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Buschwhacked: Jason Defends Spend Analysis Against ERP Falsities

July 24th, 2006 · by Tim Minahan · 3 Comments · best practices, spend analysis

Spend Matters crusader Jason Busch (and the proud father of a new baby boy) has donned his cape again; this time to defend the value of spending analysis against false statements from the world’s second-largest ERP vendor.

Jason exposed a new white paper from the vendor (mis)advises enterprises to avoid spending analysis projects and programs because they “would require a multimillion dollar investment in hardware, software licenses, custom development, and professional services from multiple, domain-specific service providers for data homogenization.” That single statement rings of more irony than an Alanis Morrisette song. And I commend Jason for attacking it.

I won’t decipher the irony of an ERP vendor warning enterprises from investing millions of dollars in software that will homogenize their data and processes. In his post, Dr. Busch offers a thorough analysis of this classic case of what those in the physciatric world would call projectionism. Jason’s specific diagnosis, “In my view, only a vendor with fundamental flaws in its spend analytics capability would create such a whitepaper to misled the market and cover-up their shortcomings.”

In fact, I took this ERP vendor to task on the spending analysis issue last year while participating on a panel at its user conference. (Actually, I was baited by then head of this ERP provider’s procurement solutions group, Dave Stephens, blog master for Procurement Central and father of a new-age open source procurement platform. Dave is master of initiating a heated dialogue.)

The ERP vendor’s latest “black paper” — as Jason aptly names it — validates a point in my recent blog stating that, as an analyst, I noted many software vendors — particularly ERP and BI vendors — pitching spending analysis merely as building a data cube or data warehouse from which you could run analyses and reports as spending analysis in an attempt to “confuse the marketplace (possibly intentionally).”

As evidenced in Aberdeen Group’s latest benchmark on spending analysis, building a data cube and reports is the least challenging aspect of the process. Instead, it is repeatable classification of spending information to a structured schema (e.g., UNSPSC, eClass, proprietary schema, etc.) and then enrichment of this data with related business information (e.g., parent-child relationships, financial risk scores, contracts, performance information) where the real value (and effort) lies. In fact, previous Aberdeen research found a direct correlation between the amount of data aggregated and the accuracy and detail of classification and the value returned — in the form of greater cost savings and improved compliance.

And the idea that all the data you need for effective spending analysis is contained within your ERP system is wrong-headed and dangerous. First, spend data is dispersed between disparate internal systems (including the multiple instances of ERP systems that are common among larger enterprises) and external systems (e.g., ACH, P-card, and systems of suppliers — such as contract manufacturers and 3PLs — managing spend on your company’s behalf). Second, as one procurement executive once told me, “My ERP system was built for high-level financial analysis. It doesn’t always contain the detailed attribute data I need for classification analysis of my spending and commodities.”

This latter point is buoyed by another enterprise I worked with that felt it’s spend visibility and intelligence problems would be solved by standardizing on a single ERP solution globally. To its credit, the company achieved global deployment. Unfortnately, it sooned learned that the ERP system didn’t provide the granular-level visibility sourcing managers required to truly understand its spending position. “We knew IT was a big spending area for us, but [the system] couldn’t provide us visibility into whether we were buying general-line PCs or SPARC stations,” one supply management executive told me. (Click here for more details on this company’s spending analysis journey.)

Considering these points, if you were to take the advice proferred in the ERP vendor’s latest white paper and did only a limited scope, high-level analysis of your company’s spend data, you would gain insufficient (and possibly erroneous) insight to develop fact-based sourcing and supply management decisions. A dangerous proposition, particularly in the current economy.

The ERP vendor’s white paper — and subsequent fallout — reinfores two inalienable truths: 1. You can’t believe everything you read — especially when it comes from a software vendor. (Okay, I hear the ironic laughter with that statement. True nonetheless.) 2. Don’t bait a sleep deprived new parent — particularly one that authors a market-leading blog.

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3 responses so far ↓

  • 1 Kevin Miller // Jul 25, 2006 at 8:26 pm

    I added the following comments to SpendMatters and thought they would be appropriate here as well.

    “I’ve generally refrained from joining any of the procurement blog debates, but I can’t pass on this one. As the former VP responsible for Oracle’s procurement applications from 1993-2002, I don’t think you are being harsh. In fact, your comments are right on.

    While the whitepaper may contain a few kernels of truth, I’m disappointed and surprised that Oracle is advocating the overall positions in the paper. It’s ironic that Oracle’s come to this position. In the late 90s, my team had actually created a true Procurement warehouse solution, including deep spend, contract and supplier performance analytics that would allow data to be brought in from non-Oracle systems. Unfortunately, the underlying warehouse technology had quality and performance problems and Oracle made the shift to the single global instance message. The applications warehouse effort was discarded for standard, canned Daily Business Intelligence reports off the single instance - good reports for a single instance, but in general, a major step backwards for cross organization procurement analysis.

    Instead of abandoning the global spend analysis problems, vendors would be best served by addressing the underlying technology & implementation cost issues so they can deliver functional solutions that actually address the problems procurement organizations face in the spend analysis area.

    Next generation procurement solutions with better search, on the fly category & data relationship (org hierarchies, supplier parent/child relationships, etc) refinement, and web 2.0 community features have a much better chance in capturing and refining the information necessary to perform procurement analytics.”

    Tim, as an additional note, Dave and I worked together for years at Oracle and I sincerely doubt that he supports the views in Oracle’s latest whitepaper.

  • 2 Tim Minahan // Jul 26, 2006 at 9:51 am

    Kevin, thank you for your sage commentary. Your experienced point of view is welcomed and valued.

    I vociferously agree with all your points — including the fact that former Oracle Procurement exec Dave Stephens would not ascribe to the advice put forth in the latest White Paper. Dave is a shrewd man. His baiting me on the spend analysis issue at the conference was intended to incite dialogue and drive support for improving capabilities in this area.

    I also agree with your thoughts on the increasingly important role content (e.g., supply market intelligence, risk information, benchmarks, etc.) will play in future supply management infrastructures.

    Since my days as an analyst, I have been predicting a move towards “content-in-context” in which this type of intelligence would be delivered directly into the application at the right point in the process — such as when conducting a market assessment — and in the form required for action — such as a category sourcing template or an on the fly comparison benchmark of your company’s performance versus industry peers.

    Enterprises are finally putting the integrated source-to-pay platforms in place so it is practical for these intelligence networks to build plug-ins that channel their content into these systems. Stay tuned…

  • 3 Supply Excellence » Top Supply Strategy #1: A Spend Intelligence Short Story // Oct 18, 2006 at 4:48 pm

    [...] Global Tech Co.’s IT leadership assured the supply management group that the spend visibility issue would be resolved when the company standardized on a common ERP system. After the fact, the supply team quickly realized that ERP systems are built for high-level financial analysis and lacked the detailed, line-item attribute data needed for meaningful spend analysis. For example, ERP standardization reaffirmed what the supply team already knew – Global Tech Co. spent a lot on hardware. But the ERP data didn’t help commodity managers determine how much was being spent on high-end SPARC stations versus laptops. Nor could it shed insight into whether these items were being bought for development engineers or office administrators. (Earlier this year, SpendMatters’ Jason Busch posted on the follies of the ERP-only approach to spend analysis.) [...]

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