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Spend Analysis: Beyond ERP

December 17th, 2008 · by Tim Minahan · 4 Comments · LCCS and trade, enviro/social sustainability, sourcing, spend analysis, supply management

Spend analysis was the topic du juor at the Ariba Spend Management Day in Atlanta earlier this month. Faced with a sagging economy and highly volatile supply markets, presenters at the event pointed to improved visibility into spending as key to a number of strategies — from queuing up new sourcing opportunities to enforcing contract compliance to improving planning and forecasting.

Yet, while the benefits of improved spend visibility were compelling, presenters had two warnings for anyone embarking on a spend analysis program:

  1. ERP systems are not effective for spend analysis; and
  2. Spend classification does not go far enough.

“As we move up the curve for sourcing maturity, we need better tools to identify opportunities and develop informed strategies,” said Reno Rojales, Vice President of Procurement at CheckFree Corporation, which is now part of Fiserv. “ERP helps the accountants, not procurement. [ERP] data is not broken down by commodities or attributes that are useful for developing sourcing and compliance strategies.”

Considering that Fiserv is capturing spend data from more than 95 source systems — including multiple instances of SAP — it’s not surprising that Rojales is dubious of the ability of ERP systems to provide the right detail required for effective spend analysis. However, Rojales wasn’t alone in his sentiment. In fact, H&R Block’s Vice President of Strategic Sourcing Gerry Hudson was equally emphatic of the limits of ERP systems — and his company has standardized on a single PeopleSoft instance globally for both Accounts Payable and Purchasing.

Says Hudson, “Even with our data captured in a [single] source system, we didn’t have real insight into our spending. We knew what our top three spend categories were [rent, marketing, and professional services], but we lacked the detail to understand the attributes of our spending with whom we were spending it.”

Such factors led H&R Block to leverage a specialized spend data classification and enrichment solution to augment its ERP investment. (I’ll let you guess which company provided the solution.) The company also pulls Corporate Card and P-Card data from its issuer to capture spend that happens outside its purchasing systems. The solution autoclassifies H&R Block’s spend data is classified to the UNSPSC standard. (However, Hudson’s teams extended the UNSPSC schema to get more detail into certain complex services spend categories, such as commercial printing.) According to Hudson, the solution gives his team visibility into 99.5% of his company’s total spending.

But, for Hudson, the real benefit of the specialized spend analysis solution comes from enriching H&R Block’s classified spend data with related business information, such as parent-child relationships. “Data enrichment gives us greater and more accurate understanding of our spending so we can actually make informed decisions,” Hudson told the audience. H&R Block uses this enhanced spend intelligence for a host of activities, including sourcing and savings opportunity assessments and planning, compliance analysis, and procurement and settlement decision-making.

Hudson says the fact-based spend detail they provide has elevated the strategic role of the procurement organization within H&R block and its franchisees. In fact, the company now relies on Hudson’s team to develop plan and forecasts. “We do the budgets for the businesses based on our spend analytics,” reported Hudson.

Now that is a true example of the power of effective spend analysis.

For more information on the impact of improved spend visibility and how to launch an effective spend analysis program, download Aberdeen Group’s latest study, Spend Analysis: Pulling Back the Cover on Savings, here. But act quickly as complimentary access to this report is only available until year end.

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4 responses so far ↓

  • 1 Eric Kimberling // Dec 18, 2008 at 9:03 am

    Good post. Your points underscore the need to have a clear plan to realize benefits from an ERP system. Otherwise, it’s a big investment with no return on investment. Sometimes all it takes is an incremental investment in the system to make the overall cost worth it.

  • 2 Geoff Wells // Dec 18, 2008 at 11:15 am

    Very good note, now to add - from my experience - as Global Program Director for a FTSI 100 company.

    1) The combination of UNSPSC (to 8 digits) and D&B numbering (Dunn & Bradstreet) via ERP i.e. SAP and MySAP-SRM gives quality - detailed spend and vendor data.

    2) That can be used immediately and further analysed for the development of specific commodity strategies.

    3) This was one of many ingredients that assisted one global company saving ‘audited’ US$405 million over 4 years.

  • 3 Jeff Warmington // Dec 19, 2008 at 7:53 pm

    I know too well the limitations of ERP when it comes to spend analysis and reporting. I stumbled upon a company in the UK that has created a pretty slick analysis tool (it also includes a contract repository that links to suppliers and transactions) that is able to break down spend by up to 4 levels of commodity mapping, and pull from any number of discrete data sources, including Pcard. I would be happy to share additional information with any who would want it. Please contact me at my email “warmingtonjeff@aol.com” for more information.

  • 4 Spend Analysis // Feb 19, 2009 at 7:04 am

    Great Discussion! The best thing i like is in future ERP won’t be strongly connected with spend analysis. As it has own different dimensions.

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