourcing group analysis

2. Sourcing Strategy

• Supplier RFIs

3. Supplier Portfolio
Sourcing Steps

• Supplier analysis

4. Selection of Implementation Path

• Supplier RFPs

5. Competitive Supplier Selection
6. Operational Integration with Suppliers

• RFP evaluations
• Savings measurement system

7. Continuous Benchmarking of Supply Market
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Spend Analysis Steps

• Extract, Cleanup and Validate the Data
• Standardize, Normalize, and Enrich your spend
  information
• Identify Exceptions
• Rationalize your Suppliers
• Get all the supplier spend linked to the
  corporate parent
• Categorize supplier spend
• Understand supply base risk, dependencies, and
  socio-economic breakdown
• Code for Insight Assess the Details
• Categorize spend data to a sourceable commodity
  structure
• (e.g. United Nations Standard Products and
  Services Code or UNSPSC)
• Does your system capture good descriptions?
• Do you use them to allocate to the right
  category?
• Identify and Act
• Uncover strategic sourcing opportunities for
  immediate savings
• Improve internal controls
• Comply with government controls

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Solid Spend Data Management Delivers

• Data Quality
• Standardized consistent formatting
• Cleansed identify duplicates, fix errors
• Consistent data represented in the same manner
• Current ongoing updates to manage business
  change
• Grouped categorized and classified
• Granular detailed data available
• Knowledge Enrichment
• Completeness fill in missing data for master
  information, hierarchies, demographics,
  relationships
• Expand provide new insight
• Risk identify possible disruption in supply or
  supplier support
• Process Improvement
• Spend Visibility access to enterprise view of
  corporate expenditures
• Supplier Evaluation and On-boarding
  pre-qualification of suppliers
• Policy Compliance exception handling, workflow
  and monitoring

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Spend Analysis allows many cuts of the data and
can take many forms
TransactionData Stores
Data Preparation
Data Management
Spend Analysis

• Analysis Tools
• Analyzers
• Drill Down 1
• Drill Down ...
• Queries
• Reports
• Spreadsheets

A/P
Manual Data Entry
User
Strategic Procurement Database
Supplier
Categories
G/L
Cleansed and Staged Data
DataCleanse
Individual RDBMS
Extract
Intellectual Capital
Master Files
Relational Database Management Systems

• Raw Database
• Database with end-user interface
• Data-ready for Spend Analyzer or OLAP tool

Final Deliverable Formats
Desktop Tool
POs
Others
On-Line Analytical Processing
If repeatable data capture processes and data
cleansing capabilities are created, the spend
analysis solution can be maintained over time
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Categorizing 100 of Spend
A combination of top-down and bottom up spend
categorization is required
Categorization Method
Use Supplier, G/L
Use Item Description, Item Master Confirm with
Supplier, G/L
Use A-T , G/L
P-Card Spend 1-20 of Total
Non-PO A/P Spend 30-40 of Total
of Total Spend
PO A/P Spend 50-70 of Total

• By Transaction
• Supplier Name, G/L, Cost Center
• Unit Price
• High Volume, Low

• By Line item Description
• Quantity
• Unit Price
• Direct/COGs material

• By Invoice
• Aggregate Total Only
• All expenditures including non-inventoried
  materials and services

Data Characteristics
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Supplier Normalization

• Link the same supplier, and customer, businesses
  to all representations of that business.
• Benefits

Home Shield Corporation 123 Main Street Ste
512 Memphis, TN supplier ID 12882A Spend
75,500 Source Western Division Oracle

• Identifies, and links, duplicate records allowing
  supplier normalization
• Opens the door to a wealth of information on your
  trading partners
• Links suppliers, and customers, across various
  business units or source systems

AHS Corp Main Street Ste 512 Memphis, TN supplier
ID 76620GFT Spend 100,000 Source Eastern
Legacy
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Spend Analysis Examples
Supplier ID Supplier Name Supplier Address Supplier City Supplier State Supplier ZIP Spend (2004)
602127 STERLING MANUFACTURING COMPANY 640 STERLING STREET (RT 62) SOUTH LANCASTER MA 01561 172,312.96
100768 STERLING MANUFACTURING COMPANY ROUTE 62 SOUTH LANCASTER MA 01561 33,110.48
100249 STERLING MANUFACTURING COMPANY 640 STERLING STREET ROUTE 62 SOUTH LANCASTER MA 01561 132,023.50
Four different company codes and three different
purchasing organizations
Company Code Purchasing Org Vendor Number Vendor Name Account Group Spend (2004)
3510 P550 100249 STERLING MANUFACTURING COMPANY ZINV 2,724.25
3550 P560 100249 STERLING MANUFACTURING COMPANY ZINV 107,568.86
1000 P300 100768 STERLING MANUFACTURING COMPANY ZINV 24,082.98
1400 P450 602127 STERLING MANUFACTURING COMPANY ZRMT 114,023.95
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Spend Analysis Examples
Supplier ID Supplier Name Supplier Address Supplier City Supplier State Supplier ZIP Spend (2004)
602127 STERLING MANUFACTURING COMPANY 640 STERLING STREET (RT 62) SOUTH LANCASTER MA 01561 172,312.96
100768 STERLING MANUFACTURING COMPANY ROUTE 62 SOUTH LANCASTER MA 01561 33,110.48
100249 STERLING MANUFACTURING COMPANY 640 STERLING STREET ROUTE 62 SOUTH LANCASTER MA 01561 132,023.50
These Three Records match to AT Number
46768 AT Name STERLING MANUFACTURING CO
AT Street Address 640 STERLING STREET RT 62
AT City, State, ZIP SOUTH LANCASTER, MA 01561
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Corporate Linkage

• Establishes supplier and customer parent and
  child ownership linkages.
• Benefits

• Compare key terms extended by different suppliers
  owned by the same company
• Aggregates spend by supplier and parent company
  to enhance sourcing leverage and negotiating
  power
• Consider balance-of-trade in customer pricing and
  procurement sourcing decisions
• Enables dependency analysis
• How much of a vendors business do you represent?

TruGreen-Chemlawn Memphis, TN A-T
03567354 Sales 880M Primary SIC 0782 Lawn
and Garden Services
Rescue Rooter Memphis, TN A-T 12691513 Sales
550M Primary SIC 1711 Plumbing Heating and Air
Conditioning
TruGreen-Chemlawn 132 North Street Dallas, TX
TruGreen-Chemlawn 5551 Lamar Street Chicago, IL
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Spend Analysis Examples
Corporate Family Spend
AT Ultimate Number Supplier Name of Records Spend (2004)
13974153 MARRIOTT INTERNATIONAL, INC. 52 1,349,801.23
16115316 STARWOOD HOTELS RESORTS WORLDWIDE, INC. 27 3,113,594.17
492553 GENERAL ELECTRIC COMPANY 27 1,460,603.69
21173372 UNITED STATES, GOVERNMENT OF 24 386,107.15
5597502 HILTON HOTELS CORPORATION 20 241,868.71
18340971 TYCO INTERNATIONAL LTD. 19 979,731.84
18343355 WOLTERS KLUWER NV 18 1,080,728.23
3567301 FEDEX CORPORATION 17 40,401,234.08
12527573 AMERICAN HEART ASSN 17 145,012.56
14166301 H GROUP HOLDING, INC. 16 687,262.17
10669694 ARKANSAS BEST CORPORATION 15 443,018.44
30882246 DEUTSCHE POST AG 13 3,437,699.88
18310528 BUHRMANN NV 13 1,712,750.39
18344116 INTERCONTINENTAL HOTELS GROUP 12 1,064,144.11
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Spend Analysis Examples
Tyco Family Example
Supplier ID Supplier Name Spend (2004)
604246 UNITED STATES SURGICAL 465,267.25
600085 MALLINCKRODT MEDICAL INCORPORA 208,891.97
600003 ADT SECURITY SERVICES 78,629.45
600975 MALLINCKRODT INCORPORATED 65,409.40
104127 TYCO HEALTHCARE GROUP LP 47,975.76
600876 SIMPLEX GRINNEL 32,690.20
100043 TYCO MALLINCKRODT HEALTHCARE 29,547.12
607430 SIMPLEXGRINNELL LP 24,831.38
603485 MALLINCKRODT INCORPORATED 13,402.41
101779 MALLINCKRODT MEDICAL 6,057.82
302799 SIMPLEX 5,255.76
317413 SIMPLEX GRINNELL LP 1,330.00
608168 ADT SECURITY SYSTEMS 443.33
304106 ADT FIRE AND SECURITY LIMITED 0.00
713316 ADT SECURITY SERVICES INCORPOR 0.00
737481 ADT SECURITY SERVICES INCORPOR 0.00
102987 MALLINCKRODT BAKER 0.00
725201 SIMPLEX GRINNELL LP 0.00
603877 UNITED STATES SURGICAL 0.00
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Commodity Categorization
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Enterprise Spend Visibility
Analyzing spend along any combination of
dimensions
Simplified Illustration of Spend Cube

• Spend Visibility Examples
• Organization
• Entity ? Total Company
• Sub-Entity ? Division 2
• Geography
• Region ? North America
• Country ? United States
• State ? Texas
• Supplier
• Supplier ? Siemens Dematic
• Product Category
• Cluster ? Ground Fleet
• Category ? Fleet Goods Services
• Sub-Category ? Spare Parts
• Time
• Year ? 2003
• Quarter ? 2nd
• Month ? April

• Supplier Dimension
• Resolution of redundancies and corporate linkage
• Siemens ? Siemens Dematics

• Commodity Dimension
• Organizes expenditures into sourceable commodity
  buckets
• Ground Fleet? Fleet Goods Services? Spare parts

• Location/Org. Dimension
• Organizes expenditures along geographic or
  business lines
• N America ? US ? Texas
• Total Co. ? Division 2

Spend Figures can be viewed at the intersection
of any combination of cube dimensions
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Analysis Dimensions
Spend cube can be analyzed across its dimensions
which provides a comprehensive view of purchasing
Types of Analysis
Level Purpose Examples
Overall Provide a top-level picture of spend Spend and Number of Suppliers by category Spend and Number of Suppliers by location / business unit Spend to Sales ratio by location/ business unit
Category Compare categories to identify sourcing opportunities Top categories by spend Spend to supplier ratio by category Pareto analysis by category Supplier overlap by category
Supplier Identify supplier base and fragmentation issues Top suppliers by spend Pareto analysis overall and by location/ business unit Supplier overlap
Item Isolate item discrepancies and prepare category baselines for sourcing Number of items by category Number of suppliers by item Price variance of an item across locations/ business units
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Spend Visibility Options
Transactional Master Data
Presentation Alternatives
Transformation
Output Files
Data Sources
Data Mapping/Categorization
Operating Co. 1(A/P data mart)
Output
The Spend Cube
Standard Reports/Views
Category
Operating Co. 2(A/P systems)
Suppliers
Analytics Platform
Operating Co. 3(A/P systems)
Organization
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Spend CategorizationSegment high priority spend
categories, identify savings opportunities, and
evaluate business risk.
Total Overall Spend
Spend Ranked by Supplier Dependency
Total Spend by Each Category
Total Spend by Each Supplier
Total Spend by Each BU
Total Spend by Each Entity
Category Spend by Supplier
Supplier Spend by Category
BU Spend by Supplier
Region/Country Spend by Entity
Deep Dive in Selected Categories/ Suppliers
Category Spend by BU
Supplier Spend by BU
BU Spend by Commodity
BU Spend by Entity
Supplier Spend by Diversity Groupings
Supplier Spend by Entity
Category Spend by Entity
BU Spend by Entity
Spend by Supplier Parent across Entities
Spend with at Risk Suppliers
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Spend Analysis Solution

• The Basic Elements
• Web delivered reporting and analysis
• Global corporate family linkage
• Supplier master cleansing and rationalization
• A repeatable and refreshable update process
• Supplier data enrichment with unique tracking ID
• Diversity spend identification and classification
• Supplier portfolio risk assessment including
  denied/debarred party identification and balance
  of trade assessment
• Item level spend classification to UNSPSC
  taxonomy or other enterprise defined standard
  that takes advantage of internal and external
  coding routines

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U.S. Procurement and Sourcing Space
Source AMR Research 2004
SRM/ Spend Management Ariba, Emptoris,
Frictionless, i2, Ketera, VerticalNet
ERP SAP, Oracle, PeopleSoft
SCM/PLM i2, UGS
Applications
Business Intelligence SAS, Cognos, Business
Objects
Spend Analysis Boutiques Analytics, Ariba
(Softface), Zycus
Sourcing Services / Technology Hybrids Ariba
(FreeMarkets), Silver Oak, UGS, VerticalNet
(Tigris)
Content / Data Services
Supplier Data Management Austin-Tetra, DB
Management Consultants ATKearney, Accenture,
CGEY, Deloitte, IBM GS
A/P Audit PRG-Schultz, Apex Analytix
Professional Services
Deep Niche
Broad Suite
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Spend Analysis Benefits

• Baseline for strategic sourcing initiatives
• Enabler for process improvement
• Measurement device for cost reduction programs
• Comprehensive spend visibility across direct and
  indirect commodities and services
• Significant cost-savings opportunities through
  supplier and commodity consolidation
• Enhanced compliance through effective spend and
  supplier monitoring

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Austin-Tetra Company Profile
comprehensive

• Established in 1993, privately held, management
  controlled, headquarters in Irving, Texas
• Supplier Customer intelligence domain expertise
• Best-of-class global business content
• Coverage of 50 million active global businesses
  available
• Up to 220 data elements for each business
• Data aggregated from over 320 seed sources
  including infoUSA, Experian, LexisNexis and
  Bertelsmann AG
• Data is updated daily an average of 10 of
  records experience business changes monthly
  (management, address change, change in ownership,
  linkage, diversity certification, etc.)
• Provider of outsourced business information
  management
• Content and web based solutions
• 200 blue chip customers
• 115 of the Fortune 500
• All three major credit card associations
• Horizontal across all markets

data
solutions
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Austin-Tetra Clients(Representative Listing)
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Contact Information Rip Greenfield Phone
512.695.7999 Email rip.greenfield_at_austintetra.co
m www.austintetra.com