Pandell Leadership Series

Leverage Your JV Data

How to Leverage Your Business Data for Managing Vendors

Leverage Your JV Data

Luis Slater and Steve Reichenbacher of Stonebrook Business Services

Duration: 30mins, Released Oct 03 2023

Video Summary

Do you have a clear line of sight on the impact that vendors have on your organization? Learn how to leverage critical information held in your financial system to better navigate through the vast, evolving array of supply risks and improve your overall vendor management.

Stonebrook Business Services principals - Luis Slater, Director of Operations and Engagement; and Steve Reichenbacher, Director of Process and Product Development - will demonstrate the value of merging your Pandell JV transactional data with other internal systems and linking it to external business intelligence. Then see how this data can be leveraged for securing vendor risks and focusing on managing the vendors that impact your business the most.

Stonebrook is a Canadian consulting company that provides supply chain and analytics solutions primarily for the energy and manufacturing industries, with experience working with both large and small businesses as well as the public and non-profit sectors. Stonebrook is based in Calgary, Alberta, Canada.

About The Pandell Leadership Series

The Pandell Leadership Series is a collection of free webinars featuring presentations by energy industry experts in a variety of specialized fields. Topics range from global business issues to recommended best practices in oil and gas; pipelines; mining; utilities; and the renewable energy industry (including wind, solar, hydrogen, geothermal, marine & hydrokinetic, nuclear and biomass power).

Please Note: Views and opinions expressed by the PLS presenter(s) do not necessarily represent the views of Pandell and its representatives.

Full Transcript

Eliza with Pandell Welcome everybody. Nice to see so many people joining us online today. My name is Eliza and on behalf of Pandell it's great to have you join us for this Pandell Leadership Webinar.

Today's topic is Leveraging JV Business Data to Improve Vendor Management and we're really, excited to have a couple of very special speakers with us today. We have Luis Slater and Steve Reichenbacher and I'll do a quick intro for both of them.

So, Steve is the Director of Process and Product Development at Stonebrook Business Services. Steve is the Co-founder of Stonebrook Business Services and he's passionate about leveraging systems and data for efficient processes and efficient business decision making. Steve has won innovation awards for his work and has had 12 years of experience delivering business solutions for clients in the Canadian energy sector.

Luis is the Director of Operations and Engagement at Stonebrook. And as Co-founder and the Principal Supply Chain Consultant at Stonebrook, he leverages his expertise in supply chain management to deliver tangible solutions for clients across various industries and regions. Luis's core competencies have led to successful delivery of numerous large-scale projects throughout his 18 years of experience.

So, we are absolutely delighted to have them both here with us today. I think there's going to be a really, great presentation available. And so, I'm going to welcome you both to the stage and you're welcome to unmute your mic and get going.

Luis Excellent, thank you very much Eliza. And our thanks to the Pandell team for inviting us here today to discuss their data and the benefits it can provide.

As we've all seen for ourselves lately the supply chain, we rely so heavily upon impact us tremendously. Our goal for today's session is to demonstrate how a deeper understanding of vendor risk coupled with the power of Pandell brings a much clearer line of sight to the right realization of corporate goals and objectives.

We intend to cast light on how harnessing this data, enriched with readily available information, can be trained and focused on your supply chain enabling far greater visibility and control. Furthermore, we'll show how you gain this competitive edge but when applying these tools to the management of your vendor base.

Our agenda for today will kick off with just how Pandell powers such decision-making abilities. We'll review why it's so critical to understand what or who exactly makes up your supply chains and look at the ever-present pressures that exist in the industry and more importantly how to relieve them.

So, who is Stonebrook? We’re a supply chain focused consulting firm providing our diverse clientele with state-of-the-art analytics enabling them to make data-driven decisions. Whether it's building an organization's supply chain from scratch or hands-on management of SCM [Supply Chain Management] processes, one thing remains consistent, in all of our engagements throughout the past seven years all companies we've had the good pleasure to work with have benefited greatly from focusing on their supply chains. I'd like to pass it now over to my colleague Steve Reichenbacher our Director of Process and Product Development. Over to you Steve.

Steve Thank you Louis. So, we're going to kick it off with a little bit about how to build upon the Pandell data and increase visibility on the vendor relationship from a systems perspective.

The first step is to understand where the existing data fits within the procurement operating model. In today's example we're going to build upon Pandell JV primarily and Pandell AP will be mentioned. We're going to do this to provide a foundation for a procure to pay process.

So, this software has all the accounting software functionality required to process vendor transactions. And from this alone, we get a good idea of how vendor spend impacts the business financially but we're missing vendor risk and competitive pricing. We need those perspectives and these typically fall outside of the scope of an accounting system.

So, the next step is to take a look at the entire source to pay process identify the blind spots then integrate those related systems with the Pandell transactional data. And of course, there are a lot of software solutions on the market today when it comes to source to pay but you don't necessarily need an expensive software platform to achieve what we're going to demonstrate today. With a little bit of process and standardization most companies can leverage what they already have which is Office 365.

In our example, we're going to use an industry typical compliance system, an external market data feed, and Office 365 to flesh out the remaining support systems.

Luis Excellent thanks Steve. So, here we have just another peaceful day in the oil field, correct? Well, I'm sure most would say there's no such thing. And truly with all its moving parts it's easy to see how a comprehensive understanding of a company's third-party relationships can be elusive.

Now factor in the fact that your moving parts, have their own moving parts, or in turn have their own moving parts. It's very easy to see why many struggle to understand its true depths. How do you know you're working with someone viable? How do you know that sole source vendor won't be out of business next week and you're left in the lurch?

On the other side of the coin, how do you know whether or not you're unwillingly contributing to child labor and your tier two and or tier three levels? Or that raw materials are coming from locations with human rights violations. Truly its size complexity and interconnected nature makes this challenge.

And then not knowing, can come back to haunt you. The bullwhip effect in essence is stating that any fluctuation positive or negative will undoubtedly cause issues down the supply chain.

For example, a last-minute edition of Wells to your drilling program means more revenue. Great problem to have but how will your owner operator be able to handle this with their one truck, short staff, increased maintenance costs? How long will you need to wait for equipment in order to execute on this new plan?

What feels like ripples to you is creating waves down the line. Waves that continue to grow in intensity on their way back to shore. And regardless of your size, as you can see from 2022's most prolific companies in terms of drilling activity, all they're seeing increased revenues but it's costing all more to do so and it's not just the producers. The pains and pressures felt at the top are being felt throughout labor, logistics, fuel, utilities, just to name a few, are all indices trending up. And again, it's not just costs we need to be wary of.

Now there are some vendor risks that are inherent to the industry which are well understood. If I cause damage to an environment, I could be shut down. If I have a track record of people getting hurt on my job sites because I lack certain safety mechanisms, I can be shut down. And the well-understood risks are therefore managed accordingly. You know in fact, entire departments such as QHSE [Quality, Health, Safety, and Environment] or entire industries such as compliance software, have been formed as a result and for the better I would argue, but what about the hidden risks?

The pressures these risks can cause on your business are intense. And I'm sure we'd all agree that understanding these risks before they fracture inside your operations is ideal. A good rule of thumb, the fewer colossal destructive objects I have floating around in my supply chain, the better.

So, how can we ease these pressures? Well let's take a page from our colleagues in the field. They have the equipment to mitigate risk. They have the fit for purpose tools. They have the standard operating procedures to work according to regulation. They have what they need to execute their objectives. So, you must ask yourself, does my supply chain?

Steve Okay, so Luis has pointed out that we obviously have some business needs that we want to shed some light on. We need that data model that's going to integrate that internal and external data perspective.

So, to do that we're going to need to build upon some key fields that exist in the transactional data. Let's start with the accounting minor. So, with the accounting miner we can use it to determine which department needs to be at the table regarding fleshing out a sourcing project, or going through event, or selection process. We can also use it to build out the spend categories or the vendor portfolios that we're going to use that we need to basically use this to group vendors in a way that's easiest for the business to manage. And then we're going to while we're building those end categories, we want to take some standard classifications into consideration, so that we can leverage it for external comparisons.

And one example of that is using price indexes for price trending. We want a match between the vendor category and subcategory to these price indices, so we can see where prices are trending high level for the category as a whole.

Another field that we want to build upon is that business associate field. We want this as a key field in order to connect transaction data to something like a contract management system, if that's in place. And we really want to focus on the legal and trade names when we're making this connection with the business associate field. The legal and trade names are important because we need it to connect to business directories, government registries, stock tickers, and any type of market intelligence subscription that might be available for us to use.

So, I want to talk a little bit more about the importance of building on that legal entity field. The business associate field isn't necessarily a legal entity. There are many ways that vendors structure their businesses, their bank accounts, and their payment processes. And it's important for the transaction system to remain flexible to meet the needs of the business.

So, an example of this is, let's say we've got a vendor it's got multiple different business lines that roll up under one legal entity or multiple locations that roll up under that one legal entity and they have separate bank accounts that you need to remit to between these different locations. So, you would want to be able to set up your business associate field so that you can remit properly to the vendor but as a result you might be faced with a vendor duplication of legal entity. And we want to maintain the visibility on all our spend for activities such as a contract review, performance review, or pricing review.

There may be the case also that you have a match between the business associate and that legal entity but you're spending with a wholly owned subsidiary of a single-parent company. So, again we want to track that relationship with the parent company because the greater we can consolidate or spend, the greater the chance to secure volume-based price discounts.

Okay, so we've got all this data connected and we've got all these data tables that are feeding into our data model. Now we're going to have multiple factors that are related to vendor risk and vendor impact. And typically, at this point decision makers might get flooded with a whole bunch of data points and expected to take it all into consideration in order to make their business decisions. Now we can help them out a little bit by adding up all of the factors for them.

So, in this example we're going to basically calculate vendor impact. So, we're going to take a look at the amount of spend we have with the vendor; the volume of invoices that we're cutting with the vendor; the amount of departments that the vendor touches in our business; and we're going to take a look at the commercial complexity behind the vendor relationship.

Now individually and together these don't really add up in a very clean way. Just a side note regarding commercial complexity, we're really talking about the vendor relationship with barriers to switching to a competitor. So, to calculate this we want to allocate a maximum weight to each of the contributing fields and then we want to allocate a portion of that maximum based off of the actual value of the field.

So, when you're dealing with a quantitative field you want to assign ranges, so that you can pocket those values. If it's a qualitative field, then you assign a one-to-one relationship between that value and a weighted score. The end result is an aggregate score that can inform the business user regarding the overall trend before they need to make that decision to drill down into those individual components.

Okay, time for some examples of how we apply this data model to data-driven decision making.

So, our first example we're going to build a vendor profile. We're going to need Pandell transactional data. We're going to need to understand how the vendors are categorized. We're going to need to know their credit rating. We're going to need to know where the price is trending for their category or subcategory. We're going to want to know what the status is of their contract and we're going to want to know how they're being managed today.

For example two, we're going to build an impact versus risk model also known as Kraljic Matrix. For this we're just going to need a subset of the fields that we've already outlined in example one.

Okay so, on to example one. This is being delivered to the business user as a Power BI dashboard. It's busy but we're going to try and cover it all in one shot for the purpose of this exercise so we're going to put it all into one visualization.

So, let's start with the parent-child business associate relationship that we were talking about before. In this example the vendor owns two other vendors that we also do business with and when you add it all up it's over twice the amount of spend compared to the business associate alone.

The next section down we have a little bit more information regarding who is our department stakeholder. How have we categorized the vendor and if we consider them to be a critical vendor to the business.

The next section down we've got some strategies that we can potentially lean on. We've got some detail regarding how we're managing the subcategory; the direction that we're taking regarding the vendor relationship; and some detail about whether there might be some price trend opportunities that we should take into consideration.

The next section down we've got a basic risk score, and this is weighted using the list of inputs below using the same methodology that we covered when we were talking about calculating vendor impact.

Okay so, the last section, last but not least, is sourcing projects. Here we've got an idea of the projects that the vendor has been selected to participate in. And by showing this in this visual we can show the progress that's been made in developing that vendor relationship based off of all of the factors that we've aligned above.

So, another way to show how all of this data comes together is to see in this visual how we can see how which data sets are the primary contributors to the analysis.

Okay so, moving towards example number two. Before we get into example number two, we need to cover a little bit more about what that Kraljic Matrix is. So, it's a tool that informs us when we're setting strategy for each category. Supplier risk refers to the risk of failure in service of the supply. It gauges the balance between supplier power and buyer power in the relationship. Supplier impact again measures that financial operational impact to the business.

So, each category is going to plot somewhere on this chart. Each box or quadrant tells us potential strategies that we might want to employ for managing that category. So, for routine think something like office supplies we're going to want to consolidate that spend. Leverage think something like a utility, it's low risk but high impact, so you're going to want to take the time to shop around for a good price. Bottleneck, this is high risk, low spend. You can infer that there likely need to be a greater effort in managing the risk with a small impact to the business. And strategic, also known as partnership or strategic partnership in some Kraljic models. This is your opportunity to engage the vendor and work together for the greater good.

Okay so, we're ready to jump into example two another Power BI dashboard. So, here we can see all the contributors to impact, and risks spelled out in the left margin. And each subcategory has bubbles on the scatter plot. There's increasing risk on one axis, increasing impact, and the bigger the bubble the larger the spend. So, for the end user we could also provide a detailed tool tip that they can see when hovering over each subcategory. Here we can show them or give them a quick overview of where the spend is trending for that subcategory; what is the current strategy if there is one in place for the subcategory; number of vendors that make up the portfolio; the number of departments impacted by this portfolio; and also display what are the top vendors within the subcategory.

Okay so, the natural next step is to drill down into the subcategory with a vendor level Kraljic Matrix. Here we can see where each vender’s plot versus each other and this helps us to decide which vendors we may want to develop or phase out. And again, we should provide a mini vendor profile tooltip. Here we can review the current relationship with each vendor as we build out that category plan. So, now let's jump into Power BI so Luis can demonstrate from the end user's perspective.

Luis Thank you Steve for the very detailed run through. So, as mentioned we'll take a look now at the working example of the tool to better understand its capabilities and functionalities. First off focusing in on the Category Kraljic Matrix, let's take a look at the energy equipment and energy services.

We see roughly 45 percent of our spend, up at the top left is made up in these two categories, so if you are able to move the needle with regards to pricing here very impactful. About 35 percent of your invoicing is being done in these in these categories so opportunity to consolidate or consolidate billing again impactful to the bottom line, process savings. And around 40 percent of your vendor base is located in this group of services or products. So, huge opportunity to consolidate the number. Finally, three of your five departments are utilizing vendors in these categories so it's a very good place to start.

Okay, focusing in on the energy equipment we notice the average price index in the bottom left here. It's telling us that we may have missed the boat when it comes to securing our interests. But you know with market dynamic shifting back the way of the supplier we must act sooner than later to ensure we're not paying a premium this time next month.

Specifically focusing on process equipment, we see here 25 percent of the spend is being spent in the subcategory, with three vendors being utilized across four departments. Is there opportunity here to consolidate for pricing considerations, or favorable warranties, or buyback of equipment, or those kinds of options, or maybe all? One thing's for sure given the amount of impact the number of departments utilizing any effort here needs to be well coordinated across everyone.

Okay scrolling down to OCTG [Oil Country Tubular Goods], which is roughly 60 percent of the category spend. We see a single vendor with the lion's share. After investigating, we determined the other rogue spend was due to tubular's inability to deliver due to short cycle scenarios. So, again due to the bullwhip effect we've had to rely on other vendors multiple times. Is this tubular fault? Perhaps if they utilize inventory trend analysis or had suitable safety stock things might have been a bit different but we can't jump to conclusions. Better yet we should harness our own internal data to direct the conversation. Eliminating the bullwhip by connecting with these key vendors to secure supply, and cut down drastically on handling or switching costs, just to name a few benefits.

Okay, jumping into the energy services. We see there's a multitude of services in this category. And if you look closely, we'll scroll over a few here, they're being done by multiple suppliers. No one supplier is offering more than one service. Hence this high vendor count at the top. So, knowing what we know about oil field services is there opportunity here to potentially shift to a multinational? Can we leverage total spend across numerous services with one family of vendors to see a better all-inclusive price point? To be determined.

Okay, let's transition now into our vendor Kraljic. Here we go. Okay so, these tools can be used to highlight required actions or potential issues before they occur. Shifting back to our vendor profile from earlier in the slide deck we can see each of the contributing vendors in relation to the other in a little more detail.

And we'll focus back on trucking. There we go. Now, take a look what happens when we select production, right. We see that production has a lion's share of the spend, right but what happens when we restore drilling? Our old friends from slide 17 have come back.

So, today we essentially have two departments using these connected companies in silos. Which begs the question, if we coordinate efforts is there an opportunity to have our better rates? Could we have right of refusal knowing that we have a larger collective impact? And are there other services seemingly this larger enterprise could conduct on our behalf? To be determined. But one thing for sure, if you take a look at the actual tooltip, specifically on the contract status, there is an immediate need to engage these family of vendors to ensure that their high-risk activities are adequately covered by contractual terms.

So, there we have it. We have the appropriate tools and the knowledge to apply them. We start to see the shift in the balance of power. First, we've identified our risks and applied them to our spend to prioritize efforts, as well as guide our sound securement strategies. Second, we have the ability to formulate agreements and secure critical interests, and safeguard against disruption. Finally, we have the means to track our progress and adjust according to the ever-changing pressures. Putting you more comfortably into the driver's seat of your supply chain, as you see from this recent client testimonial.

Back over to you Eliza.

Eliza with Pandell Thank you so much, that was really great. So, for those who use Excel for everything how can they connect their spreadsheets together to tell a single story?

Steve Okay, that's a good question. So, it's not uncommon for a lot of companies to be heavily reliant on Excel. Really the solution there in order to put something like this together is to maybe have some standard templates with Excel, designed with the purpose of integrating that data.

So, if there's opportunity or there's appetite for a little bit of change management regarding putting out a standard template, then you can set up a tab on that Excel sheet that will build out that sort of data formatted data table. And then if you house it in something like an Office 365, then it's accessible to be able to build a larger data model using any type of - you could use a tool like Power BI or Power Automate to aggregate that data.

So, it is very possible to build it all out with Excel doing everything in Excel. And Excel does have a lot of functionality that has grown into the tool over the years but you just have to have that design in mind, when up front so that you can make those connections. It can be done.

Eliza with Pandell Okay, any chance you have an example of how those tools have been used, the impact, and the cost in general?

Luis Yeah so, recently we were helping out in the construction industry during the recent epidemic. We didn't have to put together Krajlic per se because everything in that industry was on fire with regards to the price. Just understanding what was impactful to the business you know the highest cost, the hardest to get we had our starting point.

Applying, you know some different ways of doing things, we looked at kind of circumventing distributors to see whether or not going direct to you know the source of product made sense. Fortunately, it wasn't a big enough client to go direct to a mill per se. So, you know specific on lumber, what we did was utilize distributors of lumber. Kind of empowered them with the knowledge of what we needed. Which was something new for the business as well at the time because it was typically, I have a project, I buy for the project, I move on to the next project. So, very reactive.

So, just with a bit of proactivity, you know utilizing vendor spend analysis, we were able to empower that distributor with you know a laundry list of lumber that we needed for you know six months let's say. That secured the supply, which was in a very hard way, hard to get. Also, it ended up, you know eliminating a lot of handling costs, a lot of logistics costs, with a direct from mill by I think it was a total of about 45 percent we ended up saving. So, originally it was expected to be around 26 percent but again the lumber prices skyrocketed yet again. So yeah, I mean it was fantastic timing that really brought back some results and eliminated that bullwhip which we were all feeling during the epidemic.

Eliza with Pandell Wonderful, that's significant. That's nothing to scoff at, a savings of 45 percent. Especially during the epidemic when prices are just incredibly insane.

So, thank you for that example. It looks like that's it. Steve and Louis thank you so much for taking the time to speak with us today. I think that was really informative and it gives people a lot to think about. So, thank you to everybody in the audience and we hope you'll join us at the next Pandell Leadership Webinar but meanwhile have a wonderful afternoon everybody.

Steve Thank you.

Luis Thank you very much.