Terri Clementson - Using Analytics To Cut Through Complexity

Using analytics to cut through complexity
Name: Date:
Terri Clementson +61 (0) 419 754 794 Thursday 18 October 2012
Leading global excellence in procurement and supply
How can analytics help me manage complexity?

Wood for the trees Inspire / re-engage Anticipate change On top of moving parts Agile where to put effort / time
Scan
Focus
Act
But what if analytics itself seems complex or over the rainbow?

2
Seminar stream 5c Analytics to cut through complexity

What is data analytics really all about? Where is procurement in the BIG data race? What does analytics look like when applied to analytics how does that help anyway? (Where is my org. on analytics compared to others?) Whats at the bleeding edge of analytics?
How can I act on this practically right now? How do I grow this capability in my function?
3
Data analytics is lots of things to different folks
Using advanced math techniques to help predict
A mix of business intelligence, visualization, and math
Focused on statistics, predictions and optimization
BI is more backward looking, analytics is forward looking
Using data to manage information and performance, and make smarter decisions Deloitte Analytics
Page 4
Procurement analytics is mainstreaming talent?
Tools
More user friendly tools simplify complex techniques
Tools allow greater emphasis on understanding the output
Data
Proliferation of data provides access to analyze unstructured relationships. Data sales are soaring.
Higher quality data / easier cleaned
Hardware
Faster processing power runs complex math in seconds Storage cost per megabyte has become 100x cheaper since 2000
Copyright 2012 Deloitte Development LLC. All rights reserved.
The basics out on the table
Existing data
Action 1
Data overlays
Granular insights
Action 2
Action 5
Action 3 Action 4
Analysis
New value
2012 Deloitte Touche Tohmatsu
It isn't about tools but they are an ingredient
Seminar stream 5c Analytics to cut through complexity

What is data analytics really all about? Where is procurement in the BIG data race? What does analytics look like when applied to analytics how does that help anyway? (Where is my org. on analytics compared to others?) Whats at the bleeding edge of analytics?
How can I act on this practically right now? How do I grow this capability in my function?
8
Enterprises are at all different levels of analytics maturity
Stage 5 Analytical Competitors
Stage 4
Analytical Companies Stage 3 Analytical Aspirations Stage 2 Localized Analytics
Stage 1
Analytically Impaired
Tom Davenport Competing on Analytics 9
P&SC Analytics is alive and well...in other functions

Marketing Sales
Price Optimisation Profitability Analysis Territory Optimisation Call Sequencing Wallet Share Analysis CRM leverage Profiling & Segmentation (customer, end-user, supplier) Product / Service performance Analysis Forecasting demand Acquisition & Retention Modelling Behavioural Modelling Campaign Analysis Targeted Marketing Customer / product lifetime Value
Stage 5
Analytical Competitors Stage 4 Analytical Companies
Operations
Network optimisation Product analysis Risk rating & root cause FTE allocation to audit Asset maintenance & renewal Contracts management Throughput smoothing Satisfaction monitoring Site analysis
Stage 3 Analytical Aspirations
HR
Fraud Workforce modelling Labour costs benchmarking Safety analytics
10
Stage 2
Localized Analytics Stage 1 Analytically Impaired
Suppliers are leveraging analytics faster than buyers
What value are you leaving on the table?

Source: http://www.patagonia.com/us/footprint/?src=043012_mi1
11
Foresight predicting and anticipating change
Data- lead Strategy
Randomised testing FARSIGHT Predictive modelling Forecasting / extrapolation
What happens if we try this? Where could we get the best impact? What will happen, where? What if these trends continue?
FORSIGHT
Overlaying Internal & External Data Sets
Alerts / risk markers Statistical analysis Query / drill down
INSIGHT CLEARSIGHT
What trends are actually warnings? Where are we best to apply what focus / effort? What actions are best taken where? How significant are the patterns?
NEARSIGHT Single Data Sources
Ad hoc requests for info Standard reports
HINDSIGHT
How many, how often, at what price, when? Who is doing what, where? What is happening - how much & where / with whom?
hindsight
13
Increasing compliance - spend under control
Review period from March 09 to February 10 inclusive Number of vendors Vendors actively used Number of invoices 12 months Total Spend 42,474 (30,807 Active) 9,010 253,491 $8,163M 2,715 or 30% were created in the period
Spend excl. Govt & Intercompany

Categorisable Spend Purchase Orders Non PO Valid PO Confirmation Orders Value $ 300M
$5,707M
$2,662M Volume 11% 43% 46% 19,737 11% 41% 48%
$1,144M
$1,216M
74,459
87,934 <50% spend under valid PO
Implications: A high number of vendors combined with over half of the spend not under a valid PO provides opportunity for spend aggregation, spend control and spend under management
DRAFT FOR DISCUSSION
14
Risk rating products, suppliers, sites, buying groups
15
10/19/2012
Competing on Analytics
Stimulating engagement visualising & simplifying
16
Grappling with dynamics of time replenishment behaviour & out of stock management
Active date
Lead time 2 days PO Invoice Recd Lead time
Season code inactive date except M/M+
PO
Invoice Recd
PO
Stock out
Stock out
Stock out
27 Nov 2009
31 Jul 2010
Assumptions : Purchase order (PO) to be received = Lead days + 1 Season code active = Between active date and latest PO date for all season code except M (managed) and M+ Additional order = Current day on order - previous day on order, doesnt match with shop keep final quantity. More explanation
17
Understanding behaviour order demand patterns and disciplines

The Confirmation Order timing analysis - raised after an invoice received
Number of Confirmation Orders
18,000 16,000
45 40
Number of Confirmation Orders
Confirmation Order Timing (Top Categories)
Confirmation Order Timing (BU)

45 40 35 30 25 20 15 10 5 0
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 -
14,000
12,000 10,000 8,000 6,000 4,000 2,000 -
35
30 25 20 15 10 5 0
Days
Categories
Number of Invoices Average number of days between invoice and PO
Days Business Units
DRAFT FOR DISCUSSION
Number of Invoices
Average number of days between invoice and PO 2010 Deloitte Touche Tohmatsu
18
Reducing holding cost, dissipation & waste Stock holdings quantities vs. production quantities (month and location)
Process Improvement opportunity: Raw material purchases exceed production driving up stock holding. Is this related to supplier contracts?
Operational efficiency gap: Can best practice stock holding levels be identified?
At location X, raw materials purchasing exceeds finished goods production in all months except June and November. This is contributing to the build up of stock at this site and the consequent increased stock holding costs. Other sites manage a lower level of stock holding which will have associated cost savings.
- 19 2012 Deloitte Touche Tohmatsu
Listening to many sizing sentiment to focus action
Helping which humans margins, recoveries & WIP

Partner 9
Partner 7
Partner 8 Partner 6 Partner 3
Partner 10
Partner 11
Partner 5
Partner 4 Partner 2 Partner 12
Partner 13 Partner 1
-21-
Scanning for fraud Public holiday expense claims by long term contractors
-22-
insight
23
Overlaying external data can align your strategy more accurately to the contract, supplier or operational (buyers) context
Currency & commodity models Contracts team audit and training schedules Contract Conditions Set Cultural risk & fraud index Sector & country economic models Global Wellbeing index Employee profiles Human factors inputs
Audit Results
Vendor risk index (inputs)
Span of control team profile Contracts History
Team Performance data
Email traffic
Weather data
Travel route durations
Social media
Contact ABN and address details
Order vibrancy
Production data Program tracking Census projections
Sentiment traffic
Complaints / warranties enacted / returns
(Supply) Contracts Management
Purchase orders Chep pallet movement index
Looking holistically all the variables in a tumbler

Show me... a contracts cluster : Serviced by multiple vendor names same account details Last contract review slow findings action Same day /Split orders High velocity (high volume/low value) Multiple PO initiators Initiators with past employment link & high signoff autonomy
- 25 -
Adding data sets to your ERP There are hundreds of 3rd party data providers
26
Profiling groups, customising action, resourcing accurately
Current and Optimal portfolio configuration for customer X
PREMIUM CRAFT
PREMIUM IMPORTED
TRADITIONAL/REGULAR
LIGHT
MID-STRENGTH 0% 20% 40% 60% 80%
Recommended Portfolio
Current Portfolio
27
Cluster 13:
35 POAs
62.5%
Remote indigenous youth

3,066 20% HNW 0.4% 0.4% $44 $41
11%
1.4%
30.5 years
0.8 Hospitals 2,224 per GP
Growth Morbidity Medical Fees Medicine

Accessibility
4.6% 1% $320 $267

82%
Adaptability Clinical style

Leadership
4% 16%
19%
90% 92%
77%
Cluster 8:
154 POAs
8.2%
Regional wealth
4,288 27% HNW 0.4% 0.4% $44 $41
11%
6.2%
0.6 Hospitals 1,433 per GP 4.6% 1% $320 $267
82%
35.0 years
Relationship
25%
62%
Growth Morbidity Medical Fees Medicine

Accessibility
Adaptability Clinical style

Leadership
4% 16%
19%
90% 92%
77%
Relationship
25%
62%
foresight
29
Forecasting demand, product costs, currency, capital certainty

What-If Scenarios Project Concentrations of Future Events
Disclaimer: Notional Data - For demonstration purposes only.
Visualising knock-on effects stress testing decisions

Facility Consolidation, Distribution Network Design, Transportation Mode Selection Models, and Inventory Management all include a spatial component.
Optimising networks understanding complex flows
Detail: Allocation in Greater Los Angeles

Detail: Allocation in DC, Philadelphia, & NYC

32
Making choices of unequal risk, value, cost

Retailers can determine site location risk according to proximity to other key sites and socio-demographic data, weather patterns, traffic patterns, security, proximity to producers
Whats at the edge...

Leveraging open source data Scraping social media for early insight Indices aggregating variables for league tables Cross cultural risk loading Archetypes for targeted risk management /resourcing
Seamless data capture through smart tools & mobile comms. Real time self assessment / performance gaming
34
Im always interested in me...what can I know? And how might I change my choices / impact on me?
A house that knows when youre happy and sad

Aug 30, 2010 to
Conferring responsibility for informed self-management...risk monitoring
Four immediate value injections

1. Pennies under the sofa cushions
2. Is all OK? - check risk 3. Cut through complexity and hunt value 4. Can you visualise it? - re-engaging for action
36
Analytics saved over $1M with just two days of analysis
Context
Sourcing and procurement project for an Agricultural and Consumer Products Manufacturer
Client lacked visibility into total cost of ownership including maintenance costs
Simulated maintenance costs across range of scenarios

Analytics Used
Performed multivariate regression analysis of residual values
Result
Tangible savings: $1M+ demand mgt., $700-900K sourcing, 827% increase in residual benefits
Understanding of maintenance impact on asset efficiency

37
The team developed the capabilities identify material disruptions and risk in the supply chain
Complexity of multi-tier networks and greater reliance on the supply base pressures companies to better understand their supply chains Companies lack visibility into understanding potential supply chain disruptions and risk areas
Situation
Analytics Used
Trending, risk algorithms, historical performance & relationship analysis

Supply chain visualization utilizing to identify focus areas
Minimize disruptions and create a more resilient supply chain
Result
Faster response time to get supply chain back to normal operating conditions
38
Advanced analytics unraveled complexity in our clients supply chain and drove $100M in inventory reductions
Client was missing customer deliveries due to ballooning product lead times and rampant material shortages
Situation
Current efforts focused to solve issue only through capital investments in inventory and machinery
Descriptive statistics, correlations, and regressions
Analytics Used
Advanced simulation techniques
Interactive visualizations and unique data formats

35% reduction in average lead times
Result
20% reduction in overall inventory 12% reduction in unutilized capacity
39
Visualizing trade flows movements & implications (CHEP Index)
Source: http://atlas.media.mit.edu/
Where when who ~ looking geospatially

Proof-of-Concepts/Demos Address Validation and Geocoding
Routing and Drive Time Analysis
Data and Report Creation
41
There is no barrier leverage help and build capability
Data quality Skills
Security and data access
Granular Insight
Speed / cost
Data mountain
Start now quick wins generate capital to reinvest & grow
Flush your data with some rules = $
Connect the Dots

-datasets and patterns
3
Target action & track impact
4
Stimulate stakeholders and repeat!
And develop a procurement analytics capability roadmap

43
Deloitte Analytics
Unparalleled Capability in P&SC analytics
PARTNERING ON CAPABILITY Analytics current state assessment
P&SC STRATEGY
RISK & REGULATORY
TECHNOLOGY & DATA
TALENT
COLLABORATIVE CULTURE
Competitive widescreen
Trusted auditor
Gold IT vendor alliances - unbiased Technicians to extract, clean, connect data External data libraries overlays)
Global reach
Iterative modeling
Practical roadmaps
Compliance, controls experts
Deep quants / fast experts
Inspiring staff
Capability Dev
Roadmap
Scorecard & dashboard links
Forensic & fraud data trail
Advanced Analytics & Modeling
Staged to your budget
Links to a 5,000 practitioner community
Deloitte Access Economics
Visualization tool suite
Trainers
44
More than 200,000 people In 140 offices globally 5,000 analytics deep specialists 120 locally The largest professional services firm in the world. ...and different.
3,000 people aligned with data analytics globally >70 people in Aus
45

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Using analytics to cut through complexity

How can analytics help me manage complexity?

But what if analytics itself seems complex or over the rainbow?

Seminar stream 5c Analytics to cut through complexity

Data analytics is lots of things to different folks

Using advanced math techniques to help predict

A mix of business intelligence, visualization, and math

Focused on statistics, predictions and optimization

BI is more backward looking, analytics is forward looking

Procurement analytics is mainstreaming talent?

More user friendly tools simplify complex techniques

Tools allow greater emphasis on understanding the output

Copyright 2012 Deloitte Development LLC. All rights reserved.

The basics out on the table

2012 Deloitte Touche Tohmatsu

It isn't about tools but they are an ingredient

Copyright 2012 Deloitte Development LLC. All rights reserved.

Seminar stream 5c Analytics to cut through complexity

Enterprises are at all different levels of analytics maturity

Stage 5 Analytical Competitors

P&SC Analytics is alive and well...in other functions

Stage 3 Analytical Aspirations

Suppliers are leveraging analytics faster than buyers

What value are you leaving on the table?

Copyright 2012 Deloitte Development LLC. All rights reserved.

Foresight predicting and anticipating change

Data- lead Strategy

Randomised testing FARSIGHT Predictive modelling Forecasting / extrapolation

Overlaying Internal & External Data Sets

Alerts / risk markers Statistical analysis Query / drill down

NEARSIGHT Single Data Sources

Ad hoc requests for info Standard reports

2010 Deloitte Touche Tohmatsu

Increasing compliance - spend under control

Spend excl. Govt & Intercompany

2010 Deloitte Touche Tohmatsu

Risk rating products, suppliers, sites, buying groups

2010 Deloitte Touche Tohmatsu

Stimulating engagement visualising & simplifying

2010 Deloitte Touche Tohmatsu

Understanding behaviour order demand patterns and disciplines

Number of Confirmation Orders

Number of Confirmation Orders

Confirmation Order Timing (Top Categories)

Confirmation Order Timing (BU)

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 -

Days Business Units

DRAFT FOR DISCUSSION

Listening to many sizing sentiment to focus action

Helping which humans margins, recoveries & WIP

Partner 8 Partner 6 Partner 3

2012 Deloitte Touche Tohmatsu

2012 Deloitte Touche Tohmatsu

2010 Deloitte Touche Tohmatsu

Vendor risk index (inputs)

Span of control team profile Contracts History

Team Performance data

Travel route durations

Contact ABN and address details

Production data Program tracking Census projections

Complaints / warranties enacted / returns

(Supply) Contracts Management

Purchase orders Chep pallet movement index