spend and channel analysis report and presentation february 12th 2008 dr kevin mccormack n.
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Spend and Channel Analysis Report and Presentation February 12th, 2008 Dr. Kevin McCormack. Executive Summary. Sourcing Events Coaching Workshops. (Future) Sourcing Events. NATCO Phase II Project Plan. Project Updates. Dead 12/24, 12/31. Focus of this proposal. 12/10. 12/17, 1/7/08.

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Presentation Transcript
slide3

Sourcing Events Coaching Workshops

(Future) Sourcing Events

NATCO Phase II Project Plan

Project Updates

Dead 12/24, 12/31

Focus of this proposal

12/10

12/17, 1/7/08

1/14,1/21

1/28, 2/4

2/11 – report out Phase II

Week 0

Week 1-2

Week 3-4

Week 5-6

Week 7-10

Week 11-12

Week 13 - n

Prep

Kick off

Buying Channel Analysis

Charter &

Organize

Channel

Plan

(Future) Implement Base

Channel Plan (pcard, etc.)

Follow up

TBD

Build teams Project plan details.

Gather Data

Workshop

Sourcing

Plan

Project Team

Spend Analysis

Project Updates

Approve Charter

Kick off

Status

Review

Review and Approve

Review

Build sponsorship team and schedule involvement

Sponsorship Team

Charter and Organize

Analyze and Plan

Deliver

Roll Out

executive summary approach
Executive SummaryApproach
  • Used a data set consisting of 18 months (July 06 to Jan 08).
  • US Data only, All Sites
  • 252,000 lines, $278 million ($185 mil/yr), 3460 Suppliers
  • Organized and classified the data using advance analytics and UNSPSC coding (text analytics, multi-dimensional matrices, classification, graphical and cluster analysis)
  • Conducted buying channel analysis (PO count and size by supplier, class and location)
  • Conducted Spend analysis (Suppliers and class spend concentration and leverage by class, location and overall)
  • Develop Sourcing Event Charters to address the opportunities
multidimensional data set
Multidimensional Data Set

Class Location Report

Supplier Class Concentration Report

Class Usage

Class Coverage (Range)

Supplier Location Report

Location Coverage (reach)

Location Spend Density

Spend Concentration

Class Spend Density

Supplier Spend Report

Location Spend Report

Class Concentration Report

Class Count

PO Count

Ave PO $

Supplier Count

Supplier #

Supplier Name

PO #

UNSPSC Class

PO Spend

Location

Line Description

Line Spend

classification benchmarks
Classification Benchmarks

UN/SPSC Code

  • Universal Standard Product and Service Classification Code. A Global commodity standard - 10 digit, hierarchical code used to consistently classify products and services The UNSPSC is a hierarchical classification with five levels. These levels allow analysis by drilling down or rolling up to analyze expenditures. Each level in the hierarchy has its own unique two-digit code:
  • An example follows:
    • Code: 43 20 15 01 14,
    • Segment: 43, Information Technology Broadcasting and telecommunications
    • Communications Devices and Accessories.
    • Family: 20, Components for information technology or broadcasting or telecommunications Computer Equipment and Accessories.
    • Class: 15, Computers Computer accessories
    • Commodity: 01 Computer switch boxes Docking stations
    • Business Function:14, Retail
slide8

Executive SummaryApproach

  • Buying channel - is a process to specify a need, locate the supplier of that need, determine the terms of acquiring the need and executing an agreement for the supplier to fulfill the need. An efficient and effective procure to pay process contains processes and buying channels that are designed to “fit” different situations and circumstances encountered by end users of the P2P process .
  • Buying channel analysis examines requester need, material type, location, transaction cost, supplier, PO count and size ($).
  • Balances transaction cost, responsiveness, tracking and risk to identify the right channel mix. 
transaction cost per channel
Transaction Cost per Channel

NATCO = 0

NATCO = 0

NATCO Currently

48,000 PO / Year

Ave Cost: $150 / PO

Cost per PO = $10-15

Cost per PO = $40-60

NATCO = 0

NATCO = 100%

Cost per PO = $5-10

Cost per PO = $150 plus

transaction cost per channel1
Transaction Cost per Channel

NATCO = 20%

NATCO Currently

48,000 PO / Year

Ave Cost: $150 / PO

NATCO = 40%

Cost per PO = $10-15

Cost per PO = $40-60

NATCO Objective

48,000 PO / Year

Ave Cost: $106/ PO

NATCO = 30%

NATCO = 10%

Cost per PO = $5-10

Cost per PO = $150 plus

NATCO Savings

48,000 PO / Year

20 man years

procurement capacity benchmarks
Procurement Capacity Benchmarks

NATCO Currently

48000 POs per year

FTEs on Org Chart = 14

(not including Engineers time)

My Estimate – 650 POs per FTE

Requiring 74 FTEs to process

(Not including AP)

Today = 3428

Ouch!

Very painfully

With current process

Using a lot of Engineers’

And others time

The Last Unautomated Frontier: How Technology Is Streamlining The Invoice-To-...

Scott Dunlap, AFP Exchange; Jan/Feb 2005; ABI/INFORM Global pg. 14.

The Purchasing Card Benchmark Report, Aberdeen, March 2005.

slide12

High Freq High Value

e-candidates

Low Freq High Value

Buyer assisted

Medium Freq Medium Value

E-catalog or pcard

pcard

executive summary1
Executive Summary
  • Spend Analysis- the ongoing analysis of spending, or expenses, usually focused in the Procurement area. Companies find savings opportunities through gaining a thorough understanding of past and ongoing spending.
  • Having a thorough understanding of past spend behavior provides a blueprint for selecting the categories of spend that should be addressed first for sourcing and compliance activities.
  • Balances leverage, competition and risk to identify the right supplier mix. 
executive summary results
Executive SummaryResults
  • $278 million in data set (18 months) or $185 million annual spend with 3460 active suppliers.
  • 80% of spend with 5.5% of suppliers. Benchmark – 80% with 20% of suppliers. Must remove 2500 suppliers to reach benchmark.
    • 72% are unique to one NATCO location
    • 33% provide only one class of materials to NATCO
    • 65% of suppliers have spend less than $1000 per PO
sourcing event opportunities areas
Sourcing Event Opportunities Areas
  • Supplier Integration - implementation of e-catalog or e-connectivity with a supplier that is currently a major Natco strategic supplier.
  • pCard implementation – implement a pcard program for small value transactions, single transactions with a supplier or field transactions in order to reduce transaction costs and improve requester responsiveness.
  • Concentration / Leverage – reduce the number of suppliers and concentrate spend to gain leverage (price), reduce transaction costs (fewer, larger POs) and reduce relationship / coordination costs of fewer suppliers.
executive summary recommended sourcing events
Executive SummaryRecommendedSourcing Events
  • Site Spend Optimization
      • (pcard implementation, spend optimization)
  • Family Spend Optimization
      • 4014, 3010, 2411, 4111
      • Supplier Consolidation, national contracts and pcard
  • Strategic Supplier Integration
      • IPS, Invalco, Norriseal, Metals USA
  • General Supplier Consolidation
      • Vendor Master Cleansing and Development
slide21

Executive SummarySourcing Events – Anticipated Results

  • Site Spend Optimization
      • (6-7 man-years, $200K spend savings - rebates)
  • Family Spend Optimization
      • 4014, 3010, 2411, 4111
      • (12-13 man-years, $2 million spend savings)
  • Strategic Supplier Integration
      • (1-2 man-years, $2-5 million spend savings)
  • General Supplier Consolidation
      • (make the savings sustainable)
slide22

Sourcing Events- Project Plan

Project Updates

Week 0

Week 1

Week 2-3

Week 4

Week 5-10

Week 11-12

Week 13 - n

Prep

Kick off

Business

Analysis

Charter &

Organize

Clarify

Opportunity

Develop

Plan

Build teams Project plan details.

Gather Data

Roll Out

Workshop

Project Team

Implement Base

Channel Plan (pcard, etc.)

Market Analysis

Follow up

TBD

Project Updates

Approve Charter

Kick off

Status

Review

Review and Approve

Review

Build sponsorship team and schedule involvement

Sponsorship Team

Charter and Organize

Analyze and Plan

Deliver

Roll Out

slide23

Sourcing Events – Team Structure

NATCO Sourcing

Management Team

NATCO Sourcing

Team Leader

Sourcing

Team Coach

Engineering Review,

Involvement & Assistance

as Needed

Maint. / Operations

Review &

Involvement as Needed

Event 1

Team Leader

Event 2

Team Leader

Event 3

Team Leader

Event 4

Team Leader

Sourcing

Analyst

Sourcing

Analyst

Sourcing

Analyst

Sourcing

Analyst