Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence In Real-Time (Zycus White Paper) To learn more about Zycus, e-mail information@zycus.com or visit www.zycus.com

1. Ottawa, Canada
2009
Achieving
Proactive Spend
Management
Capabilities
Through Adaptive
Intelligence In
Real-Time
White Paper
A Knowledge Leadership
Publication
By Procurement Insights

2. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
Table of Contents
ADAPTIVE INTELLIGENCE FOR A DYNAMIC WORLD . . ..............................................2
THE SOURCE OF INFORMATION DETERMINES ITS EFFECTIVENESS ……………3
CAMCORDERS VERSUS CANVASSES ...................................................................................4
CAN’T SEE THE FORREST(ER) FOR THE TREES ..............................................................5
A POINT OF CONTEXT ..............................................................................................................6
ON A CLEAR DAY YOU CAN SEE FOREVER ......................................................................7
CALCULATING THE IMPACT ………………………………………….. …………………. 8
ABOUT ZYCUS INC. ……………………………………………………………......…………11
Appendices
APPENDIX A ...............................................................................................................................13
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3. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
Adaptive Intelligence for a Dynamic World
“Progressive business intelligence in key areas such as Spend Management
should not only tell you where you have been, but also where you are or
where you should be going on an adaptive basis . . . think of true business
intelligence in terms of a GPS system that can provide updates on current
road and weather conditions in real-time. With this level of adaptive
intelligence we are no longer confined to a static understanding of historic
events, but are instead able to respond to the dynamic nature of an
increasingly globalized supply chain.”
From the critically acclaimed “Business Intelligence Is Intelligent Business”
Conference Series
Hansen Consulting and Seminars Inc.
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4. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
The Source of Information Determines It’s Effectiveness
Often times business intelligence in the area of Spend Management is culled
from the finance department’s ERP system. In these instances, it is often
incorrectly assumed that the existing application is more than sufficient in
terms of providing intelligent data to analyze spend.
Unfortunately, the means through which ERP data is accessed can be both
cumbersome and time consuming decreasing its overall effectiveness in a
dynamic supply practice that operates in the here and now.
Even with the advent of initiatives such as the industry collaboration on
what eventually became DUET, and the long on promise, short on results
Service Oriented Architectures (SOA) that heralded the “near real-time”
interaction between disparate systems, organizational supply practices are
handicapped by the provision of stale dated information that neither
empowers proactive decision-making, nor offers a reliable corrective course
of action.
In a paper that was written in 2005 (and subsequently expanded upon in a
2008 article), reference was made to the fact that software developers
needed to build camcorders versus improving canvasses. It was an
interesting paper on many levels as the concepts of agent-based modeling
versus equation-based modeling was not widely known in the general
market.
And while the “camcorder versus canvas” analogy may be somewhat dated,
its message has taken on even greater meaning with the emergence of
Artificial Intelligence and Web 2.0 (through to Web 4.0) as well as new
business models such as Software as a Service (SaaS) and even Free and
Open Source Software (FOSS).
Here is an excerpt from the 2005 paper that will illustrate the difference
between traditional ERP-centric spend analysis data, and the real-time
intelligence that is available through emerging technologies such as the ones
offered by Zycus.
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5. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
Camcorders versus Canvasses
Traditional ERP-based Spend Management solutions are built utilizing what
is referred to as an equation-based model. Equation-based models utilize
interactive assumptions, and therefore focus primarily on the somewhat
static interaction between independent entities.
Recall for a moment the example of the artist attempting to paint a portrait
of a subject who is in perpetual motion – similar to the dynamics
surrounding the globalized supply practice. While the artist may capture for
a brief moment a portion of the image on canvas, the reality is that the effort
will always be a work in progress, and therefore will never be able to
provide a complete or true picture.
As with the introduction of DUET’s ERP access points through Microsoft
Office products such as Excel, while you can improve the quality of the
paint the artist is using, add more advanced lighting, and even improve
brush stroke speed and techniques, the fact remains that the end result is
unlikely to change in any significant way. The only way to achieve the
desired result is to create an environment where the subject is stationary at
all times. To be specific, you have to restrict the subject from moving, from
doing what is natural. Like the artist’s subject, the globalized supply chain
is not static in nature.
Now picture if you will, the same “moving” subject being captured on film
with a camcorder. Regardless of the time of day or changing locations, the
subject is always captured in real-time. In essence, you are now able to
adapt and even interact with the subject’s environment. Unlike a painting,
when you finish one shot, you can quickly move onto the next, without
losing what you have already captured. When required, you have the ability
to playback the previous images within seconds. This refers to the adaptive
attributes of emerging Spend Management technologies.
In this example, you are not asking the subject to change the way they
operate in the real-world. Nor are you trying to artificially restrict their
natural movements. This of course is at the heart of agent-based modeling.
It is also the primary reason why Spend Management data obtained through
traditional equation-based ERP applications are static in nature and
somewhat incomplete in terms of the picture they provide.
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6. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
The fact remains that in today’s dynamic and complex world, it is
imperative for business intelligence technology to simultaneously engage all
parties to a transaction on a real-time basis, with an ability to provide
meaningful data that can meet an evolving set of demands as required.
To effectively develop this type of solution, software vendors must abandon
equation-based modeling which is driven by interactive assumptions within
the confines of a static environment, and replace it with agent-based
modeling which is driven by the ability to understand the unique operating
attributes of all trading partners on an adaptive, real-time basis. This leads
to a synchronization of independent events, which in turn creates an
environment of adaptive responsiveness that results in sustainable “best
value” decision-making.
Can’t See the Forrest(er) For the Trees
In a 2002 article Forrester Research’s Navi Radjou linked the lack of
flexibility to the inherent problems of enterprise-centric applications from
vendors such as Oracle. The specific problem is that batch-based supply
chain tools “can’t” support swift resolution of supply chain glitches. The
reason he gave is that “these apps need time to collect and synthesize data
from multiple sources – even those unaffected by the exception at hand.”
Radjou’s conclusions that unlike “static, linear supply networks, the
emergence of “adaptive supply networks” which will be powered by multi-
partner processes that are event driven, real-world aware and self-
regulating” coincides with Procurement Insights supply chain expert Jon
Hansen’s conclusions in Parts 6 and 7 of his critically acclaimed Dangerous
Supply Chain Myths series.
In the “Myths” postings, Hansen referred to the meta-enterprise applications
which can create “on-the-go” real-world metrics that can be reliably
incorporated into all purchasing decisions on a real-time basis to the benefit
of all stakeholders.
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7. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
However, the meta-enterprise application referenced in the Myths series of
articles goes beyond the “loosely coupled” supply networks discussed in
Radjou’s findings by envisioning solutions that adapt to and therefore
seamlessly captures and integrates intelligence such as Spend Management
into the multiple stakeholder supply chain.
A Point of Context
As referenced in the previous sections, traditional ERP vendors were
compelled to team-up or partner with organizations such as Microsoft to
address the inefficiencies and inconsistencies inherent in the gap between
desktop productivity and their business applications. This of course
included an attempt to satisfy the need for the timely availability of
information to drive proactively effective purchasing decisions.
Conversely, and providing what is simply one of the most powerful Spend
Management solutions available in the industry today, Zycus’ intuitive user
interface “evolved naturally as an original element of their suite’s evolution
to excellence strategy.” Compare this with being an adjunct by-product
borne out of an urgent necessity to address the limitations associated with
traditional ERP-centric Spend Management solutions and the difference
between the two approaches is compelling.
And while Zycus’ cutting-edge technology and domain expertise is
specifically geared towards increasing organizational user adoption while
simultaneously driving sustainable savings, the organization dogmatically
adheres to the edict that one must focus on “the results that Spend
Management technology can achieve rather than just the technology itself.”
In essence the Zycus value proposition is centered on the intuitive elements
of a technology that has clearly been formed around understanding and
adapting to the user experience in the real-world. By using this non-
technological approach to technology development, the complexity that
drives the Zycus suite’s results engine remains hidden behind the outward-
facing simplified user-interface.
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8. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
On A Clear Day You Can See Forever
While timely access to data is important, it is the quality of the information
that ultimately determines its effectiveness. So while ERP vendors attempt
to streamline or simplify multiple access points to Spend Management data,
it is Zycus’ insightful intelligence that has made it the world’s leading
provider of Spend Management solutions to global 1,000 companies. In
fact, Zycus boasts more than 150 customers in over 16 countries around the
world, which is a true testimony to the universal appeal of a solution that
has set the standard for intelligence gathering and utilization.
Zycus’ Spend Analysis tools are comprised of two complimentary modules;
Auto class and Analytics. In a recent interview with a senior executive from
the company, he described the unique attributes of each module.
Auto class as described by the executive, “is an Artificial Intelligence-based
auto-classification engine, while Analytics helps sourcing professionals go
into the depths of the classified data through its intuitive objective driven
process that provides unparalleled detailed visibility into an organization’s
spend.”
The Analytics module also has an “inbuilt Opportunity Finder that discovers
hidden savings, compliance leakages and procurement process
inefficiencies.” According to the Zycus executive, this capability helps
clients to “identify as well as both validate and scale an opportunity,”
resulting in a tangible savings outcome that can be used by the finance
department to compare actual performance to procurement related targets.
This of course is emblematic of the Zycus win-win outcome in that the
Spend Analysis tools represent the amalgam of the ideal solution in that
they satisfy the real-time intelligence requirements of the purchasing
department while seamlessly interfacing with the finance department’s
current platform and related objectives.
Or as the Zycus executive so eloquently stated, “we provide a win-win
solution that effectively merges the diverse interests of the emerging global
supply practice.
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9. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
Calculating the Impact
Far too often business intelligence in one area of an enterprise is not
necessarily recognized or at least given the same degree of importance or
priority when it comes to an organization’s overall operations.
Given the above, a strategic industry survey was conducted by Procurement
Insights which asked the following question: “What is the primary source of
business intelligence such as Spend Management within your current
organization?”
The responses were telling in that almost every answer looked at the issue
of Spend Management from a financial versus operational perspective. And
while the general consensus based on survey results clearly demonstrated
that Business Intelligence, particularly Spend Management, was still
considered to be a core function of a financial ERP system, there was an
emerging trend that indicated a potential shift in popular opinion.
Specifically, the growing recognition that the “Key Performance Indicators
(KPI) that are normally considered to be important to the purchasing
department is not normally available in a finance department ERP system.”
And in line with similar trending in related surveys, there was a general
belief that the role of the finance department “is to facilitate the creation of
tools needed to measure improvement,” and that finance should be “an
impartial scorekeeper, as it is up to operations to actually make things
work.”
This apparent shift in both defining and selecting Spend Management tools
to one that is centered more on stakeholder collaboration versus stakeholder
compliance with an existing platform signals an important breakthrough. In
essence, innovative solutions such as the Zycus suite are no longer being
viewed as a mere “bolt-on” application that is designed to bridge the gaps in
ERP system capabilities while still operating within what many consider to
be the limiting confines of an ineffective architecture.
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10. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
That said calculating the ROI relative to implementing a Spend
Management solution still has to be “calibrated” with the traditional
financial metrics that clearly define bottom line contributions in key areas
such as; a) Return on Invested Capital (ROIC), b) Cost of Capital, c)
Economic Value Add (EVA), d) Earnings Per Share (EPS), and e) P/E
Ratio.
While the above metrics have not traditionally been associated with the
implementation of a supply practice or purchasing solution, recent studies
which indicate that CFOs discount 73% of all savings claimed by the
purchasing department as being either invalid or irrelevant is a clear
indication that an important disconnect is impeding the transition to the
aforementioned collaborative approach to selecting and implementing a
Spend Management Solution.
Therefore, those vendors who are able to calculate savings that can be
funnelled or linked to a meaningful finance department outcome will have a
decided advantage in terms of demonstrating the value of their specific
solution and as a result receive the necessary buy-in from the ultimate
decision-makers. And referencing their win-win approach, this is where the
Zycus organization is particularly strong.
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11. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
Spend Management Solutions
Zycus Spend Management solutions are designed to ensure overall success of an organization's spend management
program by helping sourcing professionals ANALYZE their spend deeper and wider, PLAN their sourcing strategies, and
SOURCE easily and completely - a repeatable and sustainable cycle that ensures
 Greater alignment between spend management and corporate objectives - Zycus Spend Management
solutions and applications embed innovative processes, global best practices and planning abilities that takes
procurement and sourcing organizations closer to the corporate objectives.
Benefit : Greater buy-in on spend management initiatives.
 Enhanced user adoption - Zycus ensures higher user adoption by providing Spend Management solutions that
are super easy-to-use and require ZERO training. Zycus uses Web 2.0 technologies to design various features like
drag-and-drop, interactive scoring and ranking to make the software as easy to use akin to emailing.
Benefit : Greater user adoption ensures realization of savings opportunities.
 Enhanced and sustainable savings - Zycus helps companies identify, manage and track savings opportunities
thus minimizing the savings leakage and ensuring sustainable savings. With such abilities as to plan and negotiate,
deeper and wider spend visibility, and greater process control, organizations can ensure enhanced savings on a
repeatable basis.
Benefit : Greater control accelerates the realization of savings targets.
Analyze Spend & Identify Source and Implement Manage Savings &
Savings Opportunities Savings Contract Compliance
Spend Analysis Strategic Sourcing Contract Management
Solutions
 Zycus AutoClass  Zycus iSource  Zycus iContract
 Zycus iAnalyze
 Opportunity Identification  Contract Audit Services
Services
 Opportunity Identification Services  Category Sourcing  Contract Digitization & Migration
 Event Management
Differentiators
 Artificial Intelligence (AI) Based  Powerful & Easy Event Modeling  Contract Compliance
Classification Engine
 Exhaustive & Easy Analysis  Contract to Market Indices Linkages
 Opportunity tracker
 Powerful & Easy Collaboration  Guided & Free Text Search
About Zycus Inc.
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12. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
About Zycus
Zycus continues to deliver on its heritage of providing easy-to-use
integrated spend management solutions that are world renowned and trusted
for delivering an accelerated return on investment through superior user
adoption. Delivered as Sostware as a Service (SaaS), Zycus solutions are
built from the ground up combining innovative technology, and domain
expertise. Zycus provides global spend management solutions to more than
150 leading global customers that consider spend management software,
process and technology strategic to their competitive advantage. Zycus
Spend Management solutions automate and streamline the processes of
spend analysis, strategic sourcing and contract management. Zycus has
more than 300 employees across North America, Europe and Asia-Pacific.
To learn more about Zycus, e-mail information@zycus.com or visit
www.zycus.com
© Zycus Inc. 2009
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13. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
About the Author
Jon Hansen has studied and written extensively about e-Procurement and the
changing face of procurement around the globe. In addition to being a
highly acclaimed international speaker, his Procurement Insights Blog
reaches 300,000 syndicated subscribers each month worldwide, and is
currently available in several languages. He has written more than 200
articles and papers on subjects ranging from supply chain optimization and
the utilization of agent-based modeling in the software development process
to the evolution of sustainable purchasing practices and the impact of
traditional ERP-centric implementation methodologies on the high rate of
supply chain initiative failures. Funded by the Government of Canada’s
Scientific Research and Experimental Development (SR&ED) program
Jon’s work in both identifying the existence of Commodity Characteristics
as well as defining and recording their impact on “best value” purchasing
practices represented a seminal breakthrough that led to the establishment of
new theories surrounding the practical utilization of synchronized platforms
in achieving sustainable coordinated savings and overall process
efficiencies.
Jon is also the host of the highly acclaimed PI Window on Business Show
on Blog Talk Radio (BTR). As a BTR Network featured host, Jon has
welcomed leaders and bestselling authors from the world of business
discussing both timely and thought provoking topics. The PI Window on
Business Show airs every Tuesday and Thursday between 12:30 and 1:15
PM EDT.
Other white papers by Jon Hansen:
The Greening of Procurement: How Social Consciousness is Re-Shaping
Procurement Practices
Yes Virginia! A Profile in Excellence
To obtain copies of the above referenced white papers, or to inquire about
Jon’s availability to speak at your next conference or seminar contact
Jennifer Cameron at jenncameron@sympatico.ca, or 819-986-8953.
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14. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
Achieving Proactive
Spend Management
Capabilities Through
Adaptive Intelligence In
Real-Time
White Paper
Appendices
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15. Achieving Proactive Spend Management Capabilities Through Adaptive Intelligence in Real-Time
APPENDIX A
Page 2 (Duet Reference); Doing What Comes Naturally: Accessing Zycus
Spend Management Innovation through A Simplified and Practical User
Interface (Zycus Inc. Profile), Procurement Insights Profile of Zycus
(October 23, 2008)
Page 2 (camcorders versus canvasses Reference); Similarity Heuristics,
Iterative Methodologies and the Emergence of the Modern Supply Chain,
Procurement Insights article (April 8, 2008)
Page 2 (FOSS Reference); The FOSS(ilization) of the supply chain: The
risks of a strategy centered on Free and Open Source Software, Procurement
Insights Article (September 27, 2007)
Page 5 (Navi Radjou Reference); Double Marginalization and the
Decentralized Supply Chain Revisited, Procurement Insights article (July 16,
2008)
Pages 8, 9 (KPI Reference); Bridging the Communications Gap Between
Finance and Purchasing, Procurement Insights Article (September 27, 2007)
Page 9 (CFOs discount 73% Reference); Is There a Difference Between
Purchasing and Procurement? (A PI Q&A), Procurement Insights article
(January 31, 2008)
14