AberdeenGroupBest Practices in Spending Analysis
Cure for a Corporate Epidemic

September 2004

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Best Practices in Spending Analysis

Key Takeaways

Executive Summary• Spend data management is a requirement for supply management and businesssuccess.
• Unfortunately, most enterprises lack sufficient, accurate, and timely insight into corporate spending information.
• Leading spend data management initiatives rely on access to all spend data sources; acommon classification schema; category expertise; efficient and repeatable data cleansing and classification capabilities; advanced reporting and decision support tools; andsufficient resources and executive support.

S

ourcing strategy, category expertise, negotiation methodology, and procurement
execution are all critical components of a highly effective supply management initiative. However, the success of any supply management program is largely dependent upon the ability to access, organize, and analyze spend data. Spend data is also
vital for other business strategies, such as budgeting and planning, inventory management, and product development.
Access to timely, accurate, complete, and detailed spend data offers invaluable intelligence on spending patterns, compliance and performance ratings, inventory status, andpart attributes. Such insight is critical for identifying hard-dollar savings opportunities
and developing sourcing, budgeting, planning, and product strategies.
Over the past three years, Aberdeen Group has examined the spend data management
strategies, processes, and systems of nearly 200 enterprises. Our research uncovered aharsh truth: few enterprises know what they spend, on which products, or with which
suppliers. As a result, supply managers and business executives are developing strategies
and decisions based on intuition rather than fact. All told, Aberdeen estimates that industry is losing $260 billions each year due to a pervasive inability to organize and analyze
spend data.
Faced with such facts, Aberdeen set out to identify strategies effective spend-data management, spending July through September 2004 examining spend-data management initiatives and software and services implementations at more than 30 leading enterprises.
Our research clearly found that the most successful spend data management initiatives
rely on the following:
1. Audit existing spend data management capabilities.
2. Access all spend-data sources within and outside the enterprise.
3. Adopt a common classification schema enterprise-wide.
4. Establish efficient and repeatable data cleansing and classification capabilities
through the use of software or services.

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AberdeenGroup • iBest Practices in Spending Analysis

5. Augment category expertise to ensure data and classification accuracy and validation.
6. Classify spending at a detailed level.
7. Enhance core spend data with vital business intelligence.
8. Increase frequency and coverage of spending analyses.
9. Utilize advanced reporting and decision support tools.
10. Continuously expand uses and scope of spend data management program.
This report examines these spend data management success strategies in more detail andprofiles enterprises demonstrating best practices in spending analysis supported by spend
data management automation and/or services. Table 1 lists these winning enterprises inalphabetical order, and indicates their supporting spend data management solution providers.
Table 1: Best Practices Winners and Their Solution Providers
Enterprise Winners
ABB Ltd.

Solution Providers Used
SAS Institute, Inc.

Cendant Corporation

Silver Oak Solutions

Large Publishing Company (Confidential)

American Express

Limited Brands

D&B Corp., Ariba, Inc.

MasterBrand Cabinets Inc.

Verticalnet, Inc.

Owens Corning

Emptoris

PPG Industries, Inc.

Ariba

Vought Aircraft Industries, Inc.

KeteraSource: Aberdeen Group, September 2004

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ii • AberdeenGroupBest Practices in Spending Analysis

Table of Contents
Executive Summary .............................................................................................. i
Chapter One: Issues at Hand...............................................................................5
The Spend Data Crisis: A Recap ................................................................... 6
Spend Data Management Defined................................................................. 7
Effective Spend Data Management Yields Big Results.................................. 8
Chapter Two: Key Business Value Findings ....................................................... 11
Key Business Drivers................................................................................... 13
Chapter Three: Best Practices and Recommendations...................................... 14
Best-in-Class Firms Rely on Automation and Detail .................................... 14
Spending Analysis Best Practices................................................................ 16
1. Audit existing spend data management capabilities.......................... 16
2. Access all spend-data sources.......................................................... 17
3. Adopt a common classification schema............................................. 17
4. Create repeatable process using software or services...................... 18
5. Augment category expertise for data classification ........................... 18
6. Classify spending at a detailed level ................................................. 18
7. Enhance spend data with vital business intelligence......................... 20
8. Increase frequency and coverage of spending analyses................... 21
9. Utilize advanced reporting and decision support tools ...................... 21
10. Continuously expand uses and scope of program .......................... 21
Chapter Four: Best Practices in Spending Analysis Profiles of Winners ........... 23
ABB Powers Up Spending Analysis to Improve
Supplier Relationship Management Company-wide .................................... 24
Business Challenge .............................................................................. 24
Spending Analysis Strategy................................................................... 24
Spending Analysis Selection and Deployment ...................................... 24
Results .................................................................................................. 25
Lessons Learned................................................................................... 25
Future Outlook ...................................................................................... 26
Cendant Leverages Spending Analytics as First Stepin Global Procurement Excellence............................................................... 27
Business Challenge .............................................................................. 27

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AberdeenGroupBest Practices in Spending Analysis

Table of Contents
Spending Analysis Strategy................................................................... 27
Spending Analysis Selection and Deployment ..................................... 27
Results .................................................................................................. 28
Lessons Learned................................................................................... 28
Future Outlook ...................................................................................... 28
Large Publishing Company Gains Insight into Spending
Data to Drive Costs Down and Compliance Up ........................................... 29
Business Challenge .............................................................................. 29
Spending Analysis Strategy................................................................... 29
Spending Analysis Selection and Deployment ...................................... 29
Results .................................................................................................. 30
Lessons Learned................................................................................... 30
Future Outlook ...................................................................................... 30
Limited Brands Procurement Improvement Boundlessfollowing Spend Analytics Exercise.............................................................. 31
Business Challenge .............................................................................. 31
Spending Analysis Strategy................................................................... 31
Spending Analysis Selection and Deployment ...................................... 32
Results .................................................................................................. 32
Lessons Learned................................................................................... 32
Future Outlook ...................................................................................... 32
MasterBrand Cabinets Opens the Door to Centralized
Procurement Success with Spend Visibility ................................................. 34
Business Challenge .............................................................................. 34
Spending Analysis Strategy................................................................... 34
Spending Analysis Selection and Deployment ...................................... 34
Results .................................................................................................. 35
Lessons Learned................................................................................... 35
Future Outlook ...................................................................................... 35
Owens Corning Building Global Procurement Excellence on
Spending Analysis Success......................................................................... 36
Business Challenge .............................................................................. 36
Spending Analysis Strategy................................................................... 36
Spending Analysis Selection and Deployment ..................................... 36
Results .................................................................................................. 37
Lessons Learned................................................................................... 37
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AberdeenGroupBest Practices in Spending Analysis

Table of Contents
Future Outlook ...................................................................................... 37
PPG Gains Clear View of Purchasing Spend through Analytics
Solution to Drive 10% Hard Dollar Savings.................................................. 38
Business Challenge .............................................................................. 38
Spending Analysis Strategy................................................................... 38
Spending Analysis Selection and Deployment ..................................... 38
Results .................................................................................................. 39
Lessons Learned................................................................................... 39
Future Outlook ...................................................................................... 39
Vought Aircraft Industries Reaches Comfortable Altitude of Spending
Analysis Visibility to Fuel Improved Indirect Procurement............................ 40
Business Challenge .............................................................................. 40
Spending Analysis Strategy................................................................... 40
Spending Analysis Selection and Deployment ..................................... 40
Results .................................................................................................. 41
Lessons Learned................................................................................... 41
Future Outlook ...................................................................................... 41
Featured Sponsors............................................................................................. 42
Sponsor Directory .............................................................................................. 44
Author Profiles.................................................................................................... 45
Appendix A: Research Methodology .................................................................. 47
Appendix B: Related Aberdeen Research & Tools ............................................. 48
About AberdeenGroup ...................................................................................... 49

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AberdeenGroupBest Practices in Spending Analysis

FiguresFigure 1: Spend Data Management Framework ..................................................8

TablesTable 1: Best Practices Winners and Their Solution Providers............................. ii
Table 2: Benefits of Spend Data Management ................................................... 10
Table 3: Spend Data Management PACE .......................................................... 11
Table 4: Attributes of Spend Data Management Excellence............................... 15
Table 5: Levels of Spend Data Classification ..................................................... 20

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AberdeenGroupBest Practices in Spending Analysis

Key Takeaways

Chapter One:
Issues at Hand
• Spend data management is critical for supply management and business success.
• Insufficient visibility into spending is a corporate epidemic.
• Hurdles to spend data manage include disparate data sources; inaccurate and incomplete spend data; limited category expertise; incongruent naming conventions; limited
analysis tools.
• Improving spend data management offers measurable benefits.

T

he first phase of supply management automation focused on creating process efficiencies and highly competitive negotiation environments. With initial investments in Internet-based sourcing and procurement automation technologies maturing enterprises are looking for their next opportunity for supply management savings andimprovements. Spend data management has emerged as one of the leading strategies enterprises will use to drive continuous improvements in supply management.
The following trends indicate the growing importance of spend data management in enterprise supply management and strategic business operations:•

Timely access to accurate spend and compliance data is a key priority for senior
executives: Cost pressures are always top of mind for senior executives. However,
new regulatory requirements – particularly the Sarbanes Oxley Act – mandate structured procedures for fiscal accountability, documented business controls, proceduresfor tracking and reporting material business information, and procedures and systems
for ensuring compliance and auditing. Insight into accurate spend data will be vitalfor compliance to these regulations.

•

Spend data management principles and solutions being applied to multiple
business areas: The link between spend data management and sourcing and suppliermanagement is obvious. However, accurate spend data is an equally critical to otherbusiness objectives, including compliance management, inventory management,
budgeting and planning, and product development and management. Renewed focus
in these areas is fueling additional interest in spend data management.

•

E-sourcing users view spend data management applications and services as key
to next round of savings. Two recent Aberdeen studies of more than 325 supply
management executives identified spend data cleansing and classification softwareand services among the top priorities for investment.

•

Spend data management now core component of platform and service provider
offerings. Recognizing the critical importance accurate and complete spend data hason the value of their own solutions, several e-procurement and e-sourcing platform
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AberdeenGroup • 5

Best Practices in Spending Analysis

providers are boosting their spend data management capabilities by acquiring spend
data cleansing and classification applications or developing or partnering for spend
data management services – or both. Other business service providers, such as procurement service providers, financial services firms, and consultants, are making
similar investments to bolster their spend data management capabilities and offerings.

The Spend Data Crisis: A Recap
Despite the critical role spend data plays in supply management strategies and decisions,only half of businesses currently have formal procedures for managing and analyzing
spend data. Worse yet, firms with formal procedures in place are only examining half of
their total spending1. Aberdeen has identified the following common challenges to effective spend data management and analysis:•

Disparate data sources: Spending data is located in multiple systems across the enterprise, including accounts payable (AP), general ledger (GL), enterprise resource
planning (ERP), purchasing, and legacy systems. Spending data is also found in systems outside the enterprise, including credit- and procurement-card (P-card) systems,
automated clearinghouse (ACH) and bank feeds, and business systems installed at
outsource service providers, including procurement service providers. Aggregating
data from these disparate systems has historically been a manual and time-consuming
process.

•

Inaccurate or incomplete data: ERP systems were designed for transaction processing and control, not reporting and analysis. The detailed information needed for effective spend data classification and analysis is often found in unstructured data
within ERP and other business systems. This information is often rife with errors or
missing critical data fields, such as supplier name, product attributes, or accountcodes. Such errors must be corrected at the outset to avoid problems with data classification and analysis.

•

Incongruent vendor naming conventions: Within a given enterprise, a single vendor
is often called by different names (e.g., IBM, I.B.M., Int’l Business Machines, etc.).
An organization also may be unknowingly doing business with multiple entities thatare business units of a single company. Additionally, a company may be buying
products from a distributor or reseller without knowing it has a direct contract withthe product manufacturer. These issues pollute spend data, limiting visibility intotrue spending patterns and decreasing negotiation leverage with suppliers. Such disparities must be reconciled in order for a company to clearly understand its spending
position.

•

Incongruent product and service naming conventions: A single product may appear
multiple times in multiple enterprise systems, including the inventory item master,purchasing systems, e-Procurement systems, etc. These systems also often describe
the same part in many different ways. An enterprise must reconcile such disparities
and classify data according to a consistent taxonomy and to a level of detail that ismeaningful for analysis. There are numerous classification “standards,” such as stan-

1

Spending Analysis Benchmark Report (Aberdeen 2003)

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6 • AberdeenGroupBest Practices in Spending Analysis

dard industrial classification (SIC) or NAICS codes, Universal Standard Products
and Services Classification (UNSPSC), eCl@ss. Two-thirds of companies currently
use internally-developed taxonomies for categorizing spend data, with many supporting multiple internal classification schemas.
•

Labor-intensive cleansing and classification processes: Most companies continue torely on basic spreadsheet applications and manual reviews to aggregate, classify, andanalyze spend data. As a result, such activities account for 12% to 15% of the sourcing cycle and consume 30% to 50% of a commodity manager’s time. Such factors
prompt many procurement organizations to conduct cursory spending analyses; examining, for example, spending within their particular site or division, and classifying spend data at the highest-level commodity classes, such as IT equipment. These
practices provide insufficient insight and often inaccurate analyses, resulting infragmented buying strategies that fail to fully leverage a company’s purchasing
power or identify savings and improvement opportunities.

•

Insufficient commodity expertise: Correcting spend-data classification errors requires
domain expertise in both products and data attributes. This expertise varies across thecompany, resulting in unpredictable results. Many firms put data cleansing and classification duties in the hands of IT professionals who lack understanding of the partsand services that require review. Aberdeen research found that as much as 30% of all
spending data are is incorrectly categorized or classified as “miscellaneous,” further
complicating efforts to analyze and leverage spending.

•

Limited analytics capabilities: Identifying patterns and savings opportunities
amongst aggregate spending data require considerable analysis. Unfortunately, Aberdeen research finds that nearly 90% of companies still use basic spreadsheet applications as their primary analysis tools, limiting the breadth and sophistication ofanalyses that can be executed.

These issues lead Aberdeen to estimate that inadequate spend data management capabilities are costing businesses $260 billion in missed savings opportunities annually.

Spend Data Management Defined
Spend data management – also referred to as spending analysis -- is the process of aggregating, classifying, and leveraging spend data for the purpose of reducing costs, improving operational performance, and ensuring compliance. Aberdeen has identified five attributes of effective spending analysis data management and spending analysis programs(Figure 1):
1. Extract — support automated extraction of all spend data from internal and external business systems.
2. Validate — ensure spending data files are accurate and complete.
3. Cleanse and classify — enable efficient, accurate, and preferably automated rationalization and classification of data elements and attributes. Eliminate discrepancies between incongruent naming conventions and map spend data to industry-standard classification systems (e.g., UNSPSC, eCl@ss) or enterprisespecific taxonomies.

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AberdeenGroup • 7

Best Practices in Spending Analysis

4. Enhance — enhance cleansed spending data with complementary business information, including existing contract terms, alternative parts references, suppliers’ financial status and performance information, minority, woman-owned
business (MWOB) status, etc.
5. Analyze — support role-based analysis of actionable spending information. Enable export of cleansed and enhanced spending information to third-party analytical tools.
Figure 1: Spend Data Management Framework

Source: Aberdeen Group, September 2004

Effective Spend Data Management Yields Big Results
The primary business drivers raising executive awareness and accelerating adoption of
spend data management initiatives and technology investments are examined in detail in
the next chapter. However, a clear driver for such investments is the signification positive
impact accurate and detailed spend data can have on sourcing, compliance, and otherstrategic business initiatives (Table 2).
Aberdeen’s examination of enterprise spend data management competencies clearly indicates that gaining timely, accurate, and current insight into detailed spend data on any
repeatable basis requires efficient data extraction, cleansing, and classification capabiliAll print and electronic rights are the property of AberdeenGroup © 2004.
8 • AberdeenGroupBest Practices in Spending Analysis

ties, supported by third-party automation, services – or both. Most commercially available spend data management solutions marry application integration, content management, and analytical tools with domain and process expertise to provide a unified view ofenterprise spend data and to enable automated and repeatable spending analysis. Spenddata management solutions can be segmented in three areas:
1. Traditional full-service consulting – this “traditional” solution merely involves outsourcing of spend data management activities to a third party that has commodity
domain experts and basic support systems. These traditional offerings are advantageous in that consultants can offer analysis and strategy development support. However, such offerings provide a static snapshot of spending information that soon becomes outdated. Outsourcing also limits the transfer of domain and process knowledge to the enterprise, making it difficult for a company to repeatedly analyze changing spending patterns without rehiring consultants.
2. Automated spend data management – these software applications extract and cleanse
spend data from multiple sources (e.g., invoices, POs, P-cards statements) and systems (e.g., ERP, AP, GL). These software-based solutions also classify this data by
product category, vendor, and employee using various combinations of patternmatching algorithms, neural networks, rules engines, domain-knowledge libraries,
and other analytical techniques. Aberdeen research has found that software-based(and software-aided) solutions can accurately classify 80% or better of spend data records on first-pass. Because these are self-learning or rules-based systems, once exceptions are managed by domain experts, classification rates improve on subsequent
rounds. These applications are differentiated by the accuracy and depth of spend dataclassification, breadth of spend data category coverage, and data enhancement capabilities. Additional differentiators include sophistication of data extraction and reporting and analysis capabilities.
3. Turnkey spend data management services – a mix of traditional consulting and software-based solutions, turnkey solutions marry automated data cleansing and classification capabilities with spend category domain experts and sourcing managers thatcan validate classifications and manage exceptions that could not be auto-classified
to an acceptable level of accuracy or detail. Turnkey service providers establish data
extraction routines from enterprise systems (generally a bulk load format) and perform cleansing, classification, and, in some cases, enhancement services. Cleansed
data files are distributed back to the enterprise for loading into an analytical tool ordata warehouse. Turnkey services are currently offered by sourcing and procurement
platform vendors, procurement service providers, financial services firms, and traditional consulting firms.
Specific benefits achieved from spend data management and use of supporting data
cleansing and classification automation and services appear in Table 2.
To be clear, accurate spend data provides factual insight and direction for sourcing andbusiness strategies; it does not in and of itself deliver a direct ROI. Executing on accurate
spend data requires sufficient sourcing and business expertise and proven methodologies.
However, without timely and consistent insight into spend data, enterprises might neveruncover the savings and performance opportunities inherent within their products, inventories, and supply base.

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AberdeenGroup • 9

Best Practices in Spending Analysis

Table 2: Benefits of Spend Data Management
Improvement Area

Performance Impact

Material/services costs

Reduce costs 2% - 12% through informed
strategic sourcing strategies

Supplier management

Eliminate duplicative suppliers. (Reduction
depends on previous efforts.)

Contract compliance

Improve compliance 55%. Save 7%,
through use of contract pricing.

Regulatory compliance

Meet regulatory reporting rules.

Inventory management

Cut excess stocks >50%. Lower inventory
costs 5% - 50%. Reduce expediting costs.

Product management

Cut unnecessary part introductions by
20%. Increase part reuse. Align designand supply strategies. Facilitate earlysupplier integration.

Process cycles

Reduce spend analysis project cycles
30% to 50%. Refocus sourcing and business managers on strategic tasks
Source: Aberdeen Group, September 2004

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10 • AberdeenGroupBest Practices in Spending Analysis

Key Takeaways

Chapter Two:
Key Business Value Findings• Spend data management practice and solution investment is being accelerated by continued pressure to reduce costs, improve compliance, meet regulatory requirements,
extend the value of IT investments, and stem parts proliferation and waste.

A

berdeen has encapsulated the primary drivers for spend data management into
the following PACE (pressures, actions, capabilities, and enablers) framework(Table 3).

Pressures: External forces that impact an organization’s market position, competitiveness, or business operations
Actions: The approaches that an organization takes in response to industry drivers
Capabilities: The business process competencies required to execute corporate strategy
Enablers: The key functionality of technology solutions required to support the organizations enabling business practices
Table 3: Spend Data Management PACE
Priorities
1

PrioritizedPressures
Continued
pressure to
reduce costs inthe face of supply
price increases
and shortages

Prioritized
Actions
Identify new opportunities to leveragespending, rationalize supply base,and control productproliferation. Ensure accurate pricing. Access volume
breaks, discounts,
and rebates.

Prioritized
Capabilities
C-level emphasis on
supplymanagement; advances in supply
management
knowledge and discipline;
increased spend
under procurement
group’s control.

Prioritized
Enablers
Adoption of systems
and strategies toimprove efficiency,
accuracy, and repeatability of spend
data cleansing, classification, and enhancement. Use ofadvanced analytics
to identify savings
opportunities andstrategies.

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AberdeenGroup • 11

Best Practices in Spending Analysis

Priorities
2

3

4

5

PrioritizedPressures
Increased regulatory reporting requirements

Prioritized
Actions
Establish standard
procedures, controls, and reporting
contractual obligations, execution,and performance.

Prioritized
Capabilities
C-level focus andincreased budget forcompliance infrastructure improvements.

Prioritized
Enablers
Adoption of systems
and strategies toenable quick andaccurate reporting offinancial spending,obligations, and exposure and demonstrate auditable procedures and controls. Use of reporting tools to meet
regulatory requirements.

Eroding value
from procurement,
sourcing, and enterprise resource
planning technology investments

Extend value andusability of existing
business systems
and improve spend
data accuracy andaccessibility to support informed
sourcing, supply,and business decisions.

Availability of advanced and provenspend-data management solutions.
Availability of hosted, on-demand,and turnkey application and service
models.

Adoption of softwareand services to provide central, accurate, and detailed
view of all spend
data across alltransactional andbusiness systems.

Increased focus
on part standardization and reuse

Identify and consolidate redundantparts with like attributes across designs. Limit undue
introduction of newparts. Integrate
sourcing and suppliers early in thedesign phase.

Focus on lean principles to cut redundancies and waste.
Product development initiatives torationalize parts.
Sourcing initiatives
to improve spend
leverage and supplier partnerships.

Extend spend data
cleansing and classification capabilities
to BOM, vendor
master, and reference databases.

Increased focus
on inventory control

Identify, consolidate, and share
redundant parts
with like attributes
across sites. Limit
ordering or stocking
of excess inventory.

Heightened focus onlean and JIT inventory management.
Plant and site incentives to reduce andshare inventories.

Apply data cleansing
and classification
capabilities to inventory data in inventory, planning, and
ERP systems.

Source: Aberdeen Group, September 2004

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12 • AberdeenGroupBest Practices in Spending Analysis

Key Business Drivers
Aberdeen research indicates that the following market conditions are making spend data
management a corporate priority:•

Continued pressures to reduce costs in the face of increasing energy, transportation,and supply prices and new supply constraints.

•

Pressures to ensure compliance with negotiated contracts.

•

New regulations – such as the Sarbanes Oxley Act – require companies to establish
and document business controls, procedures for tracking and reporting material business information, procedures and systems for ensuring compliance and auditing.

•Pressures to extend the value of existing sourcing, procurement, and ERP technology
investments.

•

Goals to improve product development and inventory management operations
through elimination of waste and redundant or unnecessary parts.

•

Increased availability of packaged software applications and services designed toautomate, streamline, and enhance spend data extraction, cleansing, classification,
and analysis processes.

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AberdeenGroup • 13

Best Practices in Spending Analysis

Key Takeaways

Chapter Three:
Best Practices and Recommendations• Aberdeen’s examination of the spend data management strategies, processes, andsystems of nearly 200 enterprises -- including more than 30 spend data management
automation and service deployments -- identified 10 leading strategies• Attributes of best-in-class spend data management initiatives include access to all
spend data sources; a common classification schema; category expertise; efficientand repeatable data cleansing and classification capabilities; advanced reporting anddecision support tools; and executive support..

To better understand the strategies required for making spend data management anefficient, accurate, and repeatable process, Aberdeen Group spent several months
examining spend data management processes, infrastructure, and supporting technology systems at more than 30 enterprises. Aberdeen evaluated the spend data management competence of each enterprise using several criteria, including percentage of total
spend classified and analyzed; breadth and scope of spend data classification; reductionsin spending analysis cycles and costs; reductions in supply costs achieved through improved spend visibility; improvements in compliance, product management, inventory,
budgeting, risk mitigation and other business issues impacted by spend data.
This most recent research effort followed Aberdeen’s previous benchmark of spending
data management and analysis operations at 160 enterprises.

Best-in-Class Firms Rely on Automation and Detail
Table 4 summarizes the differentiating attributes of best-in-class spend data management
operations. Key defining attributes are the use of automation to accurately and repeatedly
extract, cleanse, and classify spend data at a detailed level.

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14 • AberdeenGroupBest Practices in Spending Analysis

Table 4: Attributes of Spend Data Management Excellence

Process

Organization

Knowledge

Technology

Performance
metrics

Laggards

Industry Average

Best in Class

No standard spend data
management program orprocedures. Manual
processes. Spending
analysis projects executed on ad hoc basis –mostly prior to sourcing
major spend categories.

Some spend data cleansing and classification
protocols applied by
select groups – primarilysourcing. Spending
analysis projects executed as part of standard
sourcing process.

Standard spend data
cleansing and classification procedures companywide. Spending
analysis projects part ofsourcing, compliance,
budget, and other business processes and datasets.

Spending analysis conducted at the site ordivision level.

Spending analysis projects executed at leaston the division level withsome coordination
across divisions andregions.

Spending analysis projects aligned companywide. Data classification
projects aligned withother functions; e.g.,budget, development,
inventory management.

Spend analyses focus on
a select group of commodities or suppliers.
Spend data classified at
a high level, providing
only summary information. No data enhancement.

Spend analyses applied
to largest spending andsuppliers. Spend dataclassified at supplierlevel to identify the families of spend that offer
the greatest leverage.
Basic data enhancement.

Spend analyses applied
to all spend & suppliers.
Spend data classified at
the item level, comparisons of attributes across
suppliers and commodities. Data enhanced with
contract, supplier, andpart information.

Spend data gathered
manually from a selectsub-set of financial systems. Data validation,cleansing, and classification handled manually.

Spend data gatheredfrom financial and transactional systems using
mix of manual, bulk load,
and flat file methods.
Manual data cleansing
and classification; someinternally developed
formulas and routines.

Highly automated spend
data extraction, cleansing, and classification.
Advanced analysis andreporting capabilities.
Leading firms classify
data at source – e.g., at
the point of requisition orsourcing/part request.

<30% of spend data
aggregated, classified,and analyzed regularly.

<60% of spend data
aggregated, classified,and analyzed regularly.

>85% of spend data
aggregated, classified,and analyzed regularly.

Source: Aberdeen Group, September 2004

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AberdeenGroup • 15

Best Practices in Spending Analysis

Spending Analysis Best Practices
Aberdeen’s Best Practice research project identified 10 strategies common among enterprises with the most successful spend data management programs:
1. Audit existing spend data management capabilities.
2. Access all spend-data sources within and outside the enterprise.
3. Adopt a common classification schema enterprise-wide.
4. Establish efficient and repeatable data cleansing and classification capabilities
through the use of software or services.
5. Augment category expertise to ensure data and classification accuracy and validation.
6. Classify spending at a detailed level.
7. Enhance core spend data with vital business intelligence.
8. Increase frequency and coverage of spending analyses.
9. Utilize advanced reporting and decision support tools.
10. Continuously expand uses and scope of spend data management program.
1. Audit existing spend data management capabilities
Aberdeen research of enterprise spend data management competencies clearly found thatfew companies understand the extent of the problem or challenge inaccurate spend data
poses to their companies. Even fewer understand what procedures are required to fix thisproblem. Best-in-class performers began improvement efforts an audit of existing spend
data management infrastructure and competencies. Areas to examine include:•

Spend data system map: Begin by understanding which business systems containdata required to create a complete spend record. As noted above, this map should include both internal systems (e.g., ERP, e-Procurement, AP, GL) and external systems(e.g., ACH, P-card).

•

Spend data quality assessment: Examine the completeness of spend data, identify
additional data elements that might be required to create a detailed spend record.
Also assess the accuracy and depth of existing data classifications.

•Classification schema assessment: Assess the number, type, and usefulness of classification schemas currently used across the enterprise. Determine if existing schemas
can be consolidated or if underperforming schemas can be replaced. Also assess
whether existing schemas can be mapped to an industry standard schema – such as
UNSPSC – to enable analysis of enterprisewide spend.

•

Data management processes: Next understand existing procedures and systems used
for extracting, cleansing, and classifying spend data. Note which functions require
spend data and which resources actually perform the spend data management activities.

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16 • AberdeenGroupBest Practices in Spending Analysis•

Spend category and commodity expertise: Assess depth internal skills and expertiseused to support the classification and analysis of spend data. Note both strengths andareas that require augmentation.

•

Data storage, reporting, and analysis capabilities: Finally, examine how your company stores and analyzes spend data. Determine requirements for spend data access,types of reports, and frequency of such requests. Ensure data is accessible and can be
efficiently analyzed and drilled into to meet the needs of executives business line decision makers.

Enterprises engaging in initial audit may also consider hiring consultants or other support
services to conduct a baseline spending analysis project to identify immediate areas for
improvement and illustrate the positive impact a more formal and repeatable spend data
management initiative will have on enterprise performance.
2. Access all spend-data sources
Gathering a complete and accurate blueprint of total spending requires enterprises to access spend data from all relevant sources both within and outside the system. In addition
to the obvious sources, such as AP, GL, ERP and purchasing systems, enterprises should
also access spend data that is resident in external sources, such as ACH, P-Card, and thebusiness systems of outsourced service providers, such as logistics service providers andcontract manufacturers.
Leading enterprises have established automated extraction routines to aggregate and refresh spend data from multiple sources on a regular basis, allowing accurate and repeatable spending analyses. For example, PPG Industries, Inc. has established automated routines to extract spend data from more than 23 data sources, including five different ERP
systems and feeds from its P-card provider.
3. Adopt a common classification schema
Best-in-class enterprises have adopted a common internal taxonomy or industry-standard
classification schema, such as UNSPSC. Such standardization is key to driving accurateorganization and correlation of spend data and to enabling actionable analyses. Industry
standard schemas provide a universally accepted metadata layer for organizing and controlling spend data. These standards also are often broader than internally developed classification codes, allowing enterprises the ability to map all spend data to a single schema.
In fact, in some instances, leading enterprises have accelerated adoption and return of
their spend data management programs by mapping existing internal data schemas to one
common industry standard. This industry standard functions as a meta-meta-data layer,allowing employees and business units to continue to use their traditional schemas andnomenclature, while ensuring that business executives can get a holistic view of total
spending.
It is important to note that many businesses, particularly those in industrial manufacturing, often find it necessary to extend industry-standard schemas to classify certain categories of spend, such as complex parts, at a more granular level.

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AberdeenGroup • 17

Best Practices in Spending Analysis

4. Create repeatable process using software or services
Due to the volume and complexity of spend data within an enterprise, enterprises cannot
use traditional, labor-intensive procedures and fragmented systems to manage the above
activities. External services-only solutions provide only a temporary solution, requiring
enterprises to continually re-engage consultants to keep spend data current. Outsourcing
also limits the transfer of domain and process knowledge to the enterprise, increasing theorganization’s reliance upon consultants for future analysis of spending patterns.
Unfortunately, to date, less than half of enterprises have applied automation tools tospend data cleansing and classification process. Excellence in spend data management
requires that spend data extraction, classification, enhancement, and analysis activities be
supported by automation and services that can streamline existing procedures and makespending analysis a repeatable process. Best-in-class enterprises either directly licensed
automated data cleansing and classification software or engaged consultants or other service providers that leverage such solutions in delivery of a turnkey spend data management service.
For example, leading enterprises such as MasterBrand, Owens-Corning, and PPG licensed auto-classification software solutions to support their spend data management
initiatives. Other best-in-class performers, such as Vought Aircraft, adopted a turnkey
service.
5. Augment category expertise for data classification
Automated spend data management solutions encapsulate data classification rules andattributes for a wide range of spend categories. Not surprisingly, most of these solutions
perform best when classifying commonly used indirect product categories, such as IT
equipment and MRO supplies. However, select solutions incorporate knowledge libraries
on more complex items, including standard electronic and mechanical parts. (Few solutions effectively categorize complex services spending at the attribute level right out of
the box.)Through rules engines and self-learning capabilities, auto-classification solutions caninstantiate the knowledge of an enterprise’s best commodity and sourcing experts into thesystem. However, there will continue to be needs for commodity managers to classify
exceptions that cannot be managed by the system. As supply management organizations
work to get more spend under management, enterprises may find it necessary to augment
some internal competencies with category domain expertise from an external service provider or a new hire.
6. Classify spending at a detailed level
The most effective spending analyses are the result of spend data that is categorized at
the item level, providing visibility and allowing comparisons of detailed attributes across
suppliers and commodities.
While there are benefits to higher-level classification at the category or supplier level,
item-level detail enables a precise view of spending with each supplier and for eachcommodity on a company, division, site, and, even, buyer basis. It also allows for comparison of price- and non-price performance attributes, such as price inflation, contract
compliance, and premium cost variance. This item-level detail – often referred to as
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18 • AberdeenGroupBest Practices in Spending Analysis

Level Three data -- provides companies with deep visibility into total spending, enabling
the accurate and actionable analyses required for devising optimal and timely sourcing
strategies. Table 5 defines the primary levels of classification detail and the value andchallenges of classification at each level.
For example, with the aid of third-party auto-classification tools, Owens Corning is now
capable of analyzing 100% of total spending, with 90% of this data classified at the Level
Three, line-item detail. This detail empowers the company’s sourcing and supply managers to drill down to the spend data detail necessary to develop optimal sourcing and compliance strategies without enlisting IT support.

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AberdeenGroup • 19

Best Practices in Spending Analysis

Table 5: Levels of Spend Data Classification

Level 1

Characteristics

Benefits

Challenges

Annual aggregation of high valuecommodities and/or top suppliers

Identifies most obvious
opportunities for aggregation.

Fails to examine complete spending position.

Supplier-based classification
High-level assessment

Provides only high-level summary
data.
Relies more on instinct and experience of purchasing team thanreal data.

Level 2

Supplier-based spend categorization.

Deeper view of spending
within high-level categories.

Overlooks diversity of spend witha supplier.

Focuses on top-leverage commodity categories.

Used to drive commodity
strategies.

Can give inaccurate view ofspending position with a supplier.
Too high a level (commodity families) to develop and execute real
strategies

Level 3

Consolidated view of spend
Data classified at the item level
Deep visibility into purchases
Actionable analyses

Detailed view of spendingby company, division, site,and buyer.
Enables optimal sourcing
strategies based on timely
and accurate intelligence.

Requires access to 100% ofspending data. Requires deep
expertise of commodities andsuppliers.
Requires sophisticated analytical
tool support.

Source: Aberdeen Group, September 2004

7. Enhance spend data with vital business intelligence
Best-in-class view spend data as the command and control center for supply and businessintelligence, providing a single consolidated view of total spending, compliance, and performance information. These enterprises enhance core spend data with related businessintelligence.
The most basic form of enhancement is assessing parent-child relationships to ensure fullspend leverage and aid balance of trade decisions. Additional spend data enhancements
used by best-in-class performers include: contract terms, MWOB status, alternative parts
data, industry pricing indexes, average selling prices, supplier financial risk scores, performance information, lead times, inflation. This external market intelligence and supplier information can provide the insight necessary to devise optimal sourcing, product,and inventory strategies that can be executed in the real world.
For example, Limited Brands augments its spend data records with parent-child data andfinancial risk information from a third-party. These enhancements have helped the retailer rationalize its supply base and aggregate spending with preferred suppliers.

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20 • AberdeenGroupBest Practices in Spending Analysis

8. Increase frequency and coverage of spending analyses
Supply market dynamics are constantly in flux. In a recent Aberdeen study, supply management executives reported increases in energy and transportation prices, increases insupply prices, longer supply lead times, and new supply constraints. Such factors require
enterprises to constantly make supply trade-offs between primary and secondary suppliers, and, in many cases, identify new sources of supply. Responding to these challenges
requires access to an accurate and up-to-date view of total spending.
The adoption of standard procedures, reports, and advanced auto-classification solutions
have helped leading enterprises, such as Cendant Corporation, Limited, and PPG, getmonthly refreshes of their spend data, ensuring internal sourcing and business managers
are always dealing with the most current spend positions.
More efficient spend data cleansing and classification operations also empowers enterprises to conduct thorough examinations of spend categories they never had neither time
nor the resources to evaluate in the past.
9. Utilize advanced reporting and decision support tools
Having a timely and consolidated view into all spend data is a major first step. However,commodity managers can soon become overwhelmed by data overload, resorting to only
cursory analyses.
Fully leveraging spend data will require the support of advanced reporting and analytical
tools, such as a data-warehouse, online analytical process (OLAP) engine, or multidimensional analysis (MDA) engine. These decision support tools can support the analysis and correlations among large data sets. These tools can also be used to generate preconfigured reports and views of spend data that meet the unique decision support needsof individual stakeholders – from commodity managers to engineers to financial executives. Several spend data management tools come equipped with basic decision support
engines or can export classified spend data into any third-party warehouse or OLAP
tools.
10. Continuously expand uses and scope of program
The most successful enterprises view spend-data management as a continuous improvement process. These companies are constantly looking for ways to expand the uses andscope of spend its data cleansing and classification capabilities.
For example, one financial services firm and one software company Aberdeen examined
were pursuing similar strategies to streamline data classification activities even further byapplying auto-classification technologies to the front end of their online requisitioning
systems. In this scenario, the system would auto-classify an item as the requisition is entered into the system. For items that could not be auto-classified with a high degree ofconfidence, the system triggers a workflow for further review and assessment by atrained commodity manager. In one case, the system was also presenting likely classification alternatives to aid the commodity manager in final classification.
Other enterprises are beginning to use spend data auto-classification solutions to attack
other data problems within the enterprise. For example, one manufacturer has applied its
auto-classification tools to consolidate, clean, and classify its part and material master.

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AberdeenGroup • 21

Best Practices in Spending Analysis

Another manufacturer reported using auto-classification technologies to help identify
opportunities for parts standardization and reuse.

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22 • AberdeenGroupBest Practices in Spending Analysis

Key Takeaways

Chapter Four:Best Practices in Spending Analysis
Profiles of Winners
Aberdeen research of more than 30 spending analysis programs and system deployments
has identified the following enterprises as demonstrating best practices in spending analysis:•

ABB Ltd.

•

Cendant Corp.

•

Limited Brands Inc.

•

MasterBrand Cabinets Inc.

•

Owens Corning•

PPG Industries Inc.

•

Reed Business Information US•

Vought Aircraft Industries Inc.

C

ase studies of most of these enterprises follow in this chapter. Remaining casestudies will be published on an on-going series during the month of October withthe final report complete by October 31, 2004. Please check www.aberdeen.com
after that date.

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AberdeenGroup • 23

Best Practices in Spending Analysis

ABB Powers Up Spending Analysis to Improve
Supplier Relationship Management Company-wide
Business Challenge

Yet in spite of its considerable reach in theworld utility markets, ABB had little ability
to leverage its own aggregate spending
power. Its visibility was dampened by thefact it relies on more than 300 different enterprise resource planning (ERP) systems
world-wide and any cross-business analysis
had to be done manually.
Spending Analysis Strategy
In 2000, ABB set itself goals to better manage spend, leverage its total buying power,
and identify sourcing opportunities for optimum supplier relationships. It outlined a
specific plan to focus on high impact commodities, aggregate the spend with a few
best performing suppliers, and move business to these partners to gain savings of 5%
to 10% of total costs.

Best Practices in Spending Analysis

Zurich-based ABB Ltd. is a global industrial powerhouse with 1,200 business units,
operations in 100 countries, and more than
100,000 employees. The $18 billion energy and automation technology provider
spends more than $10 billion on goods andservices each year, approximately 60% on
direct and 40% on indirect materials.

Company Name
ABB Ltd.

Solution Providers
SAS Institute Inc.

Business Challenge
Little ability to collect and analyze data
across divisions hindered effectiveness ofcentralized procurement initiative.

Strategy
Better manage spending, leverage total
buying power, and identify sourcing opportunities for optimum supplier relationships
through spending analysis.

Value Achieved
Return on investment in spending analysis in
12 months from 5% to 25% commodity
sourcing savings enabled by the solution.

Two key requirements for success were identified: a comprehensive spending analysis
solution and management buy-in to support the commodity teams, change management
required, and the measurement of the cost savings metrics.
Spending Analysis Selection and Deployment
Following a diligent decision process involving a weighted analysis of 13 key criteria
categories, ABB selected SAS Institute Inc. because its solution was user-friendly, fit inwell with the existing ABB technology infrastructure, SAS’s committed schedule for design, development, and implementation, and its global services support levels.
The Web-enabled SAS system was installed at the company’s headquarters in February
2001, with automated connections to five key ERPs and Excel data uploads from othersystems. A phased roll-out across the enterprise targeted the largest ERP systems, largest
locations, and largest business units to get as much volume in the system as quickly as
possible in six months.
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24 • AberdeenGroupBest Practices in Spending Analysis

Data was categorized in a three level proprietary commodity classification schema, andSAS has achieved a 92% accuracy rate at correctly normalizing suppliers and categorizing commodities automatically. Updated on a weekly basis, today the SAS spending
analysis solution at ABB encompasses more than 75% of total spend, representing morethan 12 million transactions, 8 million items from 80,000 suppliers, and more than $14
billion in historical spending over a rolling 24-month period. Approximately 700 employees are registered to use the tool, averaging 10 concurrent users at any given time,from 475 sites and more than 30 countries.
Results
In the first phase of the roll-out the solution was used to support global commodity management, including spend aggregation and detailed spending analysis. The company wasable to determine who its global suppliers were, how much business was being allocatedto them, and to differentiate between contracted value and actual placed purchase volume.
Decision support capabilities leveraged in the early stages included graphical analysis ofcommodity cost comparisons, target costs and cost savings trending. The SAS solution
was also able to help the company normalize its vendor quotes across different currencies
to understand cross-boarder aggregation opportunities.
“We use the system every time we have a supplier meeting,” said Benny Osth of ABB.
“We don’t have to ask the supplier [for our own spending information] anymore… wepress a button and get all the information we need now, it has helped us to do better negotiations and get better deals.”
Although ABB will not disclose specific savings, spending analysis team members saythat the company has seen suppliers offer 5% to 25% reductions to become more strategic partners with ABB and the company is “on track” to reach its goals, achieving a return on its investment within 12 months. Although Osth acknowledges that spending
analysis on its own can not lock in savings, he noted, “First of all you need a target [forsavings]. The system is a way of helping you achieve that target.”Qualitative benefits include general information visibility into its supply base to determine risk assessment and partnership opportunities. An unexpected benefit has been thefact that financial controllers in the company can use the system for weekly cash flow
and payment term compliance checks.
Lessons Learned
Critical success factors to the SAS implementation at ABB include the management buyin that commodity team members identified as important up-front. This executive support and agreement on goals, expectations, and specifications with the supply and information technology teams made the thorough change management program that wasneeded a smoother process. The clear-cut project schedule outlining the resources, financing and manpower with key milestones and deliverables clearly stated was vital tosuccess as well.

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AberdeenGroup • 25

Best Practices in Spending Analysis

Future Outlook
Moving ahead, ABB plans to do more proactive analysis of its spending environment togain more “insight” rather than “ hindsight” on its spending to inform strategies, including supplier performance measurement. It wants to move from trying to understand why
particular spending patterns occurred and fixing problems to modeling optimal scenarios
to act upon. In this way, it hopes to be able to do demand-driven strategic sourcing, putting ABB in the best position to leverage market demand, negotiated volumes, forecast
accurately, and become a predictable customer with its new supply chain partners.

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26 • AberdeenGroupBest Practices in Spending Analysis

Cendant Leverages Spending Analytics as First Stepin Global Procurement ExcellenceBusiness Challenge

Spending Analysis Strategy
With approximately 20 different financial
systems in place at 24 businesses at thetime, Cendant wanted to create a single
data resource for all corporate spending. It
needed detailed information on vendors andpurchases to help support individual negotiations with key suppliers across its business units, as well as to help guide the firmin vendor diversity and risk assessments.
Spending Analysis Selection and
Deployment

Best Practices in Spending Analysis

Following rapid growth through a series ofmergers and acquisitions, travel and realestate services giant Cendant Corp. hadvery limited visibility into its billions ofcorporate-wide spend. In 2002, the 87,000person company embarked on a mission tocreate a world-class global procurement
operation and identified creating a spend
analysis system as a first step.

Company Name
Cendant Corporation

Solution Providers
Silver Oak Solutions

Business Challenge
Widely distributed organization wanted toleverage aggregate purchasing power andcreate world-class procurement organization
but had little insight into spending details.

Strategy
To create an automated purchasing data
spending analysis system it could refreshmonthly to support strategic sourcing andpurchasing compliance activities.

Value Achieved
Without extensive dedicated spending
analysis expertise in-house, Cendant
Leveraging the spend analysis solution,
wanted to turn to a third-party expert, but at
Cendant has been able to aggregate spend,
the same time it wanted to work with professionals focused on procurement, not justconsolidate vendors and negotiate savings
business consulting. The New York Cityfrom 5% to 45% in a number of categories,
based company also wanted to establish an
saving millions of dollars to date.
internal data collection process that was
repeatable, so it would not be necessarily tied to the third-party for on-going help.
From August 2002 through early 2003, Cendant engaged Silver Oak Solutions to fulfill
its requirements following a test pilot of the Boston-based company’s PRISM application. According to David Watkins, global procurement director at Cendant, his group
was able to customize the Silver Oak Solution to fit the complexity of the Cendant conglomerate, and continue to use it in-house once the initial eight-month engagement with
Silver Oak was complete.

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AberdeenGroup • 27

Best Practices in Spending Analysis

Results
Today Cendant is using the Silver Oak PRISM solution to address 100% of its spend thatcan be negotiated by procurement, excluding such things as salaries, benefits, and taxes.
Financial systems at Cendant have been collapsed from 20 to eight, which now provide
monthly feeds to the PRISM system.
Approximately 10 people use the application on a regular basis, leveraging the insight itdelivers on Cendant’s aggregate spend to negotiate contracts and support compliance
enforcement across the company. For example, Watkins noted since the system has beenin place, the company has been able to garner 5% to 45% savings in select categories it
has renegotiated backed by the detailed information.
An unexpected, yet no less significant benefit, is that sales professionals have been asking for access to the system to prepare themselves when they go into key Cendant supplier accounts to ask for Cendant business. Watkins noted the spend analysis system isproviding the company with additional customer relationship management support,
which has even resulted in sales wins.
“The ability to get at the information, that pays for itself right there,” said Watkins.
Lessons Learned
Watkins believes strongly that starting with a spending analysis initiative has been key tothe global procurement organization’s early success. It has been the key tool the grouphas used to understand its suppliers and commitments and put optimum contracts inplace.
“We had to understand where we were spending our funds first,” said Watkins. “If you
start anywhere else, you are starting in the wrong place.”
However, technology automation is not a panacea, he notes. It is simply a tool that enables the highest quality throughput at the highest quality level.
Finally, Watkins noted that having executive support for the strategic procurement initiative has been critical to its success overall. As was gaining support from key stakeholders throughout the Cendant businesses.
Future Outlook
Cendant is building on its spending analysis capabilities to create a strategic global spend
management discipline and is systematically tackling each and every category of negotiable spending across the corporation. It is in the process of deploying the Web-based
version of the PRISM solution so its procurement professionals can access it from any
location worldwide. In this way, individual employees across the Cendant companies
can take responsibility for optimizing categories and driving and measuring compliance.

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28 • AberdeenGroupBest Practices in Spending Analysis

Large Publishing Company Gains Insight into
Spending Data to Drive Costs Down and Compliance Up
Business Challenge

Poor data access and categorization precluded visibility into spending and effective
purchasing management and optimization,with multiple systems and inconsistentprocesses resulting in no commodity categorization for 50% of its spending. In fact,
the company had few preferred supplier
relationships in place for materials at all,except for key commodities like paper.
Spending Analysis Strategy

Best Practices in Spending Analysis

Not surprising, this large publisher disseminates a lot of information externallythrough its more than 130 business magazines, related web sites, and custom marketing and publishing services. However, thecompany struggled with information internally when it came to optimizing its purchasing spend.

Company Name
Confidential

Solution Providers
The American Express Company

Business Challenge
Poor data access and categorization precluded visibility into spending and effective
purchasing management and optimization.

Strategy
Use a spending analysis tool to provide visibility into spend to support p-card roll-out
and preferred supplier programs.

As a result, the company identified an opportunity to improve its procurement pracValue Achieved
tices through the use of a corporate purchasing credit card program (“p-card”) andOn track to save $1.2 million in A/P processchose a solution from the American Exing costs through increased use of p-cardpress Company. As it sought to roll-out themade possible by spending analysis.
p-card to its employee base, American Express offered the company an opportunity
to participate in a pilot of its spending analysis offering at no charge to help it identify
the purchases below $1,000 that would benefit from the automated p-card payment
mechanism.
As the publisher wanted to consolidate its spending with preferred suppliers to gain somesavings and take advantage of p-card compliance business rules for purchases as well, “itwas a perfect fit for us to do it,” said the director of disbursements and travel for the company.
Spending Analysis Selection and Deployment
Towards the end of 2003, the publisher worked with American Express to feed approximately $150 million of historical data from its PeopleSoft accounts payable systems, aswell as information from its p-card program and select suppliers, into the American Express Spend Analysis Workbench. American Express spending analysis consultants thenAll print and electronic rights are the property of AberdeenGroup © 2004.
AberdeenGroup • 29

Best Practices in Spending Analysis

categorized the spend by commodity and analyzed by average transaction cost over aseven-week engagement period.
The company’s personnel and the American Express consultants then reviewed the datareports jointly, and identified $73 million in spend that would be a good fit for p-card
payment transactions. Through this process, they were also able to pinpoint areas for
supplier consolidation, for example in temporary services, where the publisher was working with more than 100 vendors.
Results
In terms of process savings, this firm estimates that by channeling the eligible sub-$1,000
purchases onto p-cards it is on track to save $1.2 million this year in accounts payable
invoice processing costs, including reducing headcount by two full-time employees.
Since conducting the spending analysis engagement with American Express, the company has increased spend going through the card more than 800%.
It has also been able to leverage the insight it gained from the Spend Analysis Workbench to institute preferred supplier and compliance programs. In contract labor, for instance, it went out and sourced a master agreement “at significant savings” with one supplier, said the director, by pooling its own spend with its sister companies.
Lessons Learned
The director recommends companies considering spending analysis initiatives allocate
adequate time and resources to perform on-going analysis and to keep the data current
throughout the year. The publisher worked with American Express on a stand-alone project, but hopes to leverage the Workbench more on a continuing basis.
In a second round of information collection this September, the firm plans to ask formore detail to be accumulated so it can drill down on facets that can help in opportunity
identification and supplier negotiations. It will have to take the time to pull as many data
elements as possible and ensure they are provided at a detailed enough level to enablesignificant analysis, though.
The director noted the company will have to be more diligent in other purchasing andaccounting business process steps moving forward to support this effort: “Nothing goes
into the “Other” spend category any more,” she said.
Future Outlook
The publisher acknowledges it is just skimming the surface of spend aggregation andsupplier consolidation savings possibilities, as it still has approximately 50% of indirectspend that could be better categorized and normalized for strategic sourcing. It plans tocontinue to leverage more in-depth data collection and categorization to identify opportunities for savings, and keep the data refreshed at least one a year.

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30 • AberdeenGroupBest Practices in Spending Analysis

Limited Brands Procurement Improvement Boundless following
Spend Analytics Exercise
Business Challenge

Meeting once a month, the council was
charged with identifying spending in areas
such as office supplies, maintenance repair
and operations (MRO) materials, corrugated cartons, printing, and packaging.
However, members of the group had to collect information through a manually, timeconsuming and exhaustive process.

Best Practices in Spending Analysis

With popular fashion brands from Victoria’s Secret to its original The Limited women’s
clothing chain, Limited Brands Inc. had more than 15 business units each making theirown purchasing decisions. Wanting tocapitalize on the aggregate spending power
Company Nameof almost 4,000 mall stalwarts, the company formed a purchasing council in the
Limited Brands Inc.
mid 1990s to identify areas to attack costs
across brands and businesses.
Solution Providers
The Dun & Bradstreet Corporation,
Ariba Inc.

Business Challenge
Purchasing distributed by function resulting
in poor visibility and little organizational
spend leverage across company

Spending Analysis Strategy

StrategyWith the council’s work constricted by inefficient spend and expense data collection
Create “360-degree” view of spending
processes, Limited Brands developed four
through collecting and cleansing all spend
goals toward improving its procurement
data from disparate systems to support
performance. One, it wanted to improve thesourcing negotiations and procurement
quality of the data collected as it faced inprocess improvement
consistencies in the information it was able
to collect. Two, it wanted to automate thedata collection as much as possible to speed
Value Achieved
the intelligence gathering. Three, it wanted
Category savings through vendor negotiato gain a better view of all spend and commodity details associated with individual
tions supported by new spend analysis
purchases, instead of only gaining visibility
database.
into high level information like vendors andpayment amounts. And four, Limited Brands was determined to centralize its procurement function in order to maximize operational efficiencies, focus resources, reduce project cycle times, increase contract compliance, and enhance results.
To achieve these goals, Limited Brands identified the need to build a central data repository providing easy access to its supplier portfolio, as well as gain the ability to analyze
and create sourcing strategies around similar commodities and aggregated groupings ofspend from separate business units.

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Best Practices in Spending Analysis

Spending Analysis Selection and Deployment
Limited Brands selected The Dun & Bradstreet Corporation (DNB) to support these
spend analysis efforts for the firm’s ability to provide a universal supplier identifier, its
DUNS numbers, to support the matching of disbursement transactions with corporate
family hierarchies. In this way, Limited Brands could determine where it was doing
business with the same suppliers and on what similar products and services to understandits leverage.
Kicking off the project in November 2001, DNB gathered historical data from across
Limited Brand business units and built a comprehensive spend database. Today, Limited
Brands updates the database once a month with feeds from its numerous financial systems to support on-going supplier relationship management and procurement activities.
Results
With quick and easy access to its spending across all units, Limited Brands has been able
to garner significant savings in categories it has targeted for improvement. Limited leverages e-sourcing and e-procurement tools from Ariba Inc. to drive savings from a rationalized supply base once they have identified the opportunities with DNB-supported
spend analysis. In several commodity categories where many suppliers where used tofurnish similar or like items, the enterprise was able to rationalize its supplier base to afew strategic partners, saving on multiple invoice processing costs as well.
Lessons Learned
Jim Flynn, C.P.M., Manager of Strategic Procurement, Corporate Non-Merchandise Procurement Group at Limited Brands, warns companies not to underestimate the amount ofeffort and man hours devoted to data collection, validation, and aggregation to create theinitial spend “landscape.” Internal people are the ones who know the organization andsystems and they have to gain the support of finance and technology to support the effort.
He notes spend analysis initiatives are cross-functional efforts and successful project
teams need to be staffed accordingly.
He also notes that technology is not a panacea for curing inefficient procurement practices, and you still need skilled professionals with domain and market place expertise to
create the events and support the actual negotiations that go on to garner the potential
savings opportunities identified through thorough spend analysis.
“You can’t short-cut the time it takes to learn an industry or marketplace dynamics,” hesaid.
Future Outlook
Looking ahead, Flynn says Limited Brands will continue to leverage the spend analysis
data base to attack spend categories and understand baselines and internal stakeholders.
It is finding it can export reports from the DNB data into Excel and upload them easily
into Ariba sourcing to shave time off sourcing project analysis and negotiation preparations as well.
Limited Brands also plans to leverage the Ariba Buyer, Contract Management and Invoice modules to track some of its indirect service providers where appropriate, like ar-

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32 • AberdeenGroupBest Practices in Spending Analysis

mored car services, for example, where it had few purchasing compliance mechanisms in
the past. He noted those capabilities have forced the procurement professionals sourcing
and developing contracts to think differently about how they have structured their agreements, consider what is important to the enterprise and how to constantly strive for operational excellence and results, making improving procurement an on-going initiative.

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AberdeenGroup • 33

Best Practices in Spending Analysis

MasterBrand Cabinets Opens the Door to Centralized
Procurement Success with Spend Visibility
Business Challenge

In the past, the company used a divisionalpurchasing approach, which caused it toforfeit some of its sourcing leverage, according to Aaron Songer, sourcing analyst
at MasterBrand. Its ability to collect andanalyze data across the different business
units was hindered by manual, laborintensive and non-repeatable processes.

Best Practices in Spending Analysis

With 8 divisions and 5 legacy systems,
MasterBrand Cabinets had a tremendous
opportunity to leverage its spending power,
but procurement was diluted amongst thedivisions and approximately 19 different
manufacturing locations.

Company Name
MasterBrand Cabinets Inc.

Solution Providers
Verticalnet Inc.

Business Challenge
Little ability to collect and analyze data
across divisions hindered effectiveness ofcentralized procurement initiative.

Spending Analysis Strategy

Strategy

Identifying a centralized approach to procurement as a key strategy to savings, theJasper, IN-based company created a single
purchasing group with the mission to reduce costs, manage and improve supplierperformance, and use technology to reduce
non-value additive administrative activities.
First and foremost, though, the groupneeded to get visibility into spending categories to identify areas for aggregate strategic sourcing potential and to try to quantify
savings opportunities.

Create a single procurement group with themission to reduce costs, manage and improve supplier performance, and use technology to reduce non-value additive administrative activities.

Spending Analysis Selection and
Deployment

Value Achieved
Spending analysis solution has dramaticallyreduced information gathering and analysis
cycles and supported significant strategic
sourcing efforts.

MasterBrand’s sourcing team wanted to be able to classify and categorize all of its spending consistently, but felt strongly that simple characteristics, such as supplier name or a
UNSPSC taxonomy, were not adequate. It wanted a solution that allowed it to classify
spend commodities with enough depth to support improvement activities on an on-goingbasis.
The company selected the Verticalnet Spending Analysis solution because, from theevaluation team’s perspective, Verticalnet was the only vendor it looked at that combined
data cleansing and normalization capabilities with easy-to-use analytics. It also appreciated Verticalnet’s own sourcing expertise and its ability to work with MasterBrand’s existing information technology infrastructure.

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34 • AberdeenGroupBest Practices in Spending Analysis

The system went live in the spring of 2002 and today MasterBrand pulls informationfrom 5 different legacy systems, updating data monthly. The application is accessible to
all MasterBrand divisions and includes 100% of direct spend, mapped in a customized
categorization tree with details down to the SKU level.
Results
The tool has dramatically reduced the cycle time and pain for collecting information,
Songer noted. Today the sourcing team at MasterBrand is able to collect the data it needs
for new negotiations and analysis in minutes, as opposed to days or weeks in the past,when it had to involve other people and resources in the organization as well.
Songer noted spending analytics has been critical in helping the purchasing group to meetits goals by allowing the group to manage its spend in periods of increasing and decreasing markets. Specifically, it has been leveraged to drive savings across multiple commodity groups and divisions, which has contributed to “solid” ROI on the project.
Lessons Learned
To start, companies should be wary of the challenge caused by incomplete, inconsistent
data in their own existing systems and the need to create a hierarchy as the backbone tocleansed and normalized data. Of note, MasterBrand took a commodity-by-commodity
approach that let individual sourcing teams get started seeing benefits without having to
wait for the whole implementation.
It is also important to get stakeholder buy-in and thorough training to ensure usage of thesystem and that value is achieved. For MasterBrand, though, the value of the system implementation has been transformational.
“The spending analysis tool in and of itself is the primary data tool we use to do our jobsin Sourcing,” said Songer.
Future Outlook
Following its success with direct materials, MasterBrand is preparing to tackle indirect
categories of spend. The challenge is, as always, having good data on these particular
goods and services purchases, so it will need to start cleansing data before it can fully
establish a categorization hierarchy and do serious normalization and analysis.
MBCI has found significant value in using the tool and leveraging it in areas that makesense, across the business. Finally, it is integrated with Verticalnet’s Supplier Performance measurement module to add a qualitative aspect to the spend analytics.

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AberdeenGroup • 35

Best Practices in Spending Analysis

Owens Corning Building Global Procurement Excellenceon Spending Analysis SuccessBusiness Challenge

Spending Analysis Strategy
To improve its procurement position, theToledo, Ohio-based company identified
purchasing expenses as an area for cost improvement and wanted to form commodity
teams to identify areas of spending savings.
But team members were still hobbled bypoor access to data, manually collecting
details on categories of spending, andstruggling to “know who to call in a business to get it.”
“We wanted to spend more time acting ondata than digging for it,” said Kirk Peterson, E-sourcing project leader at Owens
Corning.
Spending Analysis Selection and
Deployment

Best Practices in Spending Analysis

With almost $5 billion in revenue, Owens
Corning spends $3 billion a year on purchased goods and services, two-thirds on
direct materials and one-third on indirect.
However, the provider of building industry
and composite materials had limited granular visibility into its total company spending details, making it difficult to identify
opportunities to leverage spend and renegotiate rates, monitor and drive complianceto national contracts, and reduce and manage its supply pool.

Company Name
Owens Corning

Solution Providers
Emptoris Inc.

Business Challenge
Limited spending visibility to support strategic sourcing and procurement optimization
activities

Strategy
Empower newly formed spending commodity teams with easily accessible data on
spending and vendor commitments to fuelcost reductions and improved supplier management.

Value Achieved
Easily accessible enterprise-wide spending
analysis capability has supported commodity
team savings initiatives, which have garnered more than $2 million in savings since
the solution has been in place.

To streamline the data gathering process and make the details collected more meaningful,the company undertook a comprehensive sourcing exercise to identify a spending analysis solution provider that could collect and classify all of its purchasing information. The
company evaluated eight providers before conducting demonstrations with three monthsof historical Owens Corning spend data with three short-list vendors.
Owens Corning employee demo attendees were asked to rate performance on functionality and capabilities, including ease of use, accuracy in data mapping, and expertise indata collection and cleansing. Following this weighting exercise, Owens Corning chose
the ExpenseMap solution from Emptoris as the winner.

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36 • AberdeenGroupBest Practices in Spending Analysis

Owens Corning kicked off its implementation of ExpenseMap in September 2003 and it
took approximately three months to collect the data and four months to establish a hierarchical category scheme and build automatic data extraction programs from the source
systems, according to Peterson. The solution collects its purchasing transaction-level
data from a number of instances of the enterprise resource planning system SAP, as well
as a small amount from its procurement card vendor American Express, and currently
incorporates $6.5 billion of historical spend from 2003 and 2004.
Results
Today approximately 200 Owens Corning employees access the premised-based application analyzing 100% of spend enterprise-wide, with 90% at Level 3 transaction detail.
Peterson notes that Owens Corning is now able to cut its spending data “29 different
ways” very easily without having to enlist information technology (IT) support to develop reports. In addition, the data is accessible to people across the company, for example, strategic sourcing professionals can access it for market making activities, as well as
buyers in individual plants with specific needs.
“It is not one or two people who have the knowledge in the company, everyone has it,”said Peterson. “It changes the game.”
The spending analysis tool has enabled Owens Corning to apply the same discipline fordirect materials to more neglected areas of the company checkbook, like business services. “We always had a handle on the [direct] materials side, but [Emptoris] helped us
map our spend on the services side.”This insight has fueled sourcing negotiation savings upwards of $2 million since thespending analysis project has been in place. The savings were gained from leveraging
volume spend and consolidating vendors, driving compliance to contracts, and driving
vendors to standard pricing terms and conditions.
Lessons Learned
Noting that a vendor demonstration with the company’s own data was “eye opening,”
Peterson stresses that ease of use has been critical to the success of the spending analysis
system at Owens Corning. But he warned companies need to be diligent in their own dataclassification efforts following a spending analysis program as bad data will continue toplague improvement programs.
Future Outlook
In the near future, Owens Corning plans to incorporate inflation data into its spending analysis to better prepare it for budget planning and vendor negotiations. It will
also be able to bring pending new plant acquisitions up into its national spending
agreements very quickly, as it can identify appropriate suppliers and national contracts the new locations can take advantage of immediately.
In addition, within the next year, Owens Corning wants to double the number of users of the ExpenseMap system, and expand it to additional categories of spend, suchas employee-initiated travel and expense dollars. Finally, it is even considering offering its suppliers restricted access to the tool, to allow them to identify additional opportunities for savings.
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AberdeenGroup • 37

Best Practices in Spending Analysis

PPG Gains Clear View of Purchasing Spend through Analytics
Solution to Drive 10% Hard Dollar Savings
Business Challenge

Spending Analysis Strategy
To reach that goal, the company set a strategy of consolidating its global spend information in a single data warehouse,
which it would leverage to aggregate spend
within commodities for aggressive renegotiation. Additional objectives included improved data classification, enhanced spend
information available online, and supplierand maverick spend reduction as well.
Spending Analysis Selection and
Deployment

Best Practices in Spending Analysis

With more than $5 billion in spending
across more than fifteen business units offering products from industrial coatings toinsurance, PPG Industries Inc. knew it had
considerable leverage with suppliers if it
could establish a centralized, controlled
procurement discipline backed by comprehensive information and analytics.

Company NamePPG Industries Inc.

Solution Providers
Ariba Inc.

Business Challenge
Widely distributed organization withconsiderable spending power underutilized

Strategy
Develop spend management strategy
leveraging central data warehouse andspending analytics solution to support
spending aggregation, information access,and strategic sourcing.

Value Achieved
PPG made an investment in data warehouse
software in 2000 to support crossToday 95% of spend is under centralized
functional commodity improvement teams
control, resulting in 90% supplier reduction
formed around opportunities that could be
and 10% overall savings.
identified through the consolidated spending data. Providing access to the system toits purchasing professionals worldwide since June 2001, the Pittsburgh-based company
pulled from more than 23 data sources, including five different enterprise resource planning (ERP) systems and its purchasing card program, and established monthly refreshesof data.
However, while the data warehouse provided a technical solution to aggregate information, it was weak in supporting actual analysis of the spending, because the data detail
was incomplete and inconsistently classified in many cases. At the same time, the data
analysis tool PPG was using was difficult to use and customize, making repeatable analysis difficult, according to Jim Polak, Director, General Purchasing, at PPG.
To increase productivity and savings potential, PPG turned to Ariba Inc. to provide targeted spend management capabilities, including an easy-to-use “dashboard”-like ability
to drill down on and navigate the data in the warehouse. In late 2003, the company
rolled out Ariba Spend Analysis, the FreeMarkets QS (QuickSource product, since acquired by Ariba), as well as the SoftFace data cleansing application (also acquired by
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38 • AberdeenGroupBest Practices in Spending Analysis

Ariba). Interestingly, while the company had used a reverse auction tool in the past, it
had not invested in a catalog e-procurement program such as Ariba Buyer.
Results
Today the company has 95% of indirect spending under central visibility and control
with the help of the data warehouse initiative and Ariba solutions, and every PPG professional buyer has access to spending data to support improved strategic decision making.
Over $200 million has been sourced through the Ariba solutions to date, resulting in 90%
supplier reduction and 10% savings in overall costs.
People on the cross-functional teams are excited about the results, and the solution has
facilitated a new level of collaboration at the company.
“Data is the fuel for everything we are doing in spend management and e-sourcing,” said
Polak. “If you have good clean data, suppliers want to do business with you because you
make it easier for them to quote, fulfill orders, to put together [an e-sourcing] event, andto implement the offer after the event is done.”
Lessons Learned
Stressing that leveraging total corporate spending as the key to significant savings, Polaknoted that good data drives the ability to analyze spending, supports the request for quotation (RFQ) and sourcing process, and underpins agreeable supplier interactions. PPG’s
data was not of the best quality when the company initially undertook the initiative, and
the Ariba tools made it easier to work with.
He also noted companies must work closely with their information technology teams toenhance existing IT assets and systems, and not completely replace them. They mustalso keep in mind how their organizational structure is able to act upon data findings
from spend analysis, as that is where the real wins are gained.
Future Outlook
Looking ahead, PPG plans on leveraging its spend analysis and management tools to
unlock additional savings in its procurement operations. It estimates it is missing 3% insavings because of bad data initially captured in its ERP and other systems and can goafter an additional $2 million in spending that was lost in the data because of poor detailvisibility. It also plans to roll-out its implementation of spending analysis more broadly
across the company particularly to increase usage and adoption in Asia, where it wants totake more advantage of low-cost-country sourcing opportunities.

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AberdeenGroup • 39

Best Practices in Spending Analysis

Vought Aircraft Industries Reaches Comfortable Altitude
of Spending Analysis Visibility to Fuel Improved Indirect Procurement
Business Challenge

Spending Analysis Strategy
Vought wanted to apply similar procurement discipline to its indirect categories ofspend as it did to its direct expenses, but it
had poor visibility because it was using
multiple procurement and payment methods to purchase indirect goods and services.
“Communication between the multiple systems was difficult,” said Pam Stewart,
Vought Materiel System & Process Integration. “We wanted to get our arms around[indirect spending] but we did not have theresources or software to do it.”Spending Analysis Selection and
Deployment

Best Practices in Spending Analysis

As one of the largest aerostructure subcontractors in the world, Vought Aircraft Industries Inc. had a good handle on its direct
manufacturing costs as it serves giant aircraft manufacturers like Boeing, Lockheed
Martin, and Northrop Grumman. The Dallas-based firm had less of a grip on indirect
expenses like maintenance, repair, operations (MRO), janitorial and office supplies,
however, which amount to over $100 million in expenses for the $1 billion company
each year.

Company Name
Vought Aircraft Industries Inc.

Solution Providers
Ketera Inc.

Business Challenge
Wanted to apply procurement discipline toindirect categories but lacked the tools andresources to understand spending to plot
improvement strategy

Strategy
Consolidated, cleansed, and categorized
data to support spending compliance withpreferred vendors, policies, and payment
methods.

Value Achieved
Today 100% of applicable indirect spending
is being analyzed and hard and soft dollar
savings has been achieved through improved supply relationships.

To gain centralized and meaningful visibility into its indirect expense commitments, Vought wanted a solution that could serve its
mid-size company needs for a solution at a reasonable price. As a customer of its eprocurement solution, Vought engaged Ketera Inc. to compile a single view of its indirectpurchase history from its various systems in late 2002.
Stewart noted that one of the complications of the indirect spending situation was the factthat indirect goods and services from the same supplier were being paid for by purchaseorder-related invoice, purchasing card, and check request, and each of the systems referred to suppliers differently (for example, supplier ABC was listed under ABC Company, The ABC Company, and XYZ, a Division of ABC Co.) So Vought also worked

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40 • AberdeenGroupBest Practices in Spending Analysis

with Ketera to categorize and normalize its indirect spending over an initial eight to 10
week period.
At the end of the opening project, Ketera prepared a series of spending analysis reports
from its Web-based tool for Vought staff to slice and dice by supplier, product, and sizeof spend to plot improvement ideas for vendor aggregation and compliance with preferred source directives. For example, it discovered it was using upwards of 30 suppliers
for a particular category, and only 60% of the spend was actually going to its preferredsupplier. In addition, it found it was often accepting all three forms of payment (POrelated invoice, P-card, or check request) from the same supplier when it had a preferred
method of payment as well.
Results
Since deploying the Ketera solution, Vought has been able to renegotiate a number ofsupplier relationships. Strategic sourcing professionals use the tool the most frequently at
the firm, and have been able to gain significant savings with preferred suppliers by aggregating the spend at an enterprise level for certain categories.
Today the company is analyzing the vast majority of indirect spend and plans to do major
refreshes of the data once or twice a year. It has cut-off non-preferred procurement andpayment methods for specific suppliers and categories to deter maverick spending andsave payment processing costs as well.
Lessons Learned
Since the spend analysis engagement, the company has experienced improvements fromactions taken to enforce the supply agreements and policies it had in place. It closed
open purchase orders to non-preferred suppliers that contributed to maverick spend, andit enforced its preferred payment mechanisms. Therefore, companies should note theyneed to act on the data in order to see real improvement.
Future Outlook
Moving forward, Vought has contracted with a comprehensive procurement ser-vices
provider to manage its indirect procurement, recognizing that it had not been a core competency. However, it plans to keep the Ketera spend analysis solution in place to monitor
indirect supplier consolidation, as well as product and process standardization initiatives.

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AberdeenGroup • 41

Best Practices in Spending Analysis

Featured Sponsors

Ariba, Inc. is the leading provider of Spend Management solutions. Ariba helps companies realize rapid and sustainable bottom-line results. Successful companies around theworld in every industry use Ariba Spend Management software and services.
Ariba Spend Management solutions help companies automate, integrate and streamline
their entire purchasing process from planning to payment, resulting in significant process
efficiencies and sustainable cost savings that go straight to the bottom line. Ariba SpendManagement consists of strategy, analysis, sourcing, procurement and supplier management solutions and encompasses all categories of enterprise spend from direct goods to
MRO and services.

A.T. Kearney Procurement Solutions provides sourcing solutions that maximize and accelerate results through a powerful combination of experience-backed services, marketdriven content, leading-edge technology, and value-added spend reduction solutions.
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sourcing technologies and award-winning training, A.T. Kearney Procurement Solutions
offers powerful solutions that produce proven results.

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42 • AberdeenGroupBest Practices in Spending Analysis

Ketera Technologies is the leading provider of 'on demand' Procurement Solutions, providing companies with key applications required to control and reduce corporate spending for direct and indirect (MRO) goods and services at a low cost of ownership.
Ketera Procurement Solutions include modules for spend analysis, eprocurement, services procurement and contract management. The “Ketera advantage” is our on demanddelivery model which combines hosted procurement applications, a pay-as-you go pricing model estimated at 50-80% lower than packaged software equivalents, and 'heavy
lifting' services required for success, including supplier enablement; hardware infrastructure, project resources, system administration and solution upgrades.

SAS is the world's leader in business analytics software, delivering breakthrough technology needed to transform the way you do business. As the world's largest privately
held software company, SAS’ vision is to deliver strategic value to all levels of your organization. SAS® Supplier Relationship Management enables procurement professionals
to make better decisions throughout the strategic sourcing process. Using this comprehensive solution, companies can reduce enterprise spend, consolidate their supply base,reduce supplier risk and align procurement strategies with corporate goals.

Verticalnet is a leading provider of supply management solutions that enable companies
to identify and realize sustained value across the supply management lifecycle. Verticalnet's solutions provide the visibility, insight, and process control required to maximize
the sustained value from supply management.
Large enough to help customers attain success worldwide, yet nimble enough to provide
individual attention and remain focused on customer priorities, Verticalnet has helped
numerous Global 2000 companies take their supply management efforts to the next level
through an optimal blend of software, services, and deep category knowledge and domain expertise.

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AberdeenGroup • 43

Best Practices in Spending Analysis

Sponsor Directory
Ariba Inc.
807 11th Avenue
Sunnyvale, CA 94089(650) 390-1000
www.ariba.com
A.T. Kearney Procurement Solutions Inc.
222 West Adams Street
Chicago, IL 60606(888) 327 3842
(312) 648-0111
www.atkearneyprocurementsolutions.com

Ketera Inc.
3965 Freedom Circle, 10th Floor
Santa Clara, CA 95054(408) 572-9500
www.ketera.com

SAS Institute Inc.
100 SAS Campus Drive
Cary, NC 27513-2414(919) 677-8000
http://www.sas.com/solutions/srm/

Verticalnet Inc.
400 Chester Field Pkwy
Malvern, PA 19355(610) 240-0600
www.verticalnet.com

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44 • AberdeenGroupBest Practices in Spending Analysis

Author Profiles
Tim A. Minahan,Vice President and Managing Director
Supply Chain Research
Aberdeen Group, Inc.
Tim Minahan is vice president of supply chain management research for AberdeenGroup, Inc., a Boston-based market research and positioning services firm. In this role,
Minahan provides analysis and assessment of software and services that automate andstreamline procurement, sourcing, design, and supply chain management operations.
Minahan specifically focuses on total cost management (TCM), which is an organizational and technological framework for managing the total cost of ownership of supply
relationships. Within TCM, Minahan tracks spending analysis, sourcing, procurement
execution, contract management, and supplier performance measurement technologies.
Minahan also covers product life cycle management (PLM) technologies and their convergence with TCM. Minahan continually consults with early implementers of these applications to identify world-class supply management strategies and to determine thestrengths and weaknesses of technology solutions and services that are competing in thismarket.
His current research efforts include Aberdeen’s quarterly E-sourcing Index (ESI), as well
as benchmark studies on e-procurement success strategies and contract management bestpractices.

Christa Degnan,
Research Director
Supply Chain Research
Aberdeen Group, Inc.
Christa Degnan has more than a decade of technology industry experience focused oninterpreting the business value of enterprise solutions. At Aberdeen her work has included the examination of expenditures and purchase processing requirements of businesses and public sector organizations, analyzing how technology and change management strategies can help organizations optimize their operational dollars, eliminate risk,
and increase business flexibility and market responsiveness.
To provide insight into the value to be gained from optimization activities, she conducts
extensive research into solution functionality and end-user implementation experiencesof supply chain technologies. This has enabled her to help enterprises achieve successful
deployments and to advise solution providers on how to develop their offerings to best
meet enterprise needs.

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AberdeenGroup • 45

Best Practices in Spending Analysis

Degnan holds a B.A. from Barnard College, Columbia University, incorporating studies
at University College, University of London. She holds an M.A. from the University of
Massachusetts, Boston.

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46 • AberdeenGroupBest Practices in Spending Analysis

Appendix A:
Research Methodology

In August and September 2004, Aberdeen examined the spending analysis strategies
and solutions of more than 30 enterprises in a variety of industries, including manufacturing, professional services, and retail.

•

Percentage of total spending being classified and analyzed•

Breadth and scope of spending data analysis deployment•

Reductions in supply costs from improved visibility into spending•

Process cycle and cost efficiencies gained through automated spending analysis•

Improvements in compliance, budgeting, risk mitigation, and other business issues
impacted by spend data•

Alignment and integration of spending analysis initiative with broader supply management and business strategies.

Enterprise spending analysis deployments were assessed based on the following criteria:

Aberdeen began with an initial blind screening of nomination forms describing the scope,solution selection, deployment, and performance attributes of spending analysis implementations. This initial screen was used to identify spending analytics best practice “finalists.” Aberdeen analysts conducted in-person and/or telephone assessments of each
finalist before selecting the winners.
Solution providers recognized as sponsors of this report were solicited after the fact andhad no substantive influence on the direction of the Best Practices in Spending Analysis
Report. Their sponsorship has made it possible for Aberdeen Group to make the reportavailable to readers at no charge.

All print and electronic rights are the property of AberdeenGroup © 2004.
AberdeenGroup • 47

Best Practices in Spending Analysis

Appendix B:
Related Aberdeen Research & Tools
Related Aberdeen research that forms a companion or reference to this report include:•

The Spending Analysis Benchmark Report: Dissecting a Corporate Epidemic (January 2003)•

Spending Analysis: What You Don't Know Is Hurting You (January 2003)•

The Category Spend Management Report Series 2004: Contract Labor (March 2004)•

The Category Spend Management Report Series 2004: Travel – Beyond Convenienceand Safety – Making Visibility Pay Off (June 2004)•

The Category Spend Management Report Series 2004: Telecommunications – Spend
Under Control Key to Cost Savings (June 2004)•

The Category Spend Management Report Series 2004: Advertising, Marketing, andPrinting – Policies Precede Procurement Automation but Technology Ensures Compliance (September 2004)•

Best Practices in E-sourcing: Optimizing and Sustaining Supply Savings (September
2004)

Information on these and any other Aberdeen publications can be found atwww.aberdeen.com.

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48 • AberdeenGroupBest Practices in Spending Analysis

About

AberdeenGroupOur Mission
To be the trusted advisor and business value research destination of choice for the Global
Business Executive.

Our Approach
Aberdeen delivers unbiased, primary research that helps enterprises derive tangible business value from technology-enabled solutions. Through continuous benchmarking andanalysis of value chain practices, Aberdeen offers a unique mix of research, tools, andservices to help Global Business Executives accomplish the following:•

IMPROVE the financial and competitive position of their business now•

PRIORITIZE operational improvement areas to drive immediate, tangible value
to their business•

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Aberdeen also offers selected solution providers fact-based tools and services to empower and equip them to accomplish the following:•

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where their solutions can deliver differentiated results•

ACCELERATE SALES, by accessing executive decision-makers who need a solution and arming the sales team with fact-based differentiation around business
impact•EXPAND CUSTOMERS, by fortifying their value proposition with independentfact-based research and demonstrating installed base proof points

Our History of Integrity
Aberdeen was founded in 1988 to conduct fact-based, unbiased research that delivers
tangible value to executives trying to advance their businesses with technology-enabled
solutions.
Aberdeen's integrity has always been and always will be beyond reproach. We provide
independent research and analysis of the dynamics underlying specific technologyenabled business strategies, market trends, and technology solutions. While some reports
or portions of reports may be underwritten by corporate sponsors, Aberdeen's researchfindings are never influenced by any of these sponsors.

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AberdeenGroup • 49

Best Practices in Spending Analysis

AberdeenGroup, Inc.
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www.aberdeen.com© 2004 AberdeenGroup, Inc.
All rights reserved
September 2004

Founded in 1988, AberdeenGroup is the technologydriven research destination of choice for the global
business executive. AberdeenGroup has over 100,000
research members in over 36 countries around the worldthat both participate in and direct the most comprehensive technology-driven value chain research in themarket. Through its continued fact-based research,
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The information contained in this publication has been obtained from sources Aberdeen believes to be reliable, but is notguaranteed by Aberdeen. Aberdeen publications reflect the analyst’s judgment at the time and are subject to change
without notice.
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