Spend Management
Visibility 101
A Step by Step Guide toPlanning your Visibility ProgramTable of Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
A Note on Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
How to Use this Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Program Planning Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Step 1: Identifying your Business Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Step 2: Determining the Corresponding Visibility Needs . . . . . . . . . . . . . . . . . . . . . . .7
Step 3: Determining the Appropriate Solution Elements . . . . . . . . . . . . . . . . . . . . . . .8
Complete Solution Architecture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Summary Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Step 4: Determining the Appropriate Solution Delivery Method . . . . . . . . . . . . . . . .13
Available Delivery Metholds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Specific Approach Overviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Step 5: Gaining Internal Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Constituent Checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Building Your Internal Business Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Step 6: Evaluating Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Sample RFP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Step 7: Implementing Your Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Software Implementations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Service Implementations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

Pitfalls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Waiting to Improve Data (The Chicken and The Egg) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Not Properly Defining Service Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Ignoring The 80 / 20 Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Underestimating Interal Effort . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Short-Sightedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Failing to Accurately Compare Total Cost of Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

Appendix A: Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Appendix B: Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

Spend Management Visibility 101

Preface
A Note on Terminology
Before you begin reading this guide, note that we use the term "Visibility" insteadof the more specific "Spend Visibility" in many instances. We consider "Visibility"
as the umbrella term for the following, more specific solutions:+ Spend Visibility deals with analyzing purchases for the purpose ofknowing what is being procured by the enterprise.
+ Process Visibility describes a view into how sourcing and procurement
processes are working.
+ Performance Visibility provides a view into the performance of
suppliers and buyers.
Generally, Spend Visibility is considered more basic, critical and to provide astronger ROI. Spend Visibility is generally the best place to start, and, as aconsequence, is sometimes confused with all forms of Visibility. This guide isdesigned to help you plan your Visibility program, whether it involves just Spend
Visibility, one of the other forms or a combination.
The final term to define is Spend Management. The various forms of Visibility
described briefly above all help to provide the insights necessary to effective
management of spend. Complete Spend Management, however, requires morethan seeing the issues and opportunities; strategic action and tactical execution
are also necessary from Sourcing through Procurement and Invoicing, Contract
and Supplier management.

Contacts
If you have feedback on this paper or would like to discuss any points herein,please contact Alex Saric at asaric@ariba.com, (908) 333-2385.
If you would like to discuss how Ariba can help you overcome your Visibility
challenges, please contact Ariba at 866-772-7422.

Copyright © 2005 Ariba, Inc. All rights reserved.

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Spend Management Visibility 101

Introduction
PurposeThe purpose of this guide is to help you plan your Visibility program, fromrationalizing your need through successfully implementing your chosen solution.
For those in the very early stages of a Visibility initiative, the full guide should
help you structure your project and provide a checklist for each step or
consideration. For those farther along in their efforts, particular sections areintended to help you close any gaps or remaining phases successfully.

How to Use this Document
We recommend this document be used in one of two ways, depending on yoursituation. If you are:1.

Only beginning to look at Visibility, we suggest that you use thisdocument as a thorough guide. The "Initiative Planning Steps" below
can be used to structure your program, or at least to ensure no criticalsteps are omitted. Each step refers to applicable sections which should
be referenced when appropriate.

2.

Already in the midst of a Visibility initiative, we suggest that you use thisdocument more as a toolkit, reading those sections pertaining to steps
that have not yet been completed or that are of concern to you.

Regardless of where you are, we encourage everyone to review the "Pitfalls" section.

Program Planning Steps
The following are the basic steps critical to any thorough Visibility program.
You may choose to add steps or break these down into more detailed steps,
but these are a good check to make sure the critical elements are included inyour planning.
1. Identify Your Business Needs
2. Determine the Corresponding Visibility Needs
3. Determine the Appropriate Solution Elements
4. Determine the Appropriate Delivery Method
5. Gain Internal Support
6. Evaluate Solutions
7. Select & Implement a Solution

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Spend Management Visibility 101

Step 1: Identifying Your Business Needs
There are a myriad of potential business needs addressed at least partially by
Visibility. The following table lists many of the most common, some very
specific and others fairly broad, and the primary ways that Visibility helps toaddress each:

Since Visibility is critical to virtually all decision-making, the list of potential businessneeds could continue indefinitely. The above list is only intended to provide
examples. The real purpose of this section is to ensure that the correct and

Copyright © 2005 Ariba, Inc. All rights reserved.

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Spend Management Visibility 101

complete business needs are properly used to drive the remainder of your Visibility
initiative planning. There are two key factors to consider:
1. Complete Set of Needs: Since the Visibility solution is likely to be
deployed across the organization, it is critical to ensure that thebusiness needs of all potential users are identified, not just theinitiative sponsor. In all likelihood, multiple needs or a much broader
need can be addressed by the solution. Taking all needs into
account boosts ROI and facilitates added internal support, leading tomore successful implementation of the program.
Example: The Director of Sourcing at Company X has a $100M
cost reduction objective for the next year as part of a company-wide
cost management initiative. He or she identifies a significant needto prioritize sourcing events and maximize leverage in negotiations.
However, the manufacturing business units are having problems
with inconsistent supplier performance. If the solution evaluation
criteria are determined by the Sourcing Director in isolation, an
opportunity to correct the performance issue simultaneously may belost and the decisions made may create tension between
procurement and the business units.
2. Future Needs: It is tempting to focus on the need that is
highlighted by a current pain or challenge. However, it is critical tolook at the long-term or future need that must be addressed. Eachlevel of Visibility provides further information that reveals new needs.
Example: A global company currently has no central Visibility. The
Director of Sourcing is frustrated by his commodity managers'
inability to provide accurate reports on spend by supplier or toleverage their full spend in negotiations. Focusing on this need, hecomes to the conclusion that he needs a third party to provide
supplier-based cleansing (for accurate spend) and parentage (tomaximize leverage in negotiations). He structures his evaluation
along these lines and selects a supplier information provider toprovide these specific services. Once this level of Visibility is
obtained, however, he discovers significant savings erosion.
Unfortunately, the supplier-based solution does not provide the levelof granularity, including item-level categorization, necessary to
identify the sources of leakage. A new or additional solution is now
needed because of the short-term view of needs used.
Once you have identified the full set of immediate and future business needs
driving your interest in Visibility, you should progress to the next step,
determining the corresponding Visibility needs.

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Spend Management Visibility 101

Step 2: Determining theCorresponding Visibility Needs
Once you have confirmed the business needs that need to be addressed, thenext step is to identify the associated Visibility needs. It is important to be as
thorough and precise as possible in this step to ensure that you later selectcomplete evaluation criteria. The following table summarizes the different
Visibility needs and matches them to some common business needs. As it
would be impossible to list every business need requiring Visibility, the table isonly intended to serve as a guide. The definitions and examples should help
you match your specific needs.

Copyright © 2005 Ariba, Inc. All rights reserved.

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Spend Management Visibility 101

Step 3:
Determining the Appropriate Solution Elements
Once you have determined your Visibility needs, you can identify the elements
required for your solution. Some elements may already exist within your firm
while others will need to be obtained from a third party as either a service orsoftware. It may also be possible to outsource virtually the entire process to an
outside vendor. Even in this case, it is important to understand the various
elements so you can properly evaluate vendor capabilities to address yourneeds. This section reviews the various elements in a complete Visibility
solution and then summarizes the elements required for each type of Visibility
need. The goal is to ensure that you do not overlook a critical element andfamiliarize you with the terminology used within the industry (refer to the
Glossary of Terms for a more complete set of definitions).

Complete Solution Architecture
The following diagram shows the typical flow of information within a complete
Visibility solution, along with the core elements.

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Spend Management Visibility 101

Overview of Core Solution Elements:
Data Sources
These are the original sources of all information that will feed your Visibility
solution. Various types of source systems may need to be integrated into yoursolution. These include:•

ERPs: In most companies, ERP systems (e.g. SAP, Oracle, JD
Edwards, etc.) are the primary source of data and are essential for
all types of Visibility. Many types of data, in particular Accounts
Payable, are captured within ERP systems.

•

Spend Management Applications: If implemented in your company,
these collect high quality data and usually integrate seamlessly (noETL software or scripts required) into Visibility solutions. Different
types of applications capture different types of information.
eProcurement applications capture purchase order and procurement
process data, eSourcing applications capture sourcing process data,
contract management applications capture contract details, etc.
Depending on your Visibility needs, you may need to implement a
Spend Management application to capture the level and type of dataneeded, or manually record and input the data.

•

Other: Numerous other data sources may feed your Visibility
solution. In principle, any system that captures data relevant to thetype of Visibility needed should be integrated. Some common othersystems include:-

Purchasing Cards: Capture detailed purchase information.

-

Supplier Reports: Suppliers often capture exceptional detail on
your orders which is not captured in the company's systems(especially if no eProcurement solution is implemented). While
this information will only be available from certain approved
suppliers, it should be integrated to improve Visibility into thosepurchases.

-

Travel & Expenses: Often this information is only captured isthird party software or services are used.

ETL
ETL, which is the standard abbreviation for Extraction, Transformation & Loadsoftware, tools streamline the flow of data from your various data systems,
particularly ERP systems, and your data warehouse. As its name implies, ETL
tools help automatically extract data from within your systems, transform theformat of those data files and then load them into your data warehouse. Such

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Spend Management Visibility 101

software often comes with adapters for common ERP systems and may also
include mappings to certain data warehouse or analysis formats. Such
adapters and mappings help minimize the amount of configuration required to
set-up the data transfer process. ETL tools are rarely required, and you may
choose to either manually extract data from your source systems or write SQL
scripts to do so in an automated fashion. ETL tools are strongly recommended
for companies with the following characteristics:•

Desire frequent data extracts (weekly or more frequent) which would
make manual efforts impractical.

•

Have many source systems which would require significant effort towrite custom scripts for.

•Have source systems that do not function well with SQL scripts or
require significant effort (e.g. SAP R3).

Data Warehouse
Data warehouses serve as central repositories of large volumes of data. They
aggregate data from the various original source systems within a company andfeed analytical software. Many data warehouses include analytical capabilities
as well, and many analytical solutions include data warehouse capabilities. The
primary difference is that each tends to be weaker in its secondary capability.
Data warehouses usually provide very generic analytical capabilities and are
not especially user friendly, limiting use to IT and other "power" users. They do,
however, generally offer larger capacities for aggregation of mass quantities ofvaried information. Therefore, both elements are often recommended with eachelement increasing the value of the other.
If a data warehouse already exists, the data aggregation already executed canbe leveraged to speed implementation of the Visibility solution. Then theanalytical software allows more specific analyses (e.g. labor-based spend
analysis) by a broader user base, increasing the value that was being attained
from the general reporting capabilities of the data warehouse.

Data Enrichment
Some type of data enrichment is usually required to make original source
data meaningful for analysis. This element can be broken down into three subelements. These sub-elements are often delivered by the same solution, which
is an efficient way to approach the problem of data quality, but this is not always
the case. In some instances, only one sub-element may be required. The
three sub-elements are:•10

Data Normalization: Data from unique source systems, and to alesser degree within a source system, tends to have inconsistencies

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Spend Management Visibility 101

which make it hard to analyze. Examples of such inconsistencies
include different spellings / abbreviations of supplier names, different
fields, different commodity codes, etc. Normalization of data
involves removing these inconsistencies so that data can be more
effectively analyzed.
•

Data Classification: To conduct effective commodity analysis,
spend data must be precisely and accurately classified to a usefultaxonomy. Unfortunately, most source systems are unable tocapture commodity codes for all, if any, spend. This is particularly
a problem for indirect materials and services (non-catalog items
being the worst case). Solutions now exist to automatically classify
purchases based on the information collected. Using one or more
fields of captured data, these solutions assign a commodity code,classifying the item purchased.

•

Supplier Enrichment: Often, information that was never available
through the transaction is valuable for analysis. The addition of suchinformation, or adding new fields, is called "enrichment." The mostcommon form within Visibility is supplier enrichment. Various typesof information may be added. Examples of common enrichment
fields includes supplier parent, revenues, credit rating, Standard
Industry Code, diversity status, etc.

Analytics (Reporting) Software
Analytics Software allows users to analyze data and generate reports for their
specific purpose. Such software ranges from being very generic to very
specific. Software designed specifically for Visibility purposes will generally
result in far greater value being achieved through your Visibility program.
The reasons are that such software:
1. Is designed for use by business users, not IT. As a result, it isgenerally much more user friendly and is accessible to all users via
their web browser. This ensures that the software is actually used.
2. Is spend-focused. Incorporating spend-focused schema and reports
makes analysis much faster and easier, plus enables more thoroughanalysis, particularly of complex commodities (e.g. labor-based).
As mentioned in the Data Warehouse section, Analytical Software often includes
data warehouse functionality. Therefore, companies without an existing data
warehouse solution can usually meet their Visibility solution needs without
implementing a data warehouse. If one is already in place, implementing
spend-focused analytical software on top of it can increase the value from thedata warehouse investment.

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Spend Management Visibility 101

Summary Table
Depending on your Visibility needs, you may require some or all of the solution
elements in the above diagram. The following table shows the elements
required for each Visibility need:12

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Spend Management Visibility 101

Step 4: Determining the Appropriate
Solution Delivery Method
The delivery method for your Visibility solution can be as important to successas any other decision but is often downplayed in the decision-making process.
Too often, companies first evaluate and select a vendor and then decide how
the solution will be delivered during final negotiations. The better approach is tochoose the delivery method once the required solution elements have been
identified, then structure the delivery options into your evaluation along withother standard criteria. The purpose of this section is to describe the available
delivery methods and the factors that need to be considered in determining themost appropriate delivery method for your firm.

Available Delivery Methods
Visibility solution delivery can be broadly classified in one of four categories:
1. Manual: Either performed by external consultants or internally,
manual solutions are labor-heavy, utilizing generic software such as
basic spreadsheet applications to classify and analyze spend.
2. Managed Service: Companies effectively outsource the bulk of theeffort to a third party. Software is not licensed or installed, with theanalytical technology usually provided on-demand and accessed
through the web browser on a subscription basis.
3. Software (or Self Service): Companies run their own program withthe use of specialized software tools to automate the process, which
are licensed and installed behind-the-firewall.
4. Hybrid: A combination of two or more of the above. This can involvea simultaneous use of more than one type or a phased approach
where the project plan involves a transition from one type to another.

Specific Approach Overviews
The following sections discuss the four general delivery approaches and aredesigned to help you identify the one that is most appropriate for your firm.

Manual Process
Overview: The bottom line is that manual approaches are generally far inferior
to others and should only be considered in special cases. Those cases are:•

Small firms that may lack the spend volume to achieve an adequate
ROI given the cost of other solutions

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Spend Management Visibility 101•

Lack of internal budget or commitment for a different approach,though this is an internal battle probably worth fighting•

For a single project designed to obtain a snapshot of historic spend
and prove the value of investing in a more effective Spend Analysis
program, when there is no commitment to Spend Analysis

Unlike the other approaches discussed, it is fair to say that this one is clearly
not best-in-class for any firm. Nevertheless, many firms still conduct manual
spend analyses on sub-sets of their data. Aberdeen Group estimates that "[o]ver
60% of enterprises use basic spreadsheet applications for managing andanalyzing spend.1" In the manual approach, firms either use internal staff orexternal consultants to analyze spend, commonly with Microsoft Excel or similar
applications.
Advantages: There are few. The primary one is that cost is generally lower thancommitting to another approach, though so is the value obtained. Any costbenefit quickly disappears if the process is repeated, however. For small
amounts of data, this process may be faster as well, at least initially since nosoftware implementation or configuration is required.
Disadvantages: There are many. Referring back to Diagram A, the manualapproach fails to adequately address all issues, most significantly in:•

Making Data Meaningful: Classifications will be inconsistent acrossdata sets and time as different individuals classify subjective or
incomplete items differently. Lack of a supplier database will prevent
any meaningful enrichment of supplier data.

•

Repeating Process: A complete lack of scalability exists with themanual approach. If consultants are used, the firm becomes
dependent on repeated engagements that will prove very costly overtime and prevent transfer of knowledge to the organization. If doneinternally, the process takes as long as the first time regardless of
the iteration. The effort involved means that it is unlikely that theprocess will be done on a sufficiently frequent basis.

Managed Service
Overview: This is the approach Ariba has found to be appropriate for mostcompanies. In this approach, the firm effectively outsources the entire Spend
Analysis program (minus actual analysis of the enriched data) to a vendor.
Ordinarily the firm will provide its data in a pre-agreed format to the vendor at
the agreed-upon frequency. The vendor will classify/enrich the data (preferablyusing automated technology) and provide it for user analysis via a hosted
analytical technology. The firm pays a service or subscription fee and neither
installs nor owns any software.
1 Aberdeen Group, "The Spending Analysis Benchmark Report," Jan. 2003.
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Spend Management Visibility 101

Advantages: There are significant advantages to this approach. First, thisapproach allows customers to focus on their core competencies, conducting
analysis to drive strategic actions. Resources do not need to be tied up
processing data. Second, TCO may be lower since the vendor is likely to be far
more efficient than the firm could hope to be in its operations. Hardware andsoftware costs should be spread across customers and expert data
professionals may be based out of low-cost countries. Even with a margin
applied to the vendor's costs, the actual cost is likely to be lower than a self
service approach. Third, this approach is very likely to yield initial results much
faster than the self-service model since no software or hardware needs to beinstalled and the team processing the data is already expert in that process.
This benefit is likely to be larger the more complicated the data is. Based on the
motivations behind the project, these can be overwhelming advantages.
Choosing a vendor with proven knowledge and best practice processes furthers
the extent of these advantages.
Disadvantages: The company is likely to never "own" its data and therefore beless able to proactively identify issues restricting the data's usefulness. Should
the company choose to end its relationship with the vendor, the knowledge will
have to be bought (if possible) and integrated or be lost. Second, the company
must continually pay a subscription fee that will eventually be higher than themaintenance fees in the self-service model. Note that this ignores other,significant TCO elements but should still be noted. Third, since the firm does
not own any software in this model, it has the least flexibility to customize it andintegrate it with other Spend Management applications. This can placesignificant limitations on the ability to create custom analysis, particularly aroundprocesses and performance. Lastly, some firms may have security issues withtransferring data externally, particularly as it may be enriched offshore.

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Spend Management Visibility 101

Case Study - Giant Eagle
A great example of a firm for which selecting the managed service approach
was key in meeting its Spend Visibility goals.
Company Overview: Giant Eagle, Inc., ranked 28 on Forbes Magazine's
largest private corporations list and in 2002 named Progressive Grocer's
Retailer of the Year, is one of the nation's largest food retailers and food
distributors with more than $5.2 billion in annual sales. Annual indirect spend isin excess of $550M. Founded in 1931, Giant Eagle has grown to be thenumber one supermarket retailer in the region with 140 corporate and 81
independently owned and operated stores throughout western Pennsylvania,
Ohio, West Virginia and Maryland. Its growth had led to increased opportunities
to leverage spend hampered only by a lack of a centralized view of that spend.
It was impossible to determine what savings were being realized. Growing
competition (competition size and price aggressiveness) increased the need tocapitalize on opportunities to reduce costs and increase price competitiveness.
Objectives: Giant Eagle identified six primary Spend Management objectives:
1. Achieve and leverage Visibility to indirect spend across theorganization
2. Increase identified and realized savings
3. Streamline and standardize Spend Management processes andsystems for efficient sourcing and procurement
4. Proactively address Giant Eagle spend culture and organizational
acceptance
5. Adopt the Giant Eagle Spend Management program across theorganization
6. Increase use of the online sourcing tool across the organization
Approach: Giant Eagle realized that quickly gaining accurate Visibility acrosstheir entire indirect spend was essential. The knowledge gained would help
drive the planning process and be crucial to achieving buy-in across theorganization, particularly at the Business Unit level. Several factors drove its
approach selection decision:

16•

IT personnel were already dedicated to other projects so there waslittle chance of executing an effective Spend Visibility program on its
own in the near term.

•

Giant Eagle did not have many standard Spend Management
processes or programs in place and was looking for an applicationthat would help standardize procedures and eliminate the current

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Spend Management Visibility 101'customized' processes and reports that each different department
was using. Therefore, a flexible approach that allowed excessive
customization was a negative in this case.
•

The project team needed to devote its time to planning and gaining
buy-in with all key stakeholders as Visibility was achieved.

•

Giant Eagle was interested in testing any solution and quantifying
the actual benefits before committing long-term resources orsignificant dollars.

Given these unique factors, Giant Eagle decided to take the Managed Service
approach, subscribing to the Ariba Spend Visibility Solution. This was thefastest path to gaining Visibility as no software needed to be installed andAriba's experts were efficient at using their technology and conducting QA
quickly and accurately using effective, defined processes. This approach also
involved a relatively low initial cost and resource commitment, allowing the best
way to test Ariba's ability to deliver on a full scale.
Results: The Spend Visibility program was executed by Ariba (with input andcoordination with Giant Eagle's project team) in parallel with internal planning
efforts. As soon as spend enrichment was complete, the results were available
to Giant Eagle via their web browser in Ariba Analysis, an easy-to-use, spendfocused analytical interface. With initial "power user" training, the core team wasable to use the results to drive internal presentations with senior and business
unit leadership to gain buy-in for the broader Spend Management initiative. The
previous lack of knowledge about their spend became apparent and the newknowledge empowered the project team and generated broad interest in theentire program. Some of the specific problems immediately identified that
helped generate interest in the program included:•

Parent-child relationships with suppliers that were not being used toleverage spend in supplier negotiations•

Data discrepancies and data errors in accounting systems, many ofwhich were easily corrected once identified•

Numerous opportunities where different divisions were using thesame supplier but paying different prices, easily fixed for immediatesavings and ROI•

Several instances of individual departments or divisions buying
off contract•

Numerous opportunities for future sourcing projects

Copyright © 2005 Ariba, Inc. All rights reserved.

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Spend Management Visibility 101

A broader training program was all that was needed to roll out the Spend
Visibility program to the business units to start identifying savings opportunities.
The sourcing pipeline is being developed and any savings will be easily
tracked to ensure they are realized (note that this program was rolled-out
just prior to this paper being published so sourcing results could not yet beconfirmed for publication).

Self Service (with specialized software)
Overview: This is the approach that Ariba has found to be appropriate for thesmallest number of firms. The self-service approach is the opposite of the
managed service approach, involving the use of licensed, specialized Spend
Analysis software to conduct data classification/enrichment and analysis.
Ordinarily, the software provider will sell implementation services and training forend users of the analytical and data enrichment software. The provider may
hand-hold the users through the first data enrichment process but afterwards
several employees, normally from the purchasing and / or IT departments, will
run the program.
Advantages: This approach maximizes the amount of information captured
within the organization. The firm will really "own" its data and key individuals will
most rapidly grow to understand the data issues facing the firm, potentiallybeing able to improve data collection processes going forward. For some firms,
the security of not transferring data externally can also be important. The
outward cost is also usually limited to maintenance fees after initial licensing
and implementations (however significant internal costs must be considered!).
Lastly, licensing software allows firms to customize it as needed and to integrate
it into other Spend Management applications (e.g. sourcing, contract complianceor eProcurement applications). This enables the firm to most effectively track
processes and performance, providing the most extensive analysis.
Disadvantages: The disadvantages mirror the advantages of the managed
service approach and must be carefully considered. The greatest disadvantage
is that there is a significant, ongoing resource commitment involved with theself-service model, particularly around data enrichment. If leadership is notcommitted to the Spend Analysis initiative, the project may fail or not even get
off the ground, becoming stuck in the implementation phase indefinitely. A poor
relationship between Procurement and other critical parties, IT in particular, canprevent timely or complete data processing. Companies must honestly accessthe willingness of critical players (Procurement team, IT, BU Managers andpotentially others) to collaborate on the effort on an ongoing basis. Ariba
encourages companies interested in this approach to map out the specificrequirements, including their frequency and resources needed, and gain support
before selecting this approach. The resource commitment also involves a large,

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Spend Management Visibility 101

but often less apparent, Total Cost of Ownership (TCO). The key point is that,while this approach may seem significantly less expensive than a managed
service approach over time, there are many costs that must be factored inoutside the vendor proposals. See the "Pitfalls" section for details. These may
make it the most expensive option in the long run. Lastly, this approach often
takes longest to implement and achieve ROI. Software implementation(particularly if deep integration and/or customization is desired) can take months
and the company's data team will be learning the new technology andprocesses from scratch. Companies demanding a quick ROI would do betterwith a different approach.

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Spend Management Visibility 101

Case Study - PPG Industries, Inc. (PPG)
A classic example of a firm for which the self-service approach was optimal.
The results PPG achieved, particularly the coverage obtained, are remarkable.
Company Overview: PPG is the world's leading manufacturer of transportation
coatings, a global supplier of industrial and packaging coatings, and a leading
producer of architectural coatings, primarily in North America. The company also
makes sealants, adhesives, metal pretreatment products, flat glass, fabricatedglass products, continuous-strand fiber glass products, and industrial andspecialty chemicals, including photochromic ophthalmic lenses, opticalmonomers, silicas and fine chemicals. It operates nearly 120 manufacturing
facilities in 23 countries across the globe.
Objectives: With more than $5 billion in indirect spend across more than 15
business units offering products from industrial coatings to insurance, PPG
knew it had considerable leverage with suppliers if it could establish acentralized, controlled procurement discipline backed by comprehensive
information and analytics. Additional objectives included improved dataclassification, enhanced spend information available online, supplier
rationalization and maverick spend reduction.
Approach: Having internal support and resources, and a good relationship withkey stakeholders such as IT, PPG chose the self-service approach. In 2000,
PPG made an investment in data warehouse and business analytics software
but found that this only addressed part of the problem. Data was consolidated
from its five different ERP systems and its purchasing card program but data
quality was still poor and the analytical tool was difficult to use and customize,limiting adoption and repeatability. PPG formed cross-functional teams to
support the effort, even co-locating IT resources within the purchasing
department, and found the collaboration exceptional. In late 2003, PPG licensed
Ariba Analysis to provide an easy-to-use and customized, spend-focused
analytical tool, and Ariba Data Enrichment (at the time still Softface technology)
to address the poor data issue.
Results: By mid 2005, PPG had managed to place over 98 percent of indirectspend under central visibility. Key benefits have included:•

92% supplier reduction for leveraged categories•

12% overall cost reduction for leveraged categories•

New level of collaboration throughout the company

Additionally, by controlling its own data, PPG has identified an estimatedadditional three percent in savings due to bad data captured in ERP and othersystems. It is making plans to address this problem and capture those savings.
Jim Polak, Director of General Purchasing, recently stated that "data is the fuelfor everything we are doing in Spend Management and e-sourcing."
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Spend Management Visibility 101

Hybrid Approach
Overview: A hybrid approach can involve the simultaneous use of more than
one type of the previous approaches (e.g. data enrichment service and installed
analytical technology) or a phased approach where the project plan involves atransition from one type to another over time. As the advantages anddisadvantages of using more than one type of approach simultaneously can beinferred from the above sections, we will focus on the phased approach here.
The one note we would like to stress concerning the simultaneous approach isthat data classification / enrichment is a difficult and resource-intensive process.
As a result, Ariba recommends that firms desiring a simultaneous hybrid
approach utilize a service for this component of the program while licensing andinstalling the analytical software. Installing the software allows firms tocustomize it and maximize the potential types of reporting, particularly byintegrating it into other Spend Management applications. The particular phased
approach that Ariba has found very beneficial is to begin with a fully managed
service delivery, then transition over time to a complete or partial behind-thefirewall software solution, assuming an increasing role in the process. A phased
approach to all sources and geographies of spend data is also beneficial.
Advantages: Overall, a phased approach can deliver most of the advantages ofboth the managed service and self-service approaches, particularly for more
complex visibility projects. Specifically, it avoids permanent tradeoffs between
speed and coverage/depth of classification. For this reason, Ariba recommends
this approach for most customers. By starting with a managed service, thecompany gains the benefit of speed by preventing software implementations
from becoming a ROI bottleneck. The company also has the benefit of the firstpass at data enrichment (by far the most complicated and time-consuming)
being performed by experts. With the best solutions, the knowledge gained inthis initial processing is captured in the software. This means that, once thesoftware is brought behind the firewall and run by internal resources, a far
greater percent of items will be confidently classified automatically. Less internal
resources are needed upfront, or for less time, than by starting with the selfservice model.
Since this approach leads to the self-service model, data security issues are
only a concern for a brief period of time and there are no permanent subscription
charges. And the company will "own" its data, but with less initial pain. Since
software is licensed, full integration and customization will be possible.

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Spend Management Visibility 101

Disadvantages: No approach can eliminate all disadvantages, but they are
limited here. Those that remain include:

22•

High TCO: This approach requires both initial service / subscription
fees and license / maintenance fees, plus internal resources on an
ongoing basis. Depending on the firm, this may be the mostexpensive option, though the quick ROI and ongoing benefits must
be considered.

•

Security: Initially, data will need to be sent outside the firewall,though this is temporary.

•Self-service requirements: If both the data enrichment and analysis
software is eventually licensed, the resource and collaboration needsof the self-service approach apply. To prevent this, many companies
choose to license the analytical tool only; continuing with dataenrichment as a managed service.

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Spend Management Visibility 101

Case Study - Tyco
A classic example of a firm for which the phased approach has delivered
coverage without having to compromise on speed and ROI.
Company Overview: Tyco is a global conglomerate that employs 260,000
people in over 100 countries. It has many independent holding companies withno common IT infrastructure and over 200 sources of data. Total spend,
including direct and indirect, is in excess of $18B. There was only a small
centralized sourcing effort which, due to a lack of corporate Spend Visibility, wasunable to address spend in aggregate and leverage its full size in negotiations.
Objectives: With almost entirely new management looking to transform Tyco
from a holding company to an operating company, centralized SpendManagement within supply chain became a focus. The first far-reaching,corporate initiative within supply chain was the Tyco Spend Data Warehouse.
Tyco's goal is to leverage the company's incredible buying power bycoordinating efforts across the business segments to generate significant
savings in purchasing. The Tyco Strategic Sourcing initiatives with visibility fromthe Spend Data Warehouse will enable cost reduction of the materials, goods,
and services procured while improving the level of quality.
Approach: Having remarkably complex data issues but desiring maximum
coverage, minimum time to results and a behind-the-firewall solution, Tyco
opted for a phased approach using the Ariba Visibility solution. The project
kicked-off in June 2004 and was broken into three phases:
1. Phase I: Ariba Spend Visibility Managed Services to conduct firstpass Spend Visibility service and leverage the Ariba expert systems
and labor without waiting for software/hardware installation. The
Tyco data sources were broken further into four batches
representing different segments of their business. In practice, hardto-get data sources tended to slip into subsequent batches so that
laggards did not jeopardize the speed of delivery.
2. Phase II: Transition of Ariba Analysis to behind-the-firewall, where it
could be customized more extensively as desired and integrated withother Spend Management applications. Data enrichment still
delivered as a service by Ariba.
3. Phase III: Transition to a full self-service model, bringing Ariba Data
Enrichment behind-the-firewall. Prior to this point, all Tyco-specificclassification information such as GL & Material codes, direct materials
descriptions and any suppliers not originally in the Ariba database will
have been incorporated into the technology so Tyco resources need
only maintain and build on this rule-set. Tyco will continue to benefit
from improvements to Ariba's knowledge base via quarterly merges of
all new information added from other customer engagements
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Spend Management Visibility 101

Results: By Spring of 2005, Tyco should complete Phases I & II. Results
already achieved or expected to be achieved by that time include:•$24B+ of spend, including direct and indirect, captured for analysis
for decision-makers throughout the company. 200 source systemsof spend data and 20M+ lines of spend in one spend data
warehouse with many different GL coding schemes and/or Material
Coding schemes•$18B+ of that spend classified for granular commodity informationand enriched for robust supplier information.

•

300+ users in six major segments of Tyco and 20+ countries
exploring their common spend data through an easily accessible
web-based Ariba Analysis instance.

•

Classification delivered in a Tyco-specific commodity taxonomy
tuned by a centralized corporate authority and seen through 20+
standard reports built on Ariba's best practices in Spend Analysis.

•

A repeatable methodology for loading new buys on a monthly basis
and applying the built rule-set against those buys within days of loading.

Summary of Primary Delivery Approaches
The following table summarizes the key advantages and disadvantages ofthe primary approaches.

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Spend Management Visibility 101

Step 5: Gaining Internal Support
The last requirement before evaluating and selecting a solution is gaining
internal support, including budget, for your investment. By using the previous
sections to identify the full range of needs the solution will address, you should
be better prepared to justify the full value to your internal staff. The purpose ofthis section is to ensure you are aware of the various constituents whose
support may be important to success of your project and help you build abusiness case for your ROI justification.

Constituent Checklist
Everyone who will either use your Visibility solution or support its deployment is
a constituent. Maximizing input from as broad a base of constituents as
possible will maximize your chance of a successful Visibility program. By
including those that will use the solution, you will ensure that maximum value
and the greatest ROI is achieved once the solution is deployed. The following
table lists the common key constituents:

By also including those who will be involved in the implementation and ongoingsupport, you will increase the chances of a smooth and timely implementation.
The following table lists these key constituents:

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Spend Management Visibility 101

Building your Internal Business Case
Unlike many other Spend Management initiatives (i.e. Sourcing), the ROI
argument on an investment in Visibility can be more difficult to prove as most of
the benefit is indirect. Gaining good Visibility into your spend does not
automatically provide savings - it enables you to act and realize savings. The
logic of meaningful information being necessary to make effective decisions isoften not enough to secure the necessary budget. The following two sections
are intended to help you build an effective business case to gain internal support.

Sources of Data
One of the challenges of building a business case is the general lack of quality
data to prove the value. This is primarily caused by the relative infancy of
Visibility within companies. The early pioneers embarked on Spend Visibility
initiatives in 2000-2002, but most companies still have not implemented any
formal program. And the full value of Visibility is returned over many years (andrarely tracked), unlike Sourcing where the savings are normally calculated assoon as the event is complete as part of the standard process. There are, however,
several sources of data that can be leveraged to build your business case.
Analyst Studies: A growing number of industry analysts are tracking Visibility,
some of which have already conducted extensive surveys of Visibility results.
Those that have published excellent research on quantifiable benefits include:
•

•

26

Aberdeen Group: The Aberdeen Group has spent over three years
examining the spend data management strategies, processes andsystems of nearly 200 enterprises and conducting extensive
interviews with dozens of leading enterprises. Quantified benefits
are extensively detailed in two research papers:-

The Spending Analysis Benchmark Report, Dissecting a
Corporate Epidemic. January 2003.

-

Best Practices in Spending Analysis, Cure for a Corporate
Epidemic. September 2004.

Yankee Group: Through in-depth interviews of 16 leading
enterprises, Yankee Group quantified numerous Visibility benefits
achieved in their report, "Spend Visibility Drives Sourcing &Procurement Efficiency."

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Spend Management Visibility 101

Numerous other Analysts and firms have published reports qualifying the rangeof benefits from Visibility. See APPENDIX A for a list of documents andsummary of content in each.
Visibility Solution Providers: Solution providers are obviously eager to help
you build your business case to invest in their solution. Their existingcustomers can often provide valuable information as to the value obtained.
While confidentiality and other reasons often prevent vendors from publishing
any aggregated reports on value, case studies of more mature customers
should be available from any vendor with a respectable solution. Three Ariba
customer case studies are included in Section 5 of this document. Furthermore,reference calls are an excellent source of data on the specific value you aretrying to quantify. Finding companies of similar complexity or industry that have
proven value will greatly help your internal business case and should beleveraged as much as possible. Lean on solution providers to provide you withaccess to the type of customer information you require.

Sample ROI Model
Ultimately, it is most likely that your research will need to culminate in aconvincing ROI justification for your investment. If you have a company
standard, you can simply enter the benefit estimates based on Analyst reports
and peer results (applying percentages to your own spend levels), along withthe estimated costs. For those companies that do not have a standard ROI
model, we have included one used by several Ariba customers to assist you.
The model may be requested in a more useful Excel format by contacting Ariba.
The three basic steps involved are:
1. Estimate Project Costs
2. Estimate Project Benefits
3. Calculate ROI
1. Estimate Project Costs
The critical elements to consider are all types of costs and the estimated valueof each. This will result in an accurate total cost of ownership (TCO) estimate.
To be more precise, you should estimate initial and future year costs, thendiscount them to the present for your ROI calculations. The following table canbe used to record all possible costs in the TCO. Note that not all costs will
apply, depending on the type of solution and delivery you choose. The costcells include notes on calculating the inputs.

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Spend Management Visibility 101

The following table can then be constructed to calculate the NPV of the
project costs. Sample values for a managed service solution have beenentered for demonstration purposes. Cost of capital is assumed to be 10%
for discounting purposes.

TCO NPV = $2,616,000
2. Estimate Project Benefits
The critical elements to consider are the types of benefits, the amount of spend
each will impact and the percent of that spend that will be saved. Rememberthat many of the benefits are "soft" or not quantifiable. Trying to quantify
benefits such as empowerment of procurement within the organization is usuallya meaningless exercise and should not be included in the ROI argument, but
noted as an important additional benefit. The great value of an effective
visibility program will certainly result in a powerful ROI value even without
quantifying the "soft" benefits.

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Spend Management Visibility 101

The following table summarizes the types of quantifiable benefits and theaverage savings from each based on Analyst studies. It also shows the overall
average percent savings achieved if you prefer to use one value. It should be
noted that many companies in these studies were new to Visibility and usedinferior solutions to those currently available. Therefore, the values below, whilelarge enough to show a great ROI, are conservative.

Note that, to be as accurate as possible, you should select a value in eachrange based on your assessment of how you stand versus the averagecompany and how much spend procurement controls.
The next step in calculating benefits is to consider the adoption of your programby year and multiply all the values to estimate savings per year. Rememberthat great data available to everyone has no value unless it is used. The
numbers immediately below represent reasonable estimates of adoption rates.
Finally, sum the forecasted benefits and discount your annual savings by yourcost of capital to determine the net present value of the benefits. The final tablebelow shows an example of this.

Company Spend = $1B
Cost of Capital = 10%

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Spend Management Visibility 101

Total Benefit NPV = $56.1M (plus year 4+ savings which were not calculated forsimplicity)
3. Calculate ROI
The final step is to use the previous calculations to calculate the ROI and anyother measures used such as IRR, break even timeframe, etc. The mostcommon measure used, the ROI is simply calculated as:
ROI = (NPV of Total Benefit) / (NPV of Total Cost of Ownership)
In the example above, ROI = ($56.1M) / ($2.6M) = $2157.7%
And remember that the benefit number is artificially small since we did not
calculate the perpetual value past year 3 in this example.
Note that, since benefits increase over time but costs decrease, the ROI is
greatest in future years and smallest (though still very large).
Even if actual savings fell significantly short, the ROI would be tremendous, acommon trait of effective Visibility programs.

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Spend Management Visibility 101

Step 6: Evaluating Solutions
Once you have determined your business needs, the associated Visibility
needs, the solution elements required for your solution and the appropriatedelivery method, you are ready to document your evaluation criteria, for either
an RFP or interviews.
In order to ensure that your firm makes an informed vendor selection decision, it
is critical to gather a comprehensive list of solution capabilities, focused on thecomplete set of needs (not just the immediately apparent ones). Many firms will
simply consider those capabilities directly tied to their current pain points.
Evaluating solutions based on limited criteria may result in the final selection
addressing these pain points, but quickly proving itself inadequate to address
the next level of obscurity. This next level may simply not be visible yet. Referto sections 3 & 4 for more information on how to ensure all needs are identified.
Example: Company X's Spend Visibility initiative is being driven by a desire to
improve sourcing results, which is currently being hindered by an inability tounderstand its supplier base. X is unable to accurately identify who it ispurchasing from. It is unable to leverage its full spend in negotiations.
Focusing on addressing this problem, it focuses its evaluation on a vendor's
supplier cleansing & enrichment capabilities, de-emphasizing commodity
classification capabilities. The solution selected provides the most cost efficient
way to normalize, de-duplicate and enrich supplier information and provides
excellent results. Unfortunately, new pains preventing effective sourcing quickly
become apparent. Users accessing the excellent supplier information naturally
now want to understand exactly what was purchased. Unfortunately, thesolution selected is not effective at this next level of Spend Visibility. To address
this next level, X must now either replace its solution (costing time and money),or add another niche solution on top of their supplier-focused solution. The
overall solution may be less effective or more costly than having selected acomplete solution from a single vendor in the first place. Perhaps not, but the
point is that having evaluated the full set of relevant capabilities from the onset
would have avoided this risk.

Sample RFP
The following sections provide comprehensive sets of questions to fully
understand competing solution capabilities in each area. They are organized bysolution element so that you may easily see which are relevant to yourevaluation needs. These can be used to ensure a thorough RFP or to guide

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Spend Management Visibility 101

vendor interviews. Regardless of whether the information is gathered through aformal RFP process or vendor interviews, using an exhaustive set of evaluation
criteria is critical to making the most informed decision. Ensure that all
applicable sections are included in your evaluation process.
While the following sections are fairly comprehensive, if you have certain, specificneeds not fully addressed, be sure to augment the questions listed. Similarly,
certain questions (e.g. direct materials classification) in a section may not apply
to your situation and should be deleted. Additionally, the questions below do notaddress generic vendor information (e.g. financials, customer base, etc.) thatshould be included in any formal evaluation, regardless of the type of solution.

General - Delivery Optionsa) Which of the following delivery options are available with your solution:i) Managed Service:ii) Self-Service (Technology and knowledge installed):iii) Other Options (Please describe):b) Does your solution provide the option to transition from one delivery
option to another in the future? If so:i) Describe any limitations.
ii) Is knowledge (e.g. data classification rules, etc.) retained during
the transition?

Data Extraction, Transformation & Loadinga) Which of the following types of data extraction solutions do yourprovide? Please provide details for those provided.
1) ETL Software:2) ETL Services (consultants):
3) Other:b) Is the flow of data from your other solutions into the Visibility solution
seamless? Describe the integration.
c) What is the underlying database for your data warehouse?
d) What validation is performed on incoming data without use ofcustomized ETL tools?
e) What is the average amount of time necessary from source system IT
personnel to facilitate extraction of the relevant data?

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Spend Management Visibility 101

Data Enrichment - Service Levels(Only applicable if service delivery)a) Service Level Terms (Only apply for service delivery):a. What % of spend do you guarantee classified?
b. What % accuracy is associated with the above term?
c. Do you guarantee a minimum % of spend classified per source
system? If so, what %?
d. Are errors identified corrected retroactively or only to future data?
e. Please describe any other service level terms you offer.
b) Briefly describe your data enrichment service process, including all phases.
c) Describe the integration of all elements in your data enrichmentservice process.
d) Provide a project timeline, indicating all key milestones and dependencies(both external and internal). What risk factors may affect scope?
e) Describe the process for error-correction (e.g. correcting classifications).

Data Enrichment - Data Normalization / Classificationa) Does your solution offer automated data classification?
b) Which of the following types of data does your automated solution
consider for classification purposes?
a. Supplier Information:b. Customer-specific codes (i.e. General Ledger, Material Codes, etc.):c. Item Descriptions:d. Other (Please Specify):c) If your solution uses multiple types of data in making classifications, arethe different types of data used in parallel (all available informationconsidered before providing a final classification) or in series(classifications based on one type of data with other types only
considered when no match found)?
d) What commodity taxonomies can your solution map data to? Can
custom customer structures be used?
e) How does your solution ensure consistency of classification of similar
items across data systems and over time?
f) Can you effectively classify direct materials spend? If so, how?
g) Do you utilize a supplier database for classification purposes? If so:
1) How many unique suppliers are in it?
2) What is the geographic distribution of suppliers?

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Spend Management Visibility 101

3) Is the database integrated into your product?
4) If a customer's supplier is not in your database, is it researched andadded for future classification use?
h) How are item descriptions used in classification?
i) Describe the feedback process for customer-requested changes
to classifications.
j) Describe how quality assurance (QA) testing on classifications isconducted with your solution.

Data Enrichment - Supplier Enrichmenta) Does your solution offer supplier enrichment capabilities?
b) How many suppliers do you maintain in your database?
c) What is the geographic distribution of the suppliers in your database?
d) What sources feed your supplier database?
e) Indicate if the following types of enrichment are provided for suppliers
1) Parent / Child relationships:
2) Credit ratings:
3) Diversity status:
a. Women ownership:b. Veteran-owned:c. Disabled veterans ownership:d. Other minority ownership:e. 8A:f.

SDB:

g. Hub-zone:h. Known terrorist organizations:4) SIC codes:
5) Revenues:6) Other types of enrichment (Please list):

Analytics Software - Dashboard
Does your solution offer:

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1)

A dashboard view? If so, answer remaining questions.

2)

Permission-based (based on user ID and access controls)customization of the dashboard to include any relevant components,
such as snapshot views of multiple Spend Management applications/modules?

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Spend Management Visibility 101

3)"Multi-tab" dashboards to organize information by relevant dashboard(i.e. Procurement dashboard, Sourcing dashboard, AP dashboard, etc.)?

4)

Single sign-on to all applications from a dashboard?

5)

Summaries of all the user's tasks, action items, and milestones with apersonal calendar?

6)

Links directly from the dashboard to all relevant Spend Management
applications/modules?

7)

User-defined, real-time alerts and notifications based on triggers andevents within the different Spend Management applications/modules?

8)

Portlet views of other applications and systems (through general
URL linking)?

Analytics Software - General Analytics
1.

What languages is the analytical interface available in? May users
specify the language viewed?

2.

Do you utilize OLAP reporting, enabling quick drill-down/up andmanipulation of data?

3.

Describe the key ease-of-use features in your product4.

Describe your graphical capabilities for reports

5.

Does your solution support out-of-the box analysis of objects (multiple
Spend Management oriented cubes) including POs, requisitions,invoices, contracts, sourcing projects, supplier performance metrics orscorecards, expense reports, cycle time measures, and/or user activity?

6.

What formats can you export reports in? (Excel, .pdf, Flat File, Word, etc?)

7.

Do you offer Excel integration? If so:a. What information is exported?
1. Pivot tables:
2. Raw data:
3. Charts:
4.

Other:

b. Is data exported in pre-formatted templates?
c. Is integration bi-directional (can format changes in Excel be saved
as templates back in the application)?
d. Describe any other integration details.
8.

Can users join multiple fact tables (e.g. PO and Invoice data) in a single view?

9.

Does your solution offer the following functionality?
a. Pivot table user interface:

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Spend Management Visibility 101

b. 80/20 filters:c. Flexible grouping of spend across multiple dimensions (to make iteasy for users to locate what they need using rapid response
analysis):d. Flexible drill-downs, expansion, and navigation:e. Simple charting capabilities and a process to create custom analysis
with wizards to enable visual presentation of results:
f. Multi-measure charting for trends, forecasting and performance
visibility:
g. Extensive graphics engine for several chart types including line, pie,or bar charts (for trend type analysis):h. Parameter-based reports (to make analysis readily accessible to
new and infrequent users):
10. Do you offer the following general types of reports/reporting features?
a. Trend and forecast analysis:b. Variance analysis (delta between any sums):c. Line-level reporting:d. Alerting: Visual alerting on key metrics and user defined thresholds:
e. Compound Reports to combine related information from multiple
analyses into a single report view:
11.

Can users create custom, user-defined fields?

12. Does your solution support 2-way integration to all for spend analysis
from within processes (e.g. during requisition approval, contextual
linkage to related spend analyses and integration from analysis totransactional details in source systems)?
13. Can your solution support automatic feeds from all spend sources(SAP, data warehouse, etc.?
14. Describe your solutions administrative tools
15. May custom reports be saved with the choice of being either:a. Personal (only accessible to user):b. Shared (accessible to all users):
16. Does your solution allow user to queue reports and print them at auser-defined time?
17. Does your solution allow user to run large reports in the background
while conducting other analysis?

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Spend Management Visibility 101

Analytics Software - Spend Analysis, General
1.

Does your solution offer out-of-the-box spend analysis reports? If so:
a. How many?
b. List the reports along with purpose of each.

2.

Is your solution designed specifically for spend analysis or for generalreporting purposes?

3.

Does your solution have commodity-specific schema & reports (e.g.
labor category schema, etc.)? If so:
a. For which spend categories?
b. Describe the types of commodity-specific analysis supported.

4.

Does your solution allow corrections to spend data enrichment to besubmitted via the analytical interface?

5.

Does your solution allow the following types of specific spend analyses?
a. Approved vs. unapproved suppliers:b. Unapproved Invoices:c. Vendor discounts coming due for payment:
d. Suppliers per category or item:e. Spend by category by business unit with ability to drill downorganization (e.g. to department or buyer level):f. Supplier parentage / subsidiaries:
g. Duplicate vendors:h. Supplier counts:i.

Purchase price variance for an item:i.

Over timeii. Across organizationiii. Across suppliers
iv. Cost of each type of purchase price variance6.

Detail the following forecasting capabilities:
1. Forecasted spend and volume based on historical values:
2. Seamless view of historical and forecasted spend:
3. The storage of forecasts in a variety of horizons (6 week and 12 month):
4. The ability to identify forecast exceptions and adjust forecast.
Please explain.

7.

Do you have the ability to manually allocate historical supplier spend tomultiple categories. Please explain.

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Spend Management Visibility 101

8.

Does your solution offer the ability to create user-defined demand
forecasting analyses?

9.

Does your solution offer the ability to forecast demand based on priorusage history and trends?

Analytics Software Spend Analysis, Sourcing Analysis
1.

Does your solution enable supplier fragmentation analysis? Is this an
out-of-the-box report?

2.

Can you analyze supplier risk from an enterprise perspective? If so,please describe.

3.

Do you have the ability to identify risk areas in contracts? If so, please
describe.

4.

Describe how a user selects KPIs.

5.

Describe how the KPIs are categorized.

6.

Does your solution offer the ability to develop exception reports basedon pre-defined KPI thresholds/criteria?

7.

Do you have the ability to rank categories to source by:a. "contract due dates" and "by spend"b. "internal complexity", "new market opportunity", etc.
c. "last time sourced"d. "ranked criteria"

8.

Do you have the ability to rank suppliers by category, defined productgroups and geographies?

9.

Does your Solution interface w/ Price Repository for storing quoted prices?

10. Does your solution offer the ability to enter information and extract
reports on:a. Actual savings by commodity manager percentage and cost?
b. Estimated and actual spend and implemented savings by business
unit and location?
c. Traditional volume forecast, actuals & YTD and on unimplemented
savings by BU and location?
d. Planned vs. actual spend, savings and on line bidding volume?
e. Projects by BU/location (all open projects)
f. Projects status by commodity manager?
g. Summary report by BU of plan vs. actual linked to outstanding
actions and issues?

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Spend Management Visibility 101

Analytics Software - Process Analysis
1.

Can you provide task level reporting by hour by resource?

2.

Does your solution offer the ability to produce operational reports inreal time?

3.

Is there reporting for A/P metrics i.e., turn around time, days payables
outstanding, days paid late, etc.? Please describe.

4.

Can you provide reports to measure procurement effectiveness?

5.

Does your system have the ability to connect to completed projects - archive?

6.

Does your solution offer the ability to summarize purchase orders byaccount distribution, delivery date, vendor number, buyer etc.?

Analytics Software - Performance Analysis
1.

Can you provide reports to measure procurement effectiveness?
Please describe.

2.

Describe other scorecards in the system (e.g., buyer scorecards etc.).

3.

Describe the degree to which your performance metrics module iscustomizable.

4.

Does your solution support vendor management reports (system
captured quality and service level information)?

5.

Does your solution export scorecard metrics for consolidation or
analysis in other applications?

6.

Do you provide both qualitative and quantitative supplier performance
analysis? Please describe.

Managed Services - Spend Visibility
1.

How much experience does your services organization have deliveringa Spend Visibility solution?
a. Number of clientsb. Amount of spend enriched in aggregate
c. Number of Source-systems aggregatedd. Geographical spread of incoming data

2.

What is the nature of your services organization?
a. Consulting resources on-site at the clientb. Dedicated project management resources
c. Shared enrichment experts
d. Other?

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Spend Management Visibility 101

3.

How often is data loaded and enriched?

4.

Explain the broad process for Spend Visibility, including timeline ofactivities and persons involved from the client and Ariba teams:
a. First pass on datab. Periodic loading of new datac. Periodic deep enrichment of new datad. Other defined processes necessary to support Spend Visibility initiatives.

Additional Services - Spend Visibility

40

1.

What is the uptime commitment for any hosted applications?

2.

Describe the security profile for data on hosted applications?

3.

What is the coverage for product and technical support of users
accessing Spend Visibility output?

4.

What optional services are offered to Spend Visibility clients?

Copyright © 2005 Ariba, Inc. All rights reserved.

Spend Management Visibility 101

Step 7: Implementing Your Solution
The effort and tasks involved in any Visibility solution implementation depend
mostly on the choice of delivery selected. The two distinct options being
software (a.k.a. self-service) and service approaches. All other approaches aresome combination of these. While all implementations are unique to someextent and depend greatly on the specific solution selected, we attempt toprovide generic advice based on Ariba's extensive experience across thevarious delivery models. Your selected solution provider will certainly havemore detailed project plan information but this section should at least help you
understand the key work elements and stakeholders that will be involved andprovide some general advice.

Software Implementations
Software implementations can be broken into the following basic phases:•

Pre Kick-Off•

Kick-Off•

Requirements Scoping•

Development / Testing & Installation / Testing•

User Acceptance Testing•

Software Roll-Out

Pre Kick-Off
Before the project kick-off begins there are several preliminary steps that shouldtake place:•

Meet with the project team including a representative from thetechnical side of the organization and document the hardware
requirements for implementation of the applications. Discuss thefollowing topics:-

Hardware sizing-

Estimate number of users within the first year and the potential
for new users increasing over the next several years-

Estimate the budget for purchasing the hardware and balance
this with the overall requirements of user response. Example, abare bones hardware solution will run the application, but
probably not within the average response time expected.

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Spend Management Visibility 101-

Estimate how much hard drive space will be required for:+ Applications+ Back-Up (decide how much data the organization wants toback up and maintain)+ Buffer space for optimizing indexes and general admin
database tasks+ Most applications don't function properly when the hard drive
space gets too low, keep this in account when sizing the
maximum hard drive space-

How many application environments does the customer wantto create? The options are DEV, and TEST, and PROD. However,
not all customer implement (3) three environments.

-

Are the applications integrated with each other? Is there additional
processes or tasks that need to run for the integration that may
take up additional space or require specific processing speeds.

-

What type of environment does the user need to have?

Kick-Off
Once the hardware requirements are completed and the purchase order isapproved, the team can begin to prepare for the kick-off meeting.
The kick-off meeting can include the following topics although this list is not
limited to only these topics:•

Introduction to the team members•

Introduction to the project and the goals.

•

Usually having the customer champion available for a few words will
provide the internal support most team members need at the
beginning of a project42•

Introduction to the applications that were purchased. Many times theindividuals on site to implement these projects are the not individuals
that sat through the sales cycle or gave the final approval.

•

Walking the team through the implementation plans•

Understanding roles and responsibilities•

Most often the team members have their own daily work loads they will
also maintain while on a project. It is good to understand this up front
and identify potential risk that may occur on the project down the road.

•

Document the holiday schedule and review the project timelines.

•

If there are several work streams: i.e. one for each application, thenpossibly breaking out into various work groups is another suggestion.

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Spend Management Visibility 101

Requirements Scoping
After the kick off, the requirements phase of the project is next. The teammembers work together to understand the following:•

What type of data is to be collected for the application to be implemented?

•

Are their any customizations required?

•

Are their any application configurations that are required?

•

How will the data be pulled from the systems? Will the data need to
be formatted into one standard across all the sources before it's
loaded into the application?

•

What are the reporting requirements for the users? This question isoften forgotten. However, understanding how the users will accessthe data, filter, and sort on the data will provide insight into how thedata model will be designed.

•

How will the system look when the users log in?

Development / Testing & Installation / Testing
After the requirements phase, the next two phases usually take place at thesame time: Development / Testing based on the Requirements and Installation /Testing of the Application Environment.
Often the same resource that can develop the database can also perform theinstallation of the applications.
Development / Testing - During this stage of the project, the developer typically
finalizes the technical requirements, reviews the information with the Core Team,then work remotely. Once the development of the data base is complete (often
referred to as the data model), sample customer data will be loaded into the
database for further testing.
It is recommended the customer should schedule a conference call once every(2) two weeks during the development stage.
Installation / Testing - Although installation of applications can appear to be
fairly simple, there are a few items to sort out before the installation begins.
1. How will the contractor gain access to complete the installation?
Most organizations have elevated their internal security protocols that limited
remote access into servers. As a result the contractor will need to be onsite
during the entire installation stage.
This often brings up additional issues about the contractor accessing the actual
server. In order to install most applications, the contractor requires 'admin' or'root level' access to the server. Recently, organizations have limitations about
contractors having this type of access to any server.

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Spend Management Visibility 101

2. How do Organizations get around this?
Some customers will split the installation between internal resources and thecontractor. This would require the internal resources to perform the databaseinstallation; however, this could lead to inconsistencies between the permission
set up in the database compared to the permissions required by the application.
Other customers have worked within the security limitations by requiring aninternal resource to shadow the contractor during the installation process.
3. How does this affect the customer?
Risk - the customer will lose a resource during the installation phase
Benefit - the customer will gain tremendous knowledge transfer about the
installation of the applications.
4. How does this affect the Contractor?
Risk - the contractor on site will need to be very skilled. This will not be an
opportunity for a contractor to 'train' an employee while on the job.
Benefit - the knowledge transfer sessions will occur through out the installation
which will reduce the amount of back-end training required.
It will be a common goal to have the completion of the development and theinstallation of the applications at the same time.
Customer data will be used to test the database within the application in thecustomer environment to ensure everything is working correctly.
If multiple applications were installed, then additional time should be included toperform any integration installations, setting additional permissions, and testingdata as it passes from one application to another.

User Acceptance Testing
Immediately following this stage is U.A.T. or User Acceptance Testing. This iswhere the customer gathers members from the Core Team and other persons in
the organization to be involved in the U.A.T.
1. Who to invite?

44•

Core Team Members•

Key Stakeholders or those persons that have some connection to thesuccess of this project / application•

Power Users or those persons that will use the application. Theseusers could also be the people that others come to for help before
calling the help desk.

•

Persons who represent other business units that may be located inother areas of the United States

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Spend Management Visibility 101•

If the application is to be rolled out to other business units fromoutside the country, you may consider including them into one UAT or
implementing a phase UAT approach for other countries.

2. What are Test Scripts?
Test scripts can also be called scenarios that help the users during the UAT
phase. These scripts can be written so the user doesn't realize what is really
being tested.
Example, from the user perspective, the user could be creating a report,
however, the scripts could be written in such a manner that the report is reallytesting various tables in the database (data model), testing the data integrity
between multiple tables, and when the report runs, the test will confirm the tables
are joined together correctly.
Test scripts are very specific instructions that document each step the user needto take within the application. Often to the level of detail as to which button
should be clicked next, the expected results when that button was clicked, etc.
Each step would be numbered an allow space for the user to indicated if eachstep passed or failed.
3. Do the users of UAT get Training?
Yes, the users receive some training either on the day the pilot phase begins or
the day before; however, the training is usually not the full application training
and is used to help the user become more familiar with the environment or to
obtain certain skills they will need in order to complete the test scripts.
In some situations, section 1 of the test plan could be scripts that help train theusers to learn skills that are required in other sections of the test plan.
4. When are the Scripts written?
The best time to begin writing scripts is during the development phase. However, thescripts can be completed until you can test them directly in the customer environment.
Once the scripts are completed a core team member should run through thescripts while taking note of the length of time it too to complete.
5. How long does UAT usually take?
Scripts should be written so they do not take up a lot of time. On average all the
scripts should be completed in less than five to six hours.
6. What is the best way to schedule UAT?
Most customers schedule several small UAT sessions that take place in the
training room where everyone completes a specific number of scenarios / scripts.

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Spend Management Visibility 101

Example Schedule:
Monday Morning - UAT 9 am to 11 am (1/2 of scripts)
Monday Afternoon - Assess results of scripts and make any edits that cancompleted before the next morning
Tuesday Morning - UAT 9 am to 11 am (1/2 of scripts)
Tuesday Afternoon - Assess results of scripts and make any edits
Wednesday Morning - UAT 9 am - 11 am (Complete any outstanding scripts andrevisit scripts based on edits made the developers as a result previous UAT.)

Software Roll-Out
After the User Acceptance Phase and final sign off, the final steps are formal
communication to all new users, installation of desktop applications that may berequired, completion of users, roles, and permissions, and prepare for the Go Live!

Service Implementations
Service Implementations typically include an initial processing phase followed byrefreshes at some pre-defined frequency. While most of the effort is handled by
the service provider, customer involvement, particularly during the initialprocessing phase, is still required for a successful project and should not be
underestimated. Note that we assume the service provider is software enabled
for automation and to provide access to end users to analyze spend. Pure
services such as those provided by many consultancies may differ in effort basedon the project definition. Such approaches are also very manual so refreshes do
not differ significantly from initial processing.

Initial Processing
The amount of time and resources, both internal and external from the service
provider, required for the initial phase are significantly greater than during therefreshes. The availability of resources to support the process is critical to theongoing success of the project. The Initial Processing phase can typically be
broken into the following basic stages:•

Data Acquisition•

Data Classification / Enrichment•

Refinement•

Spend Analysis

Data Acquisition
The initial data acquisition phase can be time intensive, particularly if thecustomer has many source systems of data. Unless the service provider has

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Spend Management Visibility 101

been selected to also conduct extraction of data, the bulk of the effort in thisphase lies with the customer. The primary purpose of this phase is to extractsource files, transform them as necessary into the service provider's required
format and load them into the necessary environment for processing.
Preparation of future automation of this process via script writing or ETL
configuration takes place simultaneously in most cases. The following tablesummarizes the specific activities that normally take place involving the customer
during this phase, the key stakeholders and estimated time.

Data Classification / Enrichment
The bulk of the effort involved in this phase lies with the service provider.
Minimal, if any, customer effort will be required to answer questions that may
arise concerning internal coding systems such as general ledger codes. The end
result of this phase is a draft version of classified and enriched spend data, readyfor refinement and final QA.

Refinement
Customer effort in this phase is primarily focused on providing input necessary torefine classification rules. Not all service providers will have a refinement phase,
but it is encouraged. Normally, customers will be granted access to draft results
either in the analytical software or to samples in Excel files. Commodity experts
can review and provide feedback for adjustments before final results are madeavailable to all end users. The following table summarizes the specific activities
that normally take place involving the customer during this phase, the key
stakeholders and estimated time.

Spend Analysis
The bulk of effort in this phase transitions back to the customer, first in providing
input to specific reports that the service provider should create, and then in
actually analyzing the classified & enriched spend data to begin driving savings

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Spend Management Visibility 101

to the bottom line. Participation in user training on the analytical software is alsoessential to drive adoption so the new information is used. The following tablesummarizes the specific activities that normally take place involving the customer
during this phase, the key stakeholders and estimated time.

Refreshes
The amount of time and resources, both internal and external from the service
provider, required for refreshes of data are minimal in a service delivery. The
refreshes share the same phases as the initial stage, minus refinement.
Refinement once in refreshes usually occurs continuously as users review spend
during analysis rather than as a separate phase. Therefore, the phases involved
in most refreshes include:•

Data Acquisition•

Data Classification / Enrichment•

Spend Analysis

Data Acquisition
During refreshes, data acquisition requires minimal customer effort due to theautomation from scripts or ETL that are in place at this point. These scripts must
simply be run for data transfer to occur, with ad-hoc maintenance as needed.
Files load without error in most cases as validation issues have been worked
through during initial loading.

Data Classification / Enrichment
The bulk of the effort involved in this phase continues to lie with the service
provider. Minimal, if any, customer effort will be required to answer questions
that may arise concerning internal coding systems such as general ledger codes.

Spend Analysis
The bulk of effort in this phase rests with the customer, involving analysis of theclassified & enriched spend data to continue driving savings to the bottom line.

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Spend Management Visibility 101

Summary of Service Requirements
The following table summarizes typical customer requirements by stage andphase of service delivery:

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Spend Management Visibility 101

Pitfalls
The previous sections have hopefully provided sufficient insight into planning
your Visibility program. No matter what approach is taken, there are a number ofrealities in Visibility that should be addressed. Behind most of these realities isthe point that there is no "silver bullet" with regard to Visibility. While newtechnologies have greatly enhanced the ability of firms to gain Visibility into theirspend, the process still looks for a good amount of domain expertise and local
knowledge.
Logical, software-based solutions that are effectively deployed will return
tremendous value, but none will deliver 100 percent Visibility or require no effort
on your part. The nature of the challenges, with dirty or missing data andmaverick spending, prevents firms from achieving perfection under even the best
circumstances. There are, however, common pitfalls that can be avoided tomaximize the return on your investment no matter the approach you select. The
following are those that Ariba has found to be the most common or pose thegreatest threat to a firm's success.

Waiting to Improve Data(the Chicken and the Egg)
Companies interested in Visibility are usually aware of data problems, either
concerning data levels of data quality.
By data level, I am referring to limited capture of information.
Example of Poor Data Levels: Company X's systems only capture invoiceheader information.
Example of Good Data Levels: Company Y's systems captures invoice details,
purchase order detail including part #'s and item descriptions, and procurement
and sourcing process details.
Data quality refers to the reliability and consistency of data captured, regardlessof the level. Good quality data is entered consistently and accurately (usuallyhighly automated) whereas poor quality data has errors, inconsistent spellings
and abbreviations and various other issues that make it difficult to analyze.
The pitfall we often see is when companies convince themselves that their datais too poor to gain value from Visibility so they insist on correcting the data
problems before implementing a Visibility solution, or using an inexpensive, basic
solution "until their data is good enough to benefit from the better solution." Themost common example is when a company decides to hold off on a Visibility

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Spend Management Visibility 101

solution until after rolling out eProcurement because they do not yet capture
Purchase Order details. This approach inevitably leads to a prolonged, painfulprocess and significant loss of savings.
The logic involved is "garbage in, garbage out," which implies that poor data
leads to poor Visibility. While this is true of the relationship between data andVisibility, it is just part of the picture. It ignores the reality that the relationship is
actually a loop, as illustrated by the below diagram.

Data problems will not be fully identified and therefore corrected until a Visibility
solution is in place. Even with poor data levels and quality, a good Visibility
solution will provide a significant ROI, and it helps address the data problems,
improving future Visibility. A poor solution will do neither.

Not Properly Defining Service Levels
When a service approach is taken, it is critical that companies discuss anddocument service levels. Companies should be wary of any vendor that
proposes to provide 100 percent Spend Visibility, or even 95 percent if they
haven't seen your data. At the same time, clarifying the minimum service levels
guaranteed will help set common expectations among all stakeholders. It is very
simple for a vendor with no guaranteed service level agreement (SLA) to findsome "unexpected" complexity in your data that explains the poor data quality
returned or the unexpectedly long project time. Setting a clear definition andminimum service level in the below areas will ensure that the vendor
understands the deliverables and overcomes any complexities to meet them.
On the flip side, companies should understand that vendors may request
significant information prior to proposing a price or project schedule so they can
set realistic expectations. If such information is not provided, a vendor cannot be

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Spend Management Visibility 101

expected to guarantee a high service level or specific timeline. The following are
the critical SLA terms that should be addressed:•

Coverage: Percent of spend classified to the determined accuracy level•

Percent Total Spend: While there is the temptation to ask for 90-plus
percent coverage by spend, Ariba has found the optimal starting
number to be 80 percent where the cost of enrichment is justified by
the value gained. A rule of thumb is that the cost of delivering to 80
percent is doubled to go to 90 percent and quadrupled to go to 95
percent. Doubling the cost only to gain Visibility on 10 percent moreof spend makes an ROI justification more difficult.

•

Percent by Source System: Only guaranteeing a percentage of total
spend will leave certain source systems with low coverage,
particularly in firms with large numbers of source systems.
Guaranteeing a minimum coverage per source system in addition to a
total percent coverage will ensure that no organizational unit finds
itself with meaningless spend data. Note that this number will need tobe significantly lower than the percentage of total spend. Ariba has
found 50 percent to be a realistic and valuable target.

•

Accuracy: Ensure an accuracy level is connected to the coverageterms. If only qualitative (e.g. "High" confidence or accuracy), ensure
it corresponds to a quantitative value (e.g. 90% accuracy). Keep inmind that measurement of accuracy can be subjective and must be
tested using statistical samples.

•

Project Duration: Ensure milestones, along with any dependencies,
are documented. Extraction of data is a key dependency for theremainder of the project and probably more under your control thanyour vendor's.

•

Reclassifications: Ensure the right to correct data is clearly defined. In
particular, rights to retroactive versus future reclassifications shouldbe agreed upon.

•

Refresh cycle: Frequency and timing of refreshes should be tuned tothe cycle of the company and where it will be used. For feeding thesourcing "pipeline" with savings opportunities, new data isn't needed
more often than twice a year, but to measure compliance, a more
frequent monthly or quarterly refresh is required to recognize
problems quickly.

Even in a self-service (software) approach, companies should consider SLAs. In
those cases, the SLAs should cover implementation, training and support.

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Spend Management Visibility 101

Ignoring the 80 / 20 RuleAs mentioned in the coverage section of the SLA, the top 80 percent has provento be the best starting point for Spend Visibility. Many firms want to make themost informed decisions and therefore capture all spend in their analysis. The
problem is that this approach forces a significant tradeoff in the speed of
implementation (and hence ROI) for marginal incremental value. Therefore,
Ariba encourages companies to seriously consider if the extra time and cost
involved in starting off with full coverage is worth the incremental value. Be
particularly wary of vendors that propose 90-plus percent coverage immediately
without considering your firm's goals. Ariba recommends to most customers thatthey start with approximately 80 percent of spend so that they can start
identifying opportunities. With a software approach to processing, 100 percent of
the data is processed anyway but only 80 percent is certified as accurate. The
other "un-certified" spend will still have some, less-trustworthy results that can betargeted in subsequent mini-projects that should be individually justified.

Underestimating Internal Effort
Companies must be prepared to commit resources to ensure a successful
Visibility project, regardless of the approach selected. Even with fully managed
services, a company should as a minimum plan on devoting end-user time toattending analytical training, commodity manager time in refining classifications,and IT time writing the necessary, repeatable data queries from each source
system. Working with vendors during the evaluation process to fully understandthe internal effort that will be required is essential. Doing so will help maintain acollaborative relationship once work begins and will help internal planning andadoption. Again, no solution provides a "silver bullet", so both the internal project
team and the vendor team will need to be willing to get their hands dirty while
they clean and prepare the data.

Short-Sightedness
Many companies evaluate and select solutions based simply on their immediateneeds or pains.
Example: A company with no central Spend Visibility may be driven to find asolution by its inability to identify their suppliers by category or to leverage theirfull spend by supplier. It designs its evaluation criteria around each solution's
ability to classify spend by supplier, therefore selecting an inexpensive
information-based solution. Unfortunately, once it achieves this level of Visibility,
new needs immediately surface, such as having detailed spend classifications bycommodity to monitor compliance and tracking sourcing processes. The
company now has to go through the entire process again to select either a niche
solution that can be layered on top of its supplier-based one, or a complete

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Spend Management Visibility 101

solution to replace the previously selected one. The net effect is an
unnecessary, time-consuming process and probable difficulty gaining budgetary
approval given the first project's limited value.
Spend Visibility is nearly always approached one step at a time. Not all source
systems get into the first phase so they are put in the second. Once all spend isvisible, CPOs turn to the processes involved in spending money and want to seereporting on any inefficiencies. Then, they want Visibility into everyone's
performance (buyers and suppliers). Next, your company acquires anothercompany and more source systems are added. Finally, new applications for
Spend Management come online and need to be reported on.
All of these possibilities should drive your requirements for an Analytical systemthat is both highly (and easily) configurable and easy to use in the context ofSpend Management.

Failing to Accurately Compare
Total Cost of OwnershipWithout a clear understanding of the different customer requirements for eachtype of Visibility approach, it is tempting to simply compare prices for acceptablevendor solutions. This can result in drastically underestimating the total cost ofownership (TCO), which should be the key cost factor in your decision-making
process. This would also impart error in any ROI calculations. It is most criticalwhen comparing different types of solutions (e.g. installed software versus amanaged service, where the managed service pricing is likely to be much higher
but minimizes other, internal costs). The following important elements of TCO
should be considered:54•

Hardware and network requirements for installed software•

Additional software required (database, web-server, ETL)•

Consultant fees
Software implementation
Integration
Data extraction•

Differing personnel time requirements for different solutions
Training
Data extraction, transformation and loading
Any data cleansing and enrichment work done in-house
Commodity expert review of data classifications•

Integration costs from multiple vendor solutions
Initial integration effort
Periodic effort when source systems of portions of the solution
itself are upgraded
Copyright © 2005 Ariba, Inc. All rights reserved.

Spend Management Visibility 101

APPENDIX A: Further Reading
The following table summarizes many existing documents that provide further
information on Visibility.

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Spend Management Visibility 101

APPENDIX B: Glossary of Terms
The following is a list of common terminology within the Visibility space. Some of
the terms may be used differently by different vendors but we have tried toinclude the most common definitions.
Accuracy - Percent of processed results that are correctly classified. An
essential component of any SLA that should be tied to a level of coverage.
Coverage - Percent of spend processed. Can be defined at an aggregate level
or by source system or file. An essential component of any SLA that should betied to accuracy levels.
Data Cleansing - Fairly generic term that means making data useful for analysis.
Most often used to refer to normalization of data (making supplier spellings andcommodity fields consistent), but may also include data classification.
Data Classification - Assignment of commodity codes/names to spend data to
indicate what was purchased. Common commodity code structures include
UNSPSC, eClass and the Ariba Sourcing Taxonomy.
Data Enrichment - Refers to the combination of data classification andsupplier enrichment.
Data Normalization - The process of making data field content consistent. Most
typical example is applying a common supplier spelling to all different variationsin the data (e.g. overriding "I.B.M" and "Int'l Bus. Machines" with "IBM"throughout the data set).
ETL - Software that Extracts data from source systems, Transforms it into a
different format and Loads the transformed data file into a different destination.
Performance Visibility - As it pertains to purchasing, the ability to analyze
supplier and buyer performance. Supplier performance includes qualitative andquantitative (i.e. delivery times) measures. Buyer performance involves
purchasing via authorized systems in accordance with contracts and firm policies.
Process Visibility - As it pertains to purchasing, the ability to analyze sourcing
and procurement processes to determine processing times and identify
bottlenecks.

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Copyright © 2005 Ariba, Inc. All rights reserved.

Spend Management Visibility 101

Refresh - Subsequent processing of data from same source systems but for a
new time period. With automated solutions, involves far less effort than initialprocessing of data.
Service Level Agreement (SLA) - Agreement between a vendor and customer.
Typically defines such components as project timeline and milestones, system
uptime as well as level of coverage and accuracy in processed data.
Spend Visibility - The ability to view historic spend across multiple dimensions,
including supplier, commodity and geography and with sufficient detail andaccuracy to drive effective decision-making
Supplier Enrichment - Adding supplier information (new fields) that did not exist
in original data. Common types of enrichment fields include parent company,
revenues, SIC codes and credit ratings.
Total Cost of Ownership (TCO) - An effective measure of how much aparticular solution or approach will actually cost. Useful for comparing options.
Accounts for all cost components, not just license or service fees. For a Spend
Visibility project, typically include such elements as hardware costs, training time,and integration costs/effort.
Visibility - Process, Performance & Spend Visibility.

Copyright © 2005 Ariba, Inc. All rights reserved.

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