Spend Analytics Understanding Your Company’s Spend

1. Spend AnalyticsUnderstanding Your Company’s Spend Presented by David Arleth and Thomas Housley May 8th, 2008

2. Uses of Spend Analytics • Comparison Benchmarking • Compare annual expenditures • Benchmark intra-company spend • Compliance Reporting • Identify rogue purchasing • Aggregate spend • Savings Analysis • Prioritize sourcing events • Set realistic targets • Budget Decision-making • Begin best-in-class discussion • Strategize cuts in expenditure Categorization • Categorize unknown suppliers • Gain insight into spend

3. Sample Spend Analysis / Opportunity Identification Timeline 6 - 8 week plan from time of data receipt Data Cleaning and Categorization Finalize Spend Categorization Savings Estimates Opportunity Identification Data Validation • Receive fiscal year A/P data • Validate data structure and fields • Cleanse and categorize data • Map categories to schema (UNSPSC, etc.) • Validate and refine the initial categorization output • Present initial categorization and review and refine for relevancy • Re-categorize select suppliers and commodity classifications based on modifications provided by category owners • Develop electronic format that allows for dynamic review and manipulation of the categorization • Present refined categorization to core team • Review data with Sourcing and commodity specialists • Develop sourcing hypotheses for priority categories • Interview key stakeholders, as appropriate • Develop estimated savings opportunity based on market knowledge, category expertise, and database benchmarks • Finalize commodity sourcing strategies & economic opportunities • Present initial recommendations for sourcing plan Actual time may vary depending on corporate spend size and complexity

4. Apply Savings Estimates Spend x Addressability x Savings Identified Savings

5. Realized Savings Timing 12 18 Month 1 6 Wave 1 Address: $23MM Save: $1.3 – 2.2MM Realized Savings • Telecom • Truckload • General Industrial Supplies • Electrical Supplies • Safety Supplies • Savings count 12 months after implementation • For most categories (particularly spend at facilities), there will be a ramp-up to adoption and compliance for a newly implemented supplier • Product substitution, testing, etc., may push implementation and adoption beyond the expected timeframe • Identified Savings x Compliance = Realized Savings Wave 2 Address: $38MM Save: $2.2 – 4.0MM • Creative Agency • Ocean Logistics • Document Output • Material Handling Equip • Hotels Wave 3 Address: $28MM Save: $1.5 – 2.8 • Commercial Print • Dies / Cutting • IT Hardware • Small Parcel • Air Travel

6. Keys to successful compliance reporting • Accurate categorizations to ensure rogue vendors don’t slip through the cracks • Cost Center, end user information integrated into data cubes • Category savings % information to calculate lost opportunity • Identify acceptable off-contract vendors • Senior level support and visibility to put “teeth” into reporting Consistent and deliberate reporting of non-compliant spend can result in improved savings realization

7. Spend analysis can enhance Category Management and Supplier Performance Management • When used in conjunction with a comprehensive supplier performance management program, spend analysis can yield the following benefits: • Provide supplier with visibility into line item data for additional continuous improvement opportunities (ex. mfg discounts) • Provide category manager and supplier with visibility into additional spend (ex. items to target at the plant level) • Depending on availability of data, reports can be generate to share KPI’s such as lead times, order accuracy, invoice exceptions • Reduce the number of instances of a supplier name in AP system to streamline invoicing process for suppliers and customer • Identify areas of concerns through analysis of YOY category spending trends

8. Industry Best In Class Customer Average Corporate Category  Sample output of a comprehensive spend benchmark Lower Spend/Rev  Average  Higher Spend/Rev  Best Packaging Materials • Notes • BIC = Top four ranked companies • Spend/Revenue used as indicator of rank • Customer is better than average for 60% of categories • Customer is below average on mostly Corporate driven categories • There remains opportunity in deltas from BIC Chemicals, Gases and Fuels MRO Supplies  Administrative Products Eng, Research & Tech Services  Information Technology Products  Marketing Services Building and Facility Services Vehicles, Vehicle Acc. and Comp. Industrial Machinery and Equipment  Information Technology Services  Financial and Insurance Services Building Materials  Administrative Services Industrial Services Partnering with a 3rd party provider allows for insight into best in class performers otherwise unavailable through internal sources

9. Spend Analysis market overview Three primary paths exist for implementation of a Spend Analysis Solution