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Agile Spend Analytics for SMEs – Thomas Heller-Njor from CostBits
Episode 44 • 6th July 2022 • The Procurement Software Podcast • James Meads
00:00:00 00:29:47

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This week we're diving back into the topic of spend analytics and spend analysis, with a focus on smaller and medium sized businesses. We'll look at the challenges they face, and how smaller businesses can afford a spend analytics solution that works for their unique needs. We're joined this week by Thomas Siersbæk Heller-Njor, from CostBits – a procurement professional who's entered the procurement tech space, with a unique spend analysis solution for the mid market.

Tailoring Spend Analytics to the Mid Market 

First up, I ask Thomas to introduce himself and his background. Thomas started working in IT, then moved to working in procurement for the shipping line Maersk, where one of his projects was in spend management. He found himself living in Cape Town, doing an assessment for the 42 sub-Saharan countries, and realised he had no tool for the job at hand: Gathering PO data, contract data, spend data, etc. So he built a very crude version of his software then, and realised it was a tool that others could benefit from. He's excited to get to work in this space, and passionate about wanting to make data more accessible, available, and actionable. I pick up on the word 'actionable' as a key differentiator between CostBits and its competition. What does this mean, and  makes CostBits stand out? There's a range of different factors here. From a user perspective, the main benefit of CostBits (as well as a simple UI), is that most people stop with analytics. Maybe people working in strategy look into analytics once in a while, but his experience is that a good contract doesn't always equal real savings. So how can he create a spend management platform that gives more? Data. All the data that CostBits get every minute, or even every second, can be mined. Let's say you agree on a price of a hundred, then you get billed for a hundred and twenty, CostBits can use data to see that and ask “is this a good idea?”. It generates actions and guidance for normal people who can't see through millions of lines of complex data. It notices things: “There's a contract for this category and you're not using it – is that okay?”. CostBits aims to bridge strategy and day-to-day operations with understandable suggested actions.

Building on invoices, not orders

This kind of contract / price discrepancy happens more often than we'd like to admit. One of my frustrations with pulling spend analytics from ERP is that procurement gets access to all the different reports around orders placed, but that's not spend – spend is what you actually pay on invoices. That's why CostBits is built entirely on invoices, and if they can get purchase orders, contracts, and catalogue information, that gets added on top. When working with smaller mid-market customers, invoices are where the real useful information lies. Smaller companies don't have a wealth of resources for data management. They may have maybe one person who does business intelligence, and they don't necessarily know the data. So CostBits simplifies this, by focusing on actions to create real impact. Data and resourcing are critical here, and that I'd like to come back to that point. But before that, let's get back to basics. How much revenue or spend would a company need to have before they'd see the benefits of what CostBits? The more spend you have, the more you can get out of it from a pure money perspective. Anything more than 5-10 million euros in spend is going to be more than enough. But he still wants to address folks in the mid-market, so one of the key indicators on whether they'll be able to get anything out of the software is whether or not they have distributed procurement: Not strategic, tactical procurement, but more purchasing and operational.

Actions-focused spend analysis

As an example, let's say you have a plant and a HQ. You're buying, but you don't understand the contracts – they're probably in binders behind somebody's desk. If you're in this position where you have more than one location, or even people within the same location buying from vendors, you're going to have a structural issue with follow-up. CostBits can give that structure, so yes – money is an issue, but there are benefits beyond that in terms of structure. This leads me to ask Thomas to walk us through what he thinks the key differences and problems are, between large and small businesses. Is it misalignment in terms of objectives, is it capability? What are the biggest issues here? If you're a large multinational company, the issue is that you have a ton of different systems. Maybe growth through acquisition has left things really messy. But you have the budget, training and staff to make sense of it all. However, in the mid-market you have simpler data, and fewer systems. Structure is simpler, cleaning is simpler, here the brick wall is in terms of capabilities – these companies don't have a procurement department. Your procurement team might even take on that role as a full time job. Small companies simply can't afford the training needed here.

Selling CostBits to medium-sized companies

Thomas thinks that procurement departments aren't given the benefit of the doubt, and often aren't invested in enough. It's the old adage, many companies understand what they sell, but very few truly understand what they buy. And if that's the case - if smaller companies don't have a dedicated procurement department - will they 'get' what he's selling to them. In this case, what would Thomas's sales strategy be? Would he sell directly to a CFO or managing director? Yes – this is pretty spot on. He would always engage finance in this instance. They have the budget, so he has to get them on board. In larger medium-sized companies, there may be people more dedicated to procurement so in these cases he can get a phone number and have a conversation. For smaller companies with no real procurement on their org chart, he goes straight to finance. Because these are the people who know that the cost of goods is super important. They know this, but they just don't know what to do about it. These guys know they need to do something, especially with the chaotic times we're now living in. But they're staring at the data with no real direction. And that's where CostBits comes in. How would Thomas get around the capabilities gap here? If finance has the data, but they're struggling to implement changes based on that, what does he do there? Does he offer consulting?

Implementing spend analytics to close the capabilities gap

CostBits always helps with implementation, but doesn't sell actual consultancy. His perspective is that he'd rather be the hub in the ecosystem. If you need a consultant to help you with the change, he could do that. But Thomas would rather focus on bringing more companies and clients in, helping them with procurement, and  bridging internal and external gaps. He hooks up with external parties – and doesn't make a dime on it. One of his first clients bought the software, then three weeks later bought catalogue software from someone Thomas knew in the market. When you're a smaller company, you can get the software from Costbits, and they will see the gaps and point you to solutions, but Thomas doesn't want to solve those problems for anyone, through consulting. I add that selling consulting isn't half as scalable as selling software! The focus is on building something that makes a difference to the entire ecosystem, rather than going deep on consulting for a small handful of companies. My next question is about the lower end of the market. If Thomas is selling CostBits to companies who don't have large dedicated procurement teams, they're going to be predominantly involved in operational, tactical activities – especially given the geopolitical challenges at the moment. So, it's one thing being able to access results from tools quickly in terms of analysis, but what does he do in terms of delivering on the platform's insights?

Bridging the gap between analytics and the day-to-day

First, the tool's landing page tells you per category, or per lever, what you can do - be that reducing supplier base, renegotiation, contract compliance...the usual stuff. The landing page will tell you which categories and levers have the biggest potential upside for cost reduction. People don't have the time to plough through data and make their own analysis. It's hard enough to spot problems, let alone the levers that will affect the most change. CostBits give them a list of actions with a click of a button. Another thing Thomas aims to do here is bridge analytics and the day-to-day. He's working on adding more feeds for day-to-day transactions. For example, when an invoice comes in that should've been paid a different way, or didn't follow the contract, that will come up for the actual employee responsible. So then you can say to that employee, specifically, “what happened here? Is this okay?”. Analytics is great, but the key focus here is connecting operations to analytics, for real value, not just a pretty picture. Is this similar to how guided buying works, where users are walked through their options in simple terms? Yes, this is exactly it, taking the thinking from guided buying, and applying that on a feed level. The dream, which may take a few years yet, is that a normal procurement purchasing operations employee can come in at the start of their day and say “this is my feed of stuff to do for the day”.

Changing behaviours and supporting positive change

He wants to build a tool that changes behaviour and supports that in a positive way. He doesn't want to see the negative way, where an invoice comes in and we have to say: “You didn't use the contract, that's very bad”. Instead, Thomas wants to create a scenario where we spot the purchase order and say: “You made a purchase order from supplier number one in this category, when we have a contract for supplier number two – are you sure this is the best move?”. It's too late, if what you're looking at is an invoice. So that's his thinking – he wants to guide people. How often would users need to take a CSV dump of the data to make sure it's accurate? If it's coming from finance, then presumably it needs to be uploaded into CostBits intelligently to be of any use? Thomas says that if he wants to get lots of people on board with his software, he needs to keep implementation fast. So CostBits feeds directly from the customer's ERP or finances. Then they have the data models, and understand how that looks per system. So this makes implementation really fast – CostBits onboarded its first client in two days, as opposed to six months. I ask about licensing models. Does CostBits use a per-user licence model, or a per-organisation licence model? Thomas says that while they're still learning here,  right now it's a per-user licence model. Maybe this will change over time, but this way made sense to begin with. However, what CostBits is not doing, ever, is a per-consumption licence. The whole point of CostBits is to get lots of people looking at all the data, and consumption-based licences limit usage. You need people to go in and use the software a lot, that's the whole point.

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