With any organization, the ability to focus on mitigating risks from the value chain and to provide sound financial governance over the disbursements of capital and other resources produce bottom-line results. Executives undergo business planning rounds to create the appropriate level of cash flow to manage their enterprises, and this need has only increased in the post-crisis economy.

Direct costs and the risk mitigation associated with managing these costs often falls to various organizations associated with contracting value chain members. These direct costs are spread across the value chain in exchange for goods, services, intellectual property, assets, and materials during product realization and service delivery. As a part of company spend, you also need to rationalize direct costs within financial tolerances and budgeting processes to reduce financial risk exposure.

In organizations both large and small, the procurement function is often the watchdog of company spend — particularly for direct costs incurred in the value chain. However, more than 25% of all organizations do not have a program to manage enterprise spend, and nearly half of those that have such programs don’t have clear visibility to all categories of enterprise spend. These situations can create confusion in the supply chain, where the organization can appear to have multiple decision makers and points of view. In addition, confusion may exist internally and different parts of the organization can have different and even competing objectives in the face of finite working capital and assets.

Organizations often reduce the number of vendors by some arbitrary factor (often 10% to 20%) to “reduce the complexity” of their supply chain. A December 2005 survey of purchasing managers conducted by the Institute of Supply Management illustrated this trend before any initiative to intelligently rationalize the supply chain was made. However, with the advent of next-generation spend analytic tools, these efforts can be more strategic and targeted, resulting in supply base adjustments that may even include adding suppliers in weak performing or “soft” areas of the value chain (Figure 1).

Figure 1

Planned changes in supply chain size before and after rationalization efforts

SAP provides SAP BusinessObjects Spend Performance Management to address these opportunities. I’ll introduce you to this product so you can also benefit from full-visibility procurement across your organization.

Targeting Supply Chain Effectiveness Using SAP BusinessObjects Spend Performance Management

SAP BusinessObjects Spend Performance Management provides a quick and flexible analytical environment to assess savings potential and supply chain rationalization processes. It features several functional processes and knowledge databases:

• Business Compendium: A knowledgebase replete with thousands of business citings and entries maintained by SAP and provided by Lexis Nexus and other company database providers. The Business Compendium subscription is included with SAP BusinessObjects Spend Performance Management and is used to check and validate multiple corporate filing instances that occur in organization purchasing records.
• Transaction Knowledgebase: A database of 30 years’ worth of transaction data to sort and structure purchasing categories and map these categories to organization purchasing records (e.g., categories and subcategories of materials or supplies)
• Spend Performance Report: A pre-packaged diagnostic that enables the purchasing professional to make an initial or periodic determination of where spend management best practices may be employed or where unmanaged “maverick spend” may be occurring in the organization
• Integration to eSourcing: To execute and address purchasing largess and price point disparity across particular parts or direct or indirect spend categories, purchasing professionals can create new or manage ongoing events (such as a request for quote [RFQ]) in the classic SAP eSourcing environment

SAP BusinessObjects Spend Performance Management is based on a flex-designed dashboard environment, with an initial role-based cockpit as shown in Figure 2. (Flex is a presentation environment used with Adobe Flash and other browser plug-ins.) You can configure the view and graphics based on your own preferences. From the main dashboard, you can select a given project to launch an eSourcing event in your SAP system. I’ll show you how to create an event based on a spend analysis finding later in this discussion.

Figure 2

SAP BusinessObjects Spend Performance Management role-based dashboard

As a matter of preference, if you want to drill into the graphical analysis and depict the diagram differently, you can do so by enacting several dynamic options using the flex-based architecture of the solution (Figure 3). In this scenario, the purchasing professional may want to look more closely at the highest spend categories. This is done simply by selecting the area from the dashboard graph or image — in this case, for Top Spend by Category. 

Figure 3

The flex-based interactive dashboard of SAP Business Objects Spend Performance Management enables quick graphical depictions and drill downs

A deeper inspection of manufacturing components suggests some interesting characteristics about the hex bolts purchasing history used in this example. While more than $500,000 of the category is hex bolts, multiple supplier sources and a range of price points alert the user that this may be an opportunity to examine and manage spend. (Additionally, you can construct alerts so the system passively seeks out spend management opportunities and notifies the user by objects in the dashboard of spend thresholds or triggers — ranges used to construct an alert in the system.) Figure 4 shows the drill down into the hex bolt information, illustrating the multiple supplier sources and price point ranges.

Figure 4

A drill down on a particular spend category and part object reveals an opportunity to manage spend

In addition, SAP BusinessObjects Spend Performance Management provides a number of aspects of purchasing called dimensions that you can add or remove from the drill-down analysis simply by dragging and dropping them into the table area. Figure 5 illustrates some of the more than 35 dimensions that SAP has pre-configured with the solution that are available to the user.

Figure 5

Quickly add or remove dimensions from the drill-down analysis with drag and drop

A helpful tool in SAP BusinessObjects Spend Performance Management is the Spend Advisor, which can provide an initial or periodic assessment of particular spend patterns. You can set the Spend Advisor so it is based on alerts or discrete queries used in SAP BusinessObjects Spend Performance Management. In Figure 6 the result of the Spend Advisor query set has shown the purchase of corrugated boxes in a particular operation of the company as a suspected “maverick spend” item.

Figure 6

The Spend Advisor queries results in several candidates of suspected “maverick spend”

The user can consider a number of actions based on this information. First, the user could make a notation of this item and mark it for follow-up as part of supplier management activities with the purchasing teams. More actively, the user could elect to set tolerances or triggers against the item to provide notification of when purchasing volumes or pricing deviations approach or exceed a particular level. Third, the user could elect to move the part item to a competitive RFQ scenario using the SAP eSourcing environment. To do this, the user simply selects the part item and selects either a new or existing sourcing document in SAP eSourcing (Figure 7). By doing so, the user invokes a new or existing RFQ event document in SAP eSourcing. 

Figure 7

Invoking SAP eSourcing for a particular item

In addition to direct integration to SAP eSourcing, SAP BusinessObjects Spend Performance Management also interacts with SAP BusinessObjects solutions, Xcelsius, Crystal Reports, and SAP BusinessObjects Explorer dashboarding, reporting, and analytic tools.

William Newman

William Newman, MBA, CMC is managing principal of Newport Consulting Group, LLC, an SAP partner focused on EPM and GRC solutions. He has over 25 years of experience in the development and management of strategy, process, and technology solutions spanning Fortune 1000, public-sector, midsized and not-for-profit organizations. He is a Certified Management Consultant (CMC) since 1995, qualified trainer by the American Society of Quality (ASQ) since 2000, and a trained Social Fingerprint consultant in social accountability since 2012. William is a recognized ASUG BusinessObjects influencer and a member of SAP’s Influencer Relations program. He holds a BS degree in aerospace engineering from the Henry Samueli School of Engineering and Applied Science at UCLA and an MBA in management and international business from the Conrad L. Hilton School of Management at Loyola Marymount University. He is a member of the adjunct faculty at both Northwood University and the University of Oregon with a focus on management studies and sustainability, respectively.

If you have comments about this article or BI Expert, or would like to submit an article idea, please contact the editor.

You may contact the author at wnewman@newportconsgroup.com.

If you have comments about this article or publication, or would like to submit an article idea, please contact the editor.