Campus discussions about spend analytics might sound like a late night infomercial:
Implement the technology and save millions! The programs slice and dice data, calculate spending, break down costs, eliminate fees and lead to better agreements! But wait, there’s more! Spend analytics also allows schools to use benchmarking tools to compare pricing to peer institutions!
But unlike with miracle weight-loss drugs, the results of spend analytics are not too good to be true. In fact, Bill Cooper, chief procurement officer and associate vice president in the University of California Office of the President, calls the technology “transformational.”
Data error: Three incorrect assumptions about spend analytics
The spend analytics industry is growing at a rapid pace. Although little data exists on institutional use of the technology, a 2016 Deloitte survey found that chief procurement officers were most likely to invest in spend analysis over other tools, including e-sourcing, supplier relationship management and contract management.
Popularity aside, there are three common misconceptions about using it.
(Continued.)
In 2012, the UC system launched the P200 challenge, committing to saving $200 million annually within five years. The system’s 10 institutions hit the goal in 2016—one year early—when they saved $269 million.
Here’s a snapshot of how that technology helped one UC institution: Back in 2008, when Gayle Ta started working at UC San Diego, she ran spend reports manually, downloading information from two separate systems into an Excel spreadsheet.
It wasn’t until the campus started using spend analytics technology in 2013 that Ta, assistant director of business analytics, realized how woefully inadequate the low-tech method had been. “We didn’t have the best information about what we were buying and who we were buying it from,” Ta says.
What spend analytics made immediately clear was how much the campus was spending on small construction projects such as renovations, room additions and structural improvements—costs the manual reports failed to capture.
The info led to hiring a buyer on staff to negotiate these projects, and results were evident immediately. The campus saved $330,000 on a single agreement within six months of the buyer joining the university. Campuswide, staff buyers continue negotiating an average of 10 to 15 percent savings on projects.
“Our buyers can go into the system and access data to compare new quotes to past pricing and pricing at other UC campuses, and leverage that information in negotiations,” Ta says.
Despite the impressive results with spend analytics, there are more insomniacs buying fitness equipment at 3 a.m. than universities investing in the technology, which is available from e-procurement providers and groups such as MetaProcure, ESM Solutions, Rosslyn Data Technologies, Jaggaer (formerly SciQust) and E&I Cooperative Services.
Cooper attributes the slow adoption to a traditional higher ed tendency to spend more on academics than back-office systems. “Tradition is great for football but horrible for business,” he says. “Universities need to be using commercial technologies to optimize procurement.”
Implementing spend analytics, therefore, involves both selling officials on the need for it and vowing to put the technology to good use.
Data error (cont.)
1. Spend analytics equals automatic savings.
Having the technology is not enough to benefit from it. “You have to be proactive and use the data,” says Derek Smith, managing director of Huron Consulting Group. To realize a return on investment, schools may have to hire new staff or external consultants to capture and analyze the data and to develop strategic sourcing strategies.
Understanding the need
“Before spend analytics, the only tool we had to determine our spend was the data submitted by our vendors—and that’s the case for most schools,” says Cooper at the UC system.
At a meeting with the Board of Regents after Cooper was hired in 2012, he was asked about total spend across the system. He stumbled before quoting $2 billion to $3 billion—a number he saw on the website.
After the systemwide installation of spend analytics technology, Cooper learned the UC system actually had a total spend of a far greater amount: $7.9 billion.
“The data we had was only on traditional categories—the buying of widgets,” he says. “We had an additional $5 billion in spend from nontraditional services like insurance, human resources and construction services.
“We needed spend analytics to keep us from getting caught up in transaction management and shift us to spend management,” Cooper says.
Data error (cont.)
2. The technology is cost-prohibitive.
The cost of implementing spend analytics technology varies widely from $50,000 to $200,000-plus and can include one-time implementation and annual subscription fees, according to Gary D. Link, senior vice president of consulting at E&I Cooperative Services. “The ROI will far exceed the cost,” he says. A return on investment in the 10-to-1 or 15-to-1 range is not uncommon.
Thanks to a state divestment, the UC budget was being cut by $500 million per year for three years; the system needed tools to adjust to the cuts and Cooper presented spend analytics to the board as the solution—and got the green light to proceed.
Florida State University has also made a commitment to spend analytics. Chief Procurement Officer Ian Robbins spearheaded a move to have all 12 State University System of Florida schools adopt spend analytics technology in 2015.
His rationale? The campuses could more effectively leverage their buying power as a system.
Robbins noted to the board of governors that implementing software capable of running reports from all 12 schools through a collective dashboard would allow for a more clear understanding of total spend and help identify practices to reduce costs and fees.
“You cannot do effective strategic sourcing without spend analytics,” Robbins says.
Together, the Florida and California university systems account for 22 of an estimated 100 colleges and universities using spend analytics technology nationwide, says Gary D. Link, senior vice president of consulting at E&I Cooperative Services.
“A lot of institutions don’t understand the benefits that come from analyzing that spend,” he adds.
And, of the small fraction of schools with the technology, an even smaller number are using it well—similar to ordering an exercise device or cooking appliance from an infomercial and stashing it in a drawer.
As was the case for the university systems in California and Florida, it’s often the procurement officer’s job to make sure those benefits are known to other campus decision-makers.
Data error (cont.)
3. Implementation is immediate.
Spend analytics doesn’t start working the moment it’s installed. It can take weeks—or longer—to enter and “cleanse” the data before schools can start analyzing their spend.
Digging deep
Derek Smith, managing director of Huron Consulting Group, believes schools need to use the tools to do deep dives into their data.
“It’s not just about [having] the data, it’s about what you do with it,” says Smith, whose focus areas within higher ed include procurement. “Spend analytics is about using the data for compliance, proactive category management and strategic sourcing initiatives.”
To help make sense of the data—and put it to good use—UC San Diego administrators rely on a team of procurement department analysts to generate reports about the amount spent with each vendor and the amount spent in specific categories, as well as details about whether purchases were made using a P-card, purchase order or credit card.
The analysts can also use the data to access diversity information, including the amount spent with minority-or veteran-owned businesses.
Robbins admits that the Florida State system is still 12 to 24 months away from fully leveraging the tool, largely because implementation requires hiring talent to access and analyze the data (the school has hired two category managers and is currently recruiting a senior procurement systems analyst).
Where to turn for spend analysis technology
In the meantime, the data is used to provide quarterly reports for the board of governors and to fulfill open records requests.
“There is no ROI in tangible dollars just yet, but it is a huge time-saver,” he says. “The goal is to move procurement from tactical to strategic. We know we can’t be an organization with a huge amount of money flowing through it and not use spend analytics as a tool to keep our eyes on the data.”
Jodi Helmer is a North Carolina-based writer.
