Managing Supplier Performance with Advanced Analytics

March 26 – 29, 2017 
Reno, NV
Managing Supplier Performance
with Advanced Analytics
Judy Smith
Assistant Director, Strategic Sourcing
Howard Hughes Medical Institute
Dan Traub
Founder and CEO
FinVantage Solutions LLC

Great Ideas. Great Expectations. Great Rewards.
At your next supplier meeting, are you:
Able to compare price movement to CPI?
Able to illustrate incentives for the supplier?
Able to discuss pricing variation data?
Able to bring specific data
to the table that improves
accountability and delivers
added value to the
relationship?

• HHMI and Strategic Supplier Management Background
• Project Vision and Objectives
• Approach and Solution Walkthrough
– Focus Area: Pricing Accuracy / CPI
– Focus Area: Market Share Analysis
• Reactions and Results as we go
• Future Opportunities
• Getting Started at your Institution
Today’s Session

• Overview
– A science philanthropy, HHMI’s mission is to advance biomedical research
and science education for the benefit of humanity
– Headquartered in Chevy Chase, MD
– 2,600 employees
– Self funded; $663M in medical research, $86M science education in 2016
– Labs are located on more than 60 Universities and hospital campuses
across the US
• 300 investigators, 180 are members of the National Academy of Sciences and 25 are
Nobel laureates
– Janelia Research Campus an HHMI based research facility in specializing in
neuroscience and imaging
• Strategic Supplier Program
– Started in 2012
– Built using internal procurement staff, located across the U.S.
– HHMI did not have formal contracts in place for any suppliers, no primary
supplier relationships, no supplier management
HHMI / Strategic Supplier Management Background

• Basic Supplier Relationship Management started at HHMI in 2013
• Most of the SRM efforts relied upon Excel-based analytics that
were created one supplier at a time by a Procurement Analyst (1
for the sourcing team)
• In order to expand the SRM program to our 53 catalog suppliers
and 20+ high spend equipment suppliers we needed a tool to
expand and enhance the effort
• HHMI partnered with FinVantage Solutions to create a supplier
scorecard using Tableau’s Software business intelligence tools to
enhance HHMI’s supplier analytics, now sourcing team members
can invoke and update the scorecard throughout the year
• The team went from sharing high level spend information and
catalog pricing consistency to a robust platform that evaluates
pricing changes, market shares, campus market shares at a lab
level, freight costs changes and more
Project Vision and Objectives

Approach and Solution Walkthrough

• HHMI partnered with performance analytics consulting firm
FinVantage Solutions to enhance and expand previous
analytics environment
• HHMI IT makes Tableau Software’s Server and Desktop tools
available to access PeopleSoft and Ariba data
• Augmented data with in-house Access tool for market shares,
expanded supplier attributes
• Solution designed to empower strategic sourcing team
members to produce, monitor, and deliver supplier-specific
scorecards throughout the year
• Additional capabilities: deliver a rapid analysis environment
where data can be easily “explored” and “visualized” to
pursue new insights
Expertise and Tools

Project Implementation
Activities 2013-16 2016 2017+
Deliver Excel-based prototype
Design and build current solution with
FinVantage Solutions
Publish first scorecard – 16 Suppliers
Deliver revisions based on feedback
Continue/expand use in quarterly reviews
• Key roles: HHMI management, analyst role, IT, FinVantage team
• Respect the importance and effort involved in collecting /
mapping supplier performance data
• Address the domain knowledge gap of internal IT (Tableau
owners) with focused outside consultants
• An important justification of this project: automating the
repetitive work of our in-house analyst

Solution – Spend Summary
Summary of total
spend with 4 plus
current FY trend
Shows ordering
method trend
Provides aggregate
spend by unit, the
ultimate customer
known by supplier

Solution – Ordering Details
Type of order
(AN=Ariba Network)
with forecast trend
and confidence
bands
Freight percentage
trend provided as
percent of spend
total, if available
Item-level details
provide important
insight to what is
important to our
users and
relationship

• Objective was to develop key metrics about pricing variation
(consistency over time) and to compare with CPI.
• Using reconciled invoice SKU-level pricing (not PR, PO, or
catalog data). Use low matching tolerance to catalog pricing.
• Measure pricing “spread” over time:
Coefficient of Variation =
Std. Deviation (unit prices for a SKU)
Average (unit prices for a SKU)
• Determine a Cost Index basket of goods
– Automatic, based on SKUs purchased in both periods
• Example: Analysis Period 1/1/2016 – 12/31/2016
Base Period 1/1/2015 – 12/31/2015
– Dynamic to reflect changes over time, with selectable date ranges
Solution – Pricing Accuracy

Calculate a supplier’s Cost
Index specific to your
procurement history:
• Laspeyres technique, similar to CPI
calculation
• Also known as “base year quantity
weight” technique.
where:
P=unit pricing
new/old=analysis vs base period
Q=quantity purchased
• Compute for goods basket of all
purchased SKUs both in the base period
and in the analysis period
• Key assumption is that quantities
purchased will remain static
Example:
Extend this calculation for all SKUs in the
supplier cost index basket
Base “old”
2015
Analysis
“new”
2016
Po Qo Pn Po × Qo Pn × Qo
SKU1 $100 5 $ 110 500 550
SKU2 $125 15 $ 135 1875 2025
Total: 2375 2575
Cost Index = (𝑃 𝑛 × 𝑄 𝑜)
(𝑃 𝑜 × 𝑄 𝑜)
= 2575
2375
× 100
= 108.42
Cost Index =
(𝑃 𝑛𝑒𝑤 ∙ 𝑄 𝑜𝑙𝑑)
(𝑃 𝑜𝑙𝑑 ∙ 𝑄 𝑜𝑙𝑑)

Automatically pulls
CPI All Urban
Consumer data
Popular Items
Analysis provides
depth for SKUs
most important at
HHMI
Challenge : UOM
variation

• Objective was to give suppliers an incentive by showing
opportunity to grow share of Institute category spend
• Data Development & Capture approach
• Focused on “Top 3” Markets provided by supplier to our
constituents specifically
• Example: Gloves (conceptual data shown)
– Overall spend on gloves category: $1.0M
Solution – Market Share
Supplier 12 Mo.
Spend (All)
Est. % of Spend
with Supplier on
Gloves
Est. Spend with
Supplier on
Gloves
Supplier’s Market
Share of Gloves
Category
Supplier A $ 7.0M 10% $ 700K 70% (1st)
Supplier B $ 400K 25% $ 100K 10% (3rd)
Supplier C $ 200K 100% $ 200K 20% (2nd)

Solution – Market Share
Ranking over time
– “Bump Chart”
Only current
supplier’s name is
shown
Configurations:
- Markets of
interest
- Show/hide
actual category
spend

Solution – Packaging
Title Page
Notes, Glossary,
and Contact
Information
Not shown:
- Configuration
settings
- Interactive
drilldown/
export

• Suppliers are surprised at the level of detail Sourcing has at its fingertips
– Many suppliers have indicated that “it’s better data than they have access to”
without going to a reporting group for a special report
• Pricing issues can be found at a PO level very swiftly – this results in
investigation by the supplier, in some instances refunds, and
communication with field sales reps to correct erroneous quoting
(greater than contract price)
• The data helps us to understand improvement opportunities for contract
compliance at a lab level
• Market share data shows suppliers opportunity to grow their market
share, this data provides HHMI leverage because of our ability to move
spend
• Comparisons to CPI have been very valuable in negotiations for price
changes that the supplier presents to HHMI
– Suppliers are not thrilled with using CPI, they would rather use a specific PPI,
but we continue to push for the CPI do to the simplicity; thus far it is a very
helpful gage
Reactions and Results

• We still see opportunity in developing more market data
at a commodity level
• HHMI has recently allowed end users to have Pcards
– Need compliance reports to monitor use of the card
• My staff is still learning the full capabilities of the
Scorecard and building an analytics mindset/culture
– Drill-down / interactive mode is very helpful
– Some spin-off analysis have resulted – and we need to get
those into Tableau
• Supplier-specific versions
– Would be helpful especially for Equipment suppliers
Future Opportunities

• First, determine the key metrics that matter most based on the
goals of the strategic supplier relationship
• Consider the types of data you have available
• Build an ally with executive sponsor for holding suppliers
accountable through performance measurement
• Approach: Excel is not a bad way to begin, but consider the effort
involved in:
– Repeating the measurements over time (e.g. QBRs)
– Scaling to your desired number of suppliers
Getting Started at your Institution
• FinVantage Solutions can assist:
– Building out your in-house analytics / Tableau environment, or
– Software-as-a-Service analytics solution (including pre-built
scorecards and an extensive library of KPIs)

Please provide your business card, and we will be happy to
forward the presentation and a sample scorecard to you.
Judy Smith smithj@hhmi.org
Dan Traub dan@finvantage.com
Thank You!

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