Indirect Spend Management Benchmarking Study Results

so this brings me to the presentation part of our webinar today and I'm going to introduce our speakers so we have the pleasure pleasure today of hosting Chris Ironmen and John Evans chris is the senior director of program management for Denali Chris leaves Denali client engagements to design deliver and continuously improve procurement and category management programs that deliver real lasting value and creates permanent change in how our clients conduct procurement he is a senior procurement and procurement management executive with over 25 years of technical and business experience including 17 years leading a category management strategic sourcing and procurement transformation program Chris holds a BS and mechanical engineering from Penn State which makes him a Nittany Lion and MS and Aeronautics and aeronautics from MIT and an MBA from Carnegie Mellon University we also today have with us John Evans he is the founder and managing partner of Denali group and has the consulting in the supply chain space for more than 20 years including senior positions with Boeing 80 Kearney before starting denali group in 1996 Jon has consulted with dozens of global 500 companies in the US Europe and Asia Pacific he focuses exclusively on strategic supply chain management procurement and has led engagements relating to procurement transformation procurement benchmarking and assessments strategic sourcing procurement strategy and logistics optimization John has a bachelor's degree in industrial engineering from Georgia Tech which makes him a yellow jacket and an MBA from Pepperdine University without further ado I'm going to turn it over to our presenters John and Chris take it away all right thanks John and welcome everyone we're excited to we've got hot off the press our indirect benchmarking study results so we just wrapped up last week so we're happy to share that with you today and and as John mentioned if you have any questions during the webinar feel free to type those in and we'll try to answer those I'm going to be going over the first part of the presentation and then turn it over to Chris for those of you are following on a PDF on page 8 just a quick overview on who Denali group is in case you're not familiar with our company we've John mentioned I think we've been around for 20 years is our 20 20th year anniversary we're procurement services firm we have six business lines we have denali advisory which provides consulting in the procurement and supply chain space we have denali talent talent that provides on demand resources and staffing for procurement operations we have denali recruiting that does search for supply chain and procurement professionals dolly sourcing services which is a managed services offering in the sourcing category management and procurement space denali academy that offers training both online as well as custom workshops at your place as well as at our facilities and then we have denali intelligence which is a subscription-based and custom market intelligence offering so we've got a wide range of services there but just moving on to the study on page 9 as I mentioned we just wrap this up last week and if there any of you in the audience today that participated in this you'll actually be getting your your custom version that has your actual benchmarks in it early next week this this presentation provides a higher level of review for those of you participated there's a few more details that you get by participating and I think Chris will mention this later in the presentation that if people still want to participate we will offer it and probably update the results we know once we get usually when we do those we have people that want to participate later so we usually try to wait until we get maybe five or ten additional entrants before we go and recalculate all the benchmarks but if you are interested in getting a customer report just let us know and we'll do that put your name on the list but in terms of this study we had it was a great study we NRF you've been taenia or participated in any of our other webinars we've covered some of our other benchmarking studies but historically the last couple that we've done have been industry specific around just best practices in procurement and benchmarks in procurement in general so this one was one of the first cross industry benchmarking studies that we've done in a while and the topic was in direct procurement so we looked for to find best practices and benchmarks as it relates to how companies manage their indirect spend we had 31 participants across nine industries huge were and I'll talk a little bit just a minute about the participants and the sizes but we had a great great participation on this one we had a wide range of companies from some of the largest in the world to you know more mid-sized companies which is nice to have a blend a wide range of industries we had over 50 benchmarks and practice points that we evaluated and you'll see the way that we've organized this there are three primary themes that we organized all the benchmarks and best practices and the first was around value creation which is really more about how our procurement companies creating value in the area of vendor expand how are they either saving money or creating other types of value for the company the second area was operational excellence this gets more into how our companies managing indirect spend in the most efficient way as possible it looks at some of the more internal cost benchmarks like how much does it cost you to run an indirect spend operation procurement operation and and what are companies doing to be more efficient and then the third was strategies for growth and here we look for trends quarter companies doing and plan to do over the next two to five years in the area and direct procurement so with that let me get into some of the study itself so we're going to talk I'm going to talk a little bit about the participants that participated the indirect spend space and then I'll go through some of the creating value benchmarks and I'm going to turn over to Chris eyerman and he's going to cover the operational excellence benchmarks and future trends so about the as I mentioned we had 31 participants across nine industries wide range of industries which I think always makes these studies more interesting because yeah I find I know some people tend to like to look within their industry is thinking practices are only relevant when they look within their industry but from my experience some of the most innovative practices you're going to find are going to be outside of your industry you probably already know what's happening in your industry so you know maybe you can make some small improvements by looking at other companies within your industry but the companies that I find that get the most innovation and do the most leapfrogging in terms of performance tend to look outside of their industry so I think that's the exciting thing about these cross industry studies so we had everything from banking and financed insurance to help care to aerospace general manufacturing energy technology professional services wide range of industries we had companies with as little as 120 million in revenue up to 75 billion in revenue again some largest companies in the world we had indirect spend 1 million to 20 billion we had companies with a thousand employees up to 73 thousand so wide range of companies and industries which I think makes the study that much more rich in terms of the indirect management space you know what do we really mean by indirect spend indirect spend is really spend on materials and services that don't go into a company's finished product so it's if you look at the top of page 12 it's things like the categories that we actually use standard categories where professional services marketing advertising facility services capital goods IT hardware and services those are the top five in terms spend but also included utilities and travel and office supplies and HR fleet MRO so in depending on the industry that you're in some companies obviously didn't have spent in all these areas but these were the categories that across the 31 participants that we touched on and what we're finding is that historically which is not uncommon or unexpected you know most companies have focused on direct spend that's are typically their biggest Bend area and the most strategic spend is more in the direct things that go in there they're manufactured products or services but the a lot of companies haven't really focused on indirect spend a lot of companies indirect spend has been managed by stakeholders particularly got involved and then directs Bend now we're finding it more and more common that companies or having dedicated teams that focus specifically on indirect spend it's increasingly becoming more centralized actually most companies have indirect spend as being centralized and managed by procurement or at least central lead and you know it's just something that's get a lot of focus I think the study was very timely we're finding that trend wise there's the spend is increasing in the area of indirect spend when one of the reasons is that companies are outsourcing more so services is a big part of indirect spend professional services so as companies I outsource more ite activities or facilities activities or even some of the other services whether it be procurement or accounting yeah obviously their indirect spend tens to go up as well so that's definitely a steadily increasing percentage of total spend the indirect space and as I mentioned more companies are focusing on indirect spend I think because of this spend trend and also I think a lot of companies feel that they've addressed direct spend as much as they can or at least they're only getting incremental improvements indirect spend their turning their attention to indirect and then another big trend is procurement technology we're finding the the use advanced use of technology is allowing companies to better control indirect spend so that's also I think providing some of the impetus behind having more focus on indirect spend because I've got better tools to be able to to do that some of the key findings as I mentioned earlier at the top five categories which probably isn't too so surprising is IT facilities capital goods professional services and marketing and advertising our average participant spent about 2.6 billion a year on indirect spend with about 85 percent of that being actively managed that's a big increase I think if you looked at five years ago and I don't have a benchmark from five years ago but just having been consulting in this space for a long time that's that's a pretty high number and it's higher than we expected I think that's much higher than it would have been five years ago so companies are definitely much more actively managing and direct spend another key benchmark is you know what does it really cost you to manage indirect spend so the the benchmark that from this study was point nine cents so less than a penny per dollar spent is what it cost a company in terms of the cost of their procurement organization and infrastructure to to manage indirect spend so some people refer that to that is the procurement tax it's you know less than a cent though that it cost you to buy a dollars worth of indirect materials and services some other key benchmarks and we'll go through these in the study but the average savings while an indirect spend was 9% annually which is a pretty strong number and I think you've got to be actively managing a large percentage which we think we found was 85% to be able to get 9% and another key I think one of the more important benchmarks if there's one benchmark that I look at and all of these studies is the return on procurement value so if you look just at indirect spend the participants we the participated return on average twelve point three times their cost and saving basically in savings or value each year these are these were quantifiable returns so it was primarily saving so twelve point three times so if a if you're procurement organization cost a million dollars a year you were on average saving twelve million or twelve point three million dollars a year for example so I think that's a that's a really good benchmark to measure and to to show your stakeholders and your company the value you figure you're playing in the procurement space been getting into some of the numbers this shows of all the indirect categories that we talked about just distribution I won't go through all of these but it's a good reference point I think it's interesting to look at and see how your spin profile measures up against these averages you know as I talked already about the top categories and professional services marketing capital goods jewelries and IP and then getting into some of the creating value benchmarks now one of the things we look at is just the contract compliance so you know what percent of your spend is is compliant to contracts if you've got contracts in place what percent of the spend is actually being spent on those contracts so the average was seventy four percent which I think it's a pretty good number so you've got 85% of the spend it's actively being managed at least theoretically by procurement so procurement has responsibility for 85 percent of indirect spend and then another benchmark that's related to what is of the contracts that you have in place what percent compliant are those and the low is 50 it was as high as 98 and the average was 74 which isn't a bad number and then we talked also about the the return on indirect current investment that's twelve point three was the average the high was 21 which is pretty incredible I think you know if you can having this benchmark I think and measuring it frequently and using this to show your value I think helps procurement organizations also get investment so if you need a new investment in technology or if you need to hire new people or invest in you know higher skilled resources or invest in training or things like that to be able to show that basically for every dollar you're investing procurement you're saving 12 times that it makes a it makes a lot easier I think if your organization can demonstrate this to corporate so it's a very important metric to be measuring hey Jeff what you go on I've got our first question that came in sure so this one goes back to the key finding slide the the question came in how we're savings and defined from the key finding slide for example was a purely focused on savings due to cost reductions or did it include more broad considerations may cost avoidance risk management contract or contract compliance that's a great question and we actually have a slide that shows that coming up I think in Santori slides but it did include we did include all types of savings including cost avoidance FTE savings for example although that was a very small part of it like you did some improvement efficiency improvement programs that procurement initiated so it did include all types both soft and hard and we do have a slide where we break out of the nine percent what percent was hard versus soft versus coughs avoidance so I'll show you that in just just a minute but it didn't it did the twelve does include twelve point three returns includes all types of savings okay thank you thank you very much John okay sure so moving on to the next slide actually was it was the very next that was a great lead-in so of the nine percent we've got a slide here on page 17 that shows of that you know what percent savings was hard savings from spin reduction what percent was cost avoidance what percent was hard FTE for example oftentimes you come up with Kermit process improvements that save your stakeholders labor in terms of how they manage things whether it's implementing a new current technology or implementing a new solution as it relates to a category so we broke it out between hard FTE savings as well as soft FTE savings so total hard savings of the nine percent was basically five percent if you look at from a pure spend reduction standpoint it's about four percent so that was a that was good get insight to have as well obviously you want as much of these savings to be hard as possible yeah Joe I think they'll certainly heart savings hard savings rule right for motion experiment organization but you know I think it's equally important to make sure that there isn't the site isn't lost the cost avoidance of the softer savings you know depending on your savings rules as long as you have fair savings rules are calculating them properly those those are dollars that we're going out the door so very important to make sure you you don't you don't quit the battle on your soft savings yeah absolutely hey John I've got one more question in queue before we move on if that's okay with you sure absolutely perfect the next question is as it asks do you measure compliance by general periodic supplier contract audits well you know for the purpose of this benchmarking study and that's always a challenge when you're doing a a wide range benchmarking study you know we try to define what we mean by contract compliance is basically being you know the percent of spend that should have been under contract that actually was where you have a contract in place you know if you're measuring that and we had you know the participants not every participant was able to measure every single benchmark so we had we had varying numbers that participate in each of these benchmarks but so so to answer your question you know we didn't actually go out and measure these we had electronic surveys that these participants provided information on and you know I would assume that some of them did that as a way to practice or to measure a contract compliance but we can't we can't really guarantee how each person you know measured that so I'm sure it was varying levels sure sure we've got a very engaged group today I do have another question somebody had absolutely further define what exactly can you further define what you mean by contract clients okay so our definition at a guess of the purest level was say if you have a contract in place for a category multiple contract say you've got three contracts for staff augmentation is your category then if you're measuring if you're able to measure all your maverick all your spend in that category and if your rule is that we would we expect or you know in an ideal situation we would want all of our spend to be in one of these three source contracts and you can measure usually you can measure maverick spend right so if you've got a good spend management tool in place so the metric is really if you've got existing contracts in place for category what percentage of the spend is actually going through those established contracts so seventy four percent means that we've got contracts in place for our spend and 74% of our spin is going through those contracts that that we have in place and so we basically have twenty six percent of the spend it's not going through an established contract and it should be and you know sometimes there are legitimate reasons you could have users that are in remote areas that need or there could be a special situations a special staffing need that can't be filled with the existing contract you know theoretically so there could be valid reasons you would never end no one ever gets 100% contract compliance so we want that to be as high as possible from our experience it's realistic to target 80 to 85 percent of your spend that should be contract compliance if you've got established contracts in place but you're always going to have some Mavericks vendor that also varies a lot by category we've got things that are easily purchased online or off the shelf like MRO is a category that we typically see a lot of maverick spended people may be out and depending on the nature of your company if your utility and you've got crews out then we need to run down to a you know if they've got an outage and they need to run out and get MRO supplies somewhere that's not on contract that's for example MRO gets a lot tends to get more much more maverick spin if if it's a staffing is one area where normally you need to have you know you've got to have insurance in place to use a contractor you've got to have certain things in place it's not something that someone's just going to run down the street and buy you know temp staffing for example I mean at least they shouldn't be I'm sure it happens some so some categories tend to have much higher maverick spend than others but that's how we define it thank you John do you want to take another question you already want to move I do oh gosh sure I'm going right here okay okay sure okay the next question came in on some of these to go frame absolutely alright the next question up when calculating total indirect spend do you include non address will spend such as union dues utilities etc we don't typically include non addressable spend although there are some utility costs for example I mean utility was a category yeah there are things that you can do with utilities especially with some of the non regulated utilities so there pertaineth power that you can as a depending on whether you're manufacturing plant or not for example there are other options for utility so we do include utilities we wouldn't typically include union dues though so it's typically all non labor non-tax we don't include any taxes typically not union dues wouldn't be but utilities would be and utilities can be very difficult if not impossible to source so sometimes they're not a strong focus area but we do have clients that have reduced their utility costs through different things even through value engineering things right about if your manufacturing plant whether it's generating your own power or in some cases or you know there are other ways to get utilities and sometimes they're competitive ways to get utilities other I'll something that usually is on the table in terms of a indirect spend area yeah John I agree I think I like to focus on on looking at addressable spend but as long as you're having a candid view on what what addressable means so certainly the examples you provided but also you say compensation related expenses for HR might be on addressable but I think more times than that we find organizations are aren't as aggressive and considering what the options are for to include as addressable spend yep okay well I do have one more question in queue let me ask you this one Chris and John they ask the audience ask can you also define how you ask participants to capture and report on savings savings projected over the life of the contract but captured all upfront or recognizing savings over the life of the contract well typically we recommend measuring just actual savings so and and we always present it in an annualized way so in a given year how much are you saving and so usually you know if you've just saved sourced a new contract and you have some savings you know say you just got hard price savings and you know as 5% is going to equal five million dollars you know when you're when you're making your presentation to management saying hey we recommend changing suppliers or consolidating suppliers and going with this new contract and maybe you've standardized some things and we expect to save five million you know that's the forecasted saving so it's not really saving Jed but then you would actually track how much savings did you actually get and obviously contract compliance plays a big part of that if you've got a great contract but no one used it 12 months later or only 50% of the spend went through this contract and you only got 50% of that savings so we typically we're asking for savings it's usually looking back at what did we save last year in terms of you know achieved you know pure savings that could be taken out of the budgets and you want to look forward as well when you put a new contract in place because I could have that could relate to depending on how your organization handle savings so if you get a new contract in place then your department may actually or the stakeholder groups may reduce their budgets by that amount and that they're predicting they're going to spend 5% less and that's fine but you don't really realize it until you know at the end of the year right or at the end of the period that you're tracking all right John thank you very much appreciate your a great answer is very interactive today at this time I don't have any more questions in queue so if you want to take it from there we're ready to go all right yeah yeah it's good thanks for the questions it's always makes these a lot more interesting so keep keep keeps them coming page 18 we just show and this is really interesting I think this will help you as you look at your categories and what you're saving this shows what companies are getting by category in terms of the average and the mac savings so IT you know is a big one in terms of average being 14% marketing and advertising was second we've got these rank and order of average so you know the top five or IT marketing facilities professional services in fleet but you know there's a lot of a lot of even 5% at the bottom for utilities was I thought higher than I would have expected so you know there's a lot of opportunity out there in the indirect space and then now we're kind of giving the end of my section want to do a quick poll so pick the top two initiatives that created the most value from your company in your vendor expend I want to just see which of these types of some of these initiatives or areas or companies getting the most value from we're going to give you up how much time time for we've got out 45 seconds so the poll is open if you could select the your top two choices I said we've got about 45 seconds but if you had to guess John would you're Chris what do you think what do you think will be our top two responses I would say I would pick probably category management and either demand management or value engineering would be my pick but yeah all good all good levers here I'm kind of biased I would say category number one I think that this when done properly you know when you're really truly developing multi-year category strategies then it will it will embody all the other levers that are appropriate for the categories so that's that's not my bias so we're leaning towards day let's see are just about though just about finish the poll we share the results up Harrison loading up you extra second here we go here's the results yep category managers model and then I guess supplier can't read the see supplier consolidation with all the way to and then demand managed management okay yet interesting I'll show you what we was from the study so category management was the top in the study as well eighty-nine percent eighty nine percent supplier consolidation and as Chris mentioned these aren't mutually exclusive I mean most people would say you know category management includes a lot of these other things most of these other things but you know we had some freeform text and some of the responses and we just got a lot of a lot of different areas but it gives you a good flavor of the types of things companies are doing in the indirect space certainly a lot of supplier consolidation and demand management total cost modeling for sourcing projects standardization value engineering artificial intelligence you know some of these using remanufactured refurbished parts were possible so a lot of different areas I think give you some good ideas of things to do in your own organization yeah John's dense we but we started to sleep in it in the air of innovation you talked about the use of AI is um you know that's certainly an area that's starting to creep in everybody's hearing that but as it applies to procurement using machine learning artificial intelligence to address things like your contract data contract mining as well as thing or energy forecasting so we've seen some really interesting innovative solutions out there yeah all right well I'm going to turn it over to Chris and again get any questions keep them coming chris is going to start out with the operational excellence benchmark section in general I do have one other question I didn't get to if you guys want to answer it before we move on is that okay sure yeah absolutely all right I just want you to came and just came in about a minute ago I asked since indirect is not forecasted or very predictable how come one look back to decipher realize savings other than year-over-year hitting a goal well we recommend that every companies put in place category specific metrics and you know some categories are pretty easy I mean you know especially if you're using technology and you can track your spin very effectively so for example if you take something super simple like office products where you've got you know the prices you paid before use you source a category and you put in a new contract for example and you're so you're looking back to see how much you actually saved on this new contract it's pretty easy to say you know we paid a lower price or you have a market basket a lot of companies for something like MRO or office products they'll use a market basket approach to tracking savings and so they take you know the top 50 items that were 90 percent of their spend and they look at price paid last year and price paid this year and then they'll combine that with contract compliance and you know if you have contract compliance last price paid and new price paid that basically tells you in a very I think definitive way what you saved some other carry categories are more difficult like facility services we've got maintenance and you know they're more project-based expenditures and for those we recommend oh it's a unit based metric so you might track for example maintenance cost per square foot average facilities maintenance cost per square foot and you may do it for different types of buildings with their self asur manufacturing environment or different types and so you might have three or four different types and if you put a new practice in place whether it's you've resourced it or whether you're doing some things differently with your existing suppliers to try to be more efficient you know maybe you allow them to do janitorial at night instead of during the day or during the day and said night or things like that that allow cost savings then you can track dinner average maintenance costs per square foot go down last year look at all the cost we spent on maintenance or all total square footage versus in previous year and you know that you know if you do it correctly it gives you a very definitive view of whether you your union practices and contracts save money in that area so it all depends on the category again you some use Market Basket some you use unit based metrics some are more difficult than others but definitely I think each category has you basically put in place a cost tracking or saving striking strategy and metric and and use that thank you I appreciate that at this point I don't have any more questions in queue so if we want to pass it along to Chris I thank you for answering the questions thank you we get a very very good audience to be very active keep them coming guys good well we'll move on here to some of the operational excellence benchmarks so the first area here on technology adoption this charts pretty interesting you look at the colors the blue kind of currently in place with with companies the orange kind of planned and in the near term so clearly stepping back you see pretty well adopted from a technology standpoint on the left side they're sourcing spend analytics even contract management you know hundred percent of respondents either have it adopted or plan to so that's that's very common certainly the next tier that we typically see beyond that is in kind of the next phase the directive recta Pio portion including contract met including the catalog and requisitioning you know supplier management we see you know certainly a lot of opportunity and promise with companies and there's some some very good solutions out there around supplier management supplier information management but still find that there's a lot of just very different thoughts about how supplier how companies afloat approach supplier management with their focus is performance management versus relationship management information management so certainly an area we would expect to grow going forward an invoice management great opportunity they're thinking about your categories more holistically and catching that through the invoice cycle ideally automating that to set yourself up to create working capital opportunities is very powerful but but overall certainly we would always advocate to lead if you especially if you're kind of new in the indirect space and with regard with regard to your technology is to kind of first focus on your process and skills and strategies and and kind of let you let your technology support that okay the next slide here gets into the percentage of spend controls so John showed that metric on aggregate and goes 85% this breaks it now by the main category areas that we looked at and you know John similar to your comment I think these numbers are pretty good pretty high on aggregate as an average across respondents if you look at how organizations approach the categories it makes sense in terms of where the focus tends to be IT facilities general supplies services etc I also would expect and I think we saw this in the data that that there is still a pretty high range of percentages that we would see across these categories depending on where a company is in their in their adoption in kind of their their indirect spend areas another metric of that I think is really good to to measure in tandem with not just your your percentage of spend manage but also look at the percentage your savings as a percentage of spend for each of these categories that's a good tandem to look at to get an idea not just of the reach but also of kind of effectiveness that you're seeing by category okay the next slide we get into some of the some of the metrics around supplier management so on the Left active suppliers per million dollars or indirect spend and then on the right total number of suppliers with 80 percent of indirect spend you know quite a range on some of these I look at on the left there you know one supplier for million dollar expensive per billion a thousand suppliers is pretty good on the right there I look at the low end of two suppliers that make up 80 percent of indirect spend that's that's quite alarming for me and it would in the case you might might be you know might be reason for concern this there's as John mentioned good idea to really cast these metrics down to the category level so looking at these metrics in addition to total suppliers total active suppliers you know per spend and break that down you know to the to the category level in addition to making sure that you're looking at how each of your suppliers within the category is performing against your your key business requirements so certainly a focus on looking at your your key supply based metrics in terms of mass but making sure that that stays close with you know what are you trying to accomplish in this category with your category strategy and what's appropriate in terms of these metrics in terms of your objective and not just the aggregate okay the next slide here shifts to a number of resources and this is broken by the different functions within within procurement you can see category sourcing contracting etc with an average of in terms of spend managed per per aggregate resource of 70 million another way that we've looked at this is especially as organizations are procurement organizations are further delineating the roles within procurement we typically see if you kind of segregate the more strategic roles and that might be category management might be more your strategic sourcing type of roles or the strategic elements of those typically between 75 and 100 million dollars per full-time resource for the strategic resources and then if you aggregate you know the tactical together with more strategic resources we see that in the range of the of the 30 to 70 million dollars per resource that we see here I think what we find is that you know I think there's still a wide disparity between how between the activities that these different roles perform within procurement organizations so you may find an organization that has a team of category managers that are still deeply involved in a lot of contracting activity chasing chasing orders for suppliers responding to payment issues for example so that's certainly something that we see here okay moving on to the next slide here procurement cost metric so two very very different metrics so here at the PIO level very low level metric on cost to process a purchase order and then on the right a very high level metric on per total procurement cost as a percent of the total indirect spend I like that you have metrics on the right and John who talked about that in terms of the average procurement cost you a nine lesson you know a penny per dollar of spending for procurement cost it's also good to couple this metric to look at the other metric that we showed in terms of the return on your savings per in direct procurement investment and that was the twelve point three average if you remember that so the five point five to 21 percent range in terms of return on investment interestingly enough we didn't see a correlation between the investments so here your procurement cost versus the return on that investment so you can't say that he's been on the high end here an organization is spending almost two percent on procurement we didn't necessarily see a correlation that says they're also returning a higher a higher amount of savings so I thought that was an interesting result on the other end in terms of cost per to process a purchase order and the way we define this was tried to try to make it more of the direct cost there's a lot of things that can factor into this but I think our guidance was to try to make it more on the direct cost to process a purchase order you know my experience we do see this very very greatly within organizations depending on your processes and other cost elements that you want to include in this so I think with all these metrics and particularly things like cost per Pio very important to to establish your own baseline the industry benchmarks are very good but you got to make sure what's appropriate for your organization and then use that as a basis to drive your continuous improvement okay the next slide here in this study we found regarding outsourcing trends that we really uncovered kind of a misconception between the definitions of what a managed services versus of true outsourcing so we think of epo or outsourcing is typically typically your kind of lifting shift arrangement where an organization is taking a complete process or capability or function and outsourcing that to it to a third party when we talk about managed services you know it's it's not that lift and shift it's not you know it's not consulting services or even kind of staff you know staff fog it's really more kind of adding to your organization with what we would think of as capable support so bringing in that expertise bringing in that capacity to assist your team to really drive to more volume so whether it's getting to two more reach to more spend to centralize some some activities it could be some of the execution or operational activities to free up your category manager team but to really work in tandem to try to get two more reach of spend and to provide that flexibility for the team to be able to to adjust as the organization evolves so in this case the ownership you think of it from an ownership standpoint it's not an outsourcing relationship you would think that that ownership or that accountability is really pushed on the BPO provider in this case where the ownership of the function would remain with the client and the managed service would focus more on kind of selective tasks and focusing on key results that are important unit with for the team okay so with that I think we have our next polling question and I'll read this here and then give you a chance to respond so what are the top two initiatives that have created the most efficiency for your indirect procurement group so if you want to select the two top two initiatives across this group training centralization of the procurement function use of new technology integration of existing technologies outsourcing or leveraging external expertise so again maybe take take your 45 seconds to to work through that question and Chris what well are while people are responding you mind if I interject with the question so we're because I have a couple in queue I don't want interrupt you too much but you want to take a question while people are submitting their answers absolutely all right can you can you dive just a little deeper on the active suppliers per million can you explain a little further what's exactly that you mean by active suppliers per million yeah we tried to draw that delineation between active suppliers and just suppliers in your in your database so typically we would define an active suppliers that which you're actually spending against in a in the period that you're looking at so as John mentioned we kind of typically would look at an annualized basis so not the supplier we would be one that you that you spent with over the period that you're looking looking at you may have other suppliers under under contract you may have other suppliers that you work with in the past that you may want to work again with in the future but in this case we're looking at those that are most directly tied to the spend that work that we're assessing okay thank you thank you very much all right let's get our pull results here and there they are yes oh we see so top responses here centralization of procurement function that's certainly common up clearly within within indirect is the case organizations trying to pull get that reach trying to then bring that to more of a centralized management that's that we see we clearly see that use of technology we talked about that in terms of technology continuing to be a major driver and then I think the other the other ones certainly fell off in terms of in terms of responses there John not if you have any anything to add to that I was meeting yeah I didn't have anything else to add to that Chris I thought that was spot-on okay all right let's move all we got I've got a few minutes left here when it hits just a couple minutes on the next section kind of future growth plans so this is looking forward some of the metrics that we've captured from from the participants regarding what they expect going forward so there's a there's a lot of data on this slide and just kind of one key takeaway that I see from this see on the left you see the respondents expectations on where they expect in terms of changes to the size of their indirect resources and then on the right what do they expect in terms of changes to the level of indirect spend if you look at the 26% anticipate that they may increase the size of their of their indirect team but but a much higher percentage expect a significant increase in their in their indirect spend kind of an indication that procurement departments are continued to be expected to do more with less right and I think we I think we certainly see that across organizations the next slide here looks at we asked companies to say what are the top initiatives that you have for focused in the next couple of years we talked about technology as as enable I think in that in that chart we've already seen the breakdown of specifically where we where organization or organizations intend to focus but personally I'm very happy to see category management as a top focus we talked about this one already but you know done properly category management really becomes a fundamental change the way the organization for execute all of their procurement in direct and indirect you know one that would be more more strategy driven looking holistically across your category deeper and closer collaboration with your stakeholders so that kind of reaches over to the to the objective under the team as well but digging in closer with your stakeholders to develop long long term some multi-year strategies that will drive your categories so really a great way to kind of turn the tide on on going from more reactive to something that's more proactive with stakeholders but it can be a challenge no question Apetit particularly in many indirect categories that tend to be fragmented you think about facilities if your manufacturing organization you may be very fragmented across you know at the plant level that's not an easy task to get those those stakeholders and that's been aggregated to really truly look at it at a category level but but certainly the value is there people talked about last polling question centralized procurement function there under team as an area of a focus we certainly see that across many organizations trying to centralize their procurement function as well as how they approach the categories as I mentioned so some some good good planned initiatives across organizations very quickly here just on the top three challenges I think someone already asked about demand management gosh that's always a challenge for indirect we talked about some of the fragmented areas in terms of getting forward visibility John talked about some great levers and approaches when looking at how do you capture savings and how do you look at it from a results standpoint but looking at a forecasting in a demand management side you know does does continue to be a challenge in terms of hey what's what's the pipeline coming down from the indirect spend you know what one aspect that that that may indicate is that you have time back to the category management approaches organizations need to need to continue to work and get closer to stakeholders as their as their Avenue to getting to some of that visibility so with that I'm going to kind of wrap up here with a few comments and see if we need a little bit of time for some remaining questions you know I think it's John pointed out from the beginning there we do see an increased focus and importance on indirect spend it's not new many of you on the call if not all of you may may be involved with indirect spend and are and are doing quite a bit today no question though opportunity exists at all organizations from our experience regardless of where you are in the indirect journey more progressive organizations may be very deeply evolved in terms of their indirect strategies may have very close partnerships even with the likes of Human Resources marketing legal stakeholders which other organizations are there may not be very close relationships and maybe spend areas that that that aren't reached just yet but nonetheless you know certainly great opportunity for everyone innovation we talked about category management certainly isn't isn't new but it's certainly an approach that that can help to to drive a more holistic view across the category and across across the organization and then to bring in help to drive more innovation with your suppliers we talked about some of the some of the innovating innovative technology that we've seen leveraging artificial intelligence for machine learning and I would certainly encourage you to specifically look in those areas I think that's the technology that's going to have have an accelerating impact on procurement in the coming years and you know in the end if you look at the return you John presented the return the average return that we've seen 12 X on the cost and that doesn't even include the value outside of saving you know savings to a large extent is still king in procurement but you know more and more especially as you're focusing more on long term planning and category management you know the other value drivers become important and you regardless of where you are in your journey they're the value to to what you can drive out of indirect procurement is is is unmistakable so with that I'll pass over to you John to maybe wrap us up well thank you yeah I certainly appreciate it and we had an extremely interactive group today your questions I do realize we didn't get to all your questions but on our next slide you can see we've got John Evans as contact information and he was one of our presenters today Chris anything you send to John we can pass along to Chris out for was part of the be a study that's why his information is up on there so there are about four or five questions in queue that I apologize we did not have time to get to but we are pushing the slides out to you I see him coming across on my screen as we speak so please reach out to John directly and if he doesn't he if he will either answer your question and get it to Chris extremely interactive group today John and Chris that was a great presentation you know I generally judge these by how many questions we got we didn't get to all of them so you guys did a great job thank you once again I look forward to seeing both you guys next week and this does conclude our webinar for today we will to see each and every one of you in Carlsbad next week but if not we will be in Amelia Island in March of 2017 so make your plans now and Chris and John thanks again for a great webinar today we do appreciate it and reached out to them for all of your sourcing needs so thank you very much and this does conclude today's webinar thanks John and Chris thank you thank you

Channel: ProcureAbility

Views: 749

Rating: 5 out of 5

Keywords: Indirect Spend, Procurement, Indirect Spend benchmark

Id: _33cKBGcLO0

Length: 53min 47sec (3227 seconds)

Published: Wed Apr 12 2017