We’ll hop right into today’s article which follows this article (link) chronologically as part of an extended series where we have gotten to know Mario Mosca (amico del sito) and taken a deep dive into procurement operations at Enel.
Deployment Scope and Plan
The team decided to start the project by focusing on three large business units (all generation businesses) in Italy and one in Spain (Endesa). The targeted spend was for the 2006-2009 period and comprised of 1,858,454 purchase orders totaling € 11,025,701,840.47. The deployment plan had four phases and took five months to complete, going live in Italy in July, 2009 and live in Spain in October, 2009.
Results
Roughly 94% of the spend was classified correctly in the first pass and the final number was 96%. Enel’s visibility now covers more than 9,000 different categories (it had fair visibility into 600 categories before the project began). Enel then worked to identify the best candidate categories for its Cost Reduction Project (Sidebar: their sophisticated and analytical approach is worthy of another article… hmmm, maybe this Fall).
One small (but great) example of Enel’s success: At one business unit in Italy, among the more than 5,000 categories that make up the entire commodity tree, 14 categories were given a top rating for savings potential and immediately identified as ‘quick win’ opportunities. In 2008 these 14 categories represented an annual spend volume of 119M €. Analysis of price variance across different suppliers highlighted an opportunity to save 3M € per year simply by moving spend to the contracted supplier that offered superior pricing. Right here sits the year 1 payback on the project (and then some)… and it required no sourcing efforts or contract changes. The power of spend visibility. The power of having spend visibility AND the analytical ability to identify these opportunities. It starts with visibility, and that train is a-coming.
Final Q&A with Mario
To close out the Spend Analysis discussion, we asked Mario a few questions:
CPO Rising: If you were starting the same project today, what is the number one thing your team would do differently ?
Mario Mosca: I would involve our top material managers from the very start of the project.
CPOR: Do you have any recommendations for procurement executives who are thinking about investing in a spend analysis solution?
MM: Focus on selecting the right tool for your specific needs. Don’t confuse a classic reporting system [i.e. BI system] with a spend analysis tool, they are not the same.
CPOR: What is the top priority for your department in 2010?
MM: We want to continue to extend our procurement model across all groups within the company. Being able to provide spend visibility to these groups will certainly help us make traction. Thank you – this series has been really great. I hope it has been helpful!
On behalf of myself and our readers, I would like to once again thank Mario for his generous investment of time and energy in allowing us to dive very deeply into the procurement operations at one of the world’s largest utility companies. I hope that our readers found this entire series fascinating and educational and that Mario’s experiences, shared here, can help others better align key processes with systems, improve operations, and make a strong case for Spend Analysis.
Mille Grazie il mio amico e amico del sito!!!
