Procurement, The 3rd Generation: Spend Management on every desktop February 18, 2008
Posted by Jari Tavi in : Differentiation, Procurement , trackback
Spend Management has become an area where lots of “mystics” and “brotherhood in black robes” have created an expectation level that Spend Analytics, which is mandatory for professional spend management, is complex, time (read: money) consuming and sensitive to changes in systems configurations and IT.
Well, basically most of that is true as the traditional approach has been that dedicated spend analytics solutions require integration with at least 5-9 different operational systems (e.g. P.O. systems, GL, A/P, Vendor Master, ERP Financials etc.). Since many enterprises, at least those who have international operations and use acquisitions as a growth strategy, have multiple instances of these systems that need to be integrated with spend analytics. Thusthere are multiples 2 or more of these systems in each organization. So the answer is yes, the cost and complexity is there. But the question is: Should it be like this forever? In my opinion – NO!
The traditional way of establishing a Spend Analytics and Management Practice has focused on either a consultative approach or dedicated Spend Analysis product or solution approach.
The highly consultative approach is where a “brotherhood” brings in the most trusted monks to take the snapshot of the existing situation, use their magic to create categorized spend, and then finally offer up the analysis 12-24 months after the snapshot. Does this sound like a Real Time or Agile Enterprise?
In the traditional Spend Analysis application approach, a vendor brings in a “solution,” that needs to be integrated with at least 5-9 (often even more) other systems. Suddenly, the integration project alone may take months and requires the monks of another brotherhood to do their magic. The worst case scenario is when the integration interfaces make the solution very rigid, and change in any of those 5-9 other systems (e.g. version update) breaks the fragile and sensitive integration that has been created for the Spend Analysis. This situation is actually somewhat similar to other case I defined in my other blog entry: “Governance, Risk, and Compliance: GRC Dashboards or Not?”, which you can find from here.
In addition to risks mentioned above, the traditional approach leads easily to a situation where process information is disconnected from Spend Analytics, which may lead to situation where you think that you have visibility, but lack the process details (e.g. exceptions, contract terms deployment etc). It may also lead you to wrong tracks in analytics side and thus lead to wrong conclusions because of missing context. This is a key point because context is everything when you need to derivereliable results from analytics. Without context, at the minimum, the priorities of your activities will be partly incorrect, and in many cases you may not even be able to identify the right actions.
In my opinion, it is a wrong approach to try to create a Spend Analysis solution for small group of professionals. Rather, enterprises should take more holistic approach and identify needs of different end users and target groups. For example, every budget holder has almost daily Spend Analysis needs, and instead of calling in “a brotherhood in black robes” to do the analytics, one should be able to do ad-hoc analytics faster than it takes to place a call to financial department, BI professionals or procurement departments spend analytic people, This does not remove the need for these other groups, but the processes of the operation should be more flexible to begin with. The focus should begin with Role Based Spend Analysis to address the needs of key audiences as follows, e.g.:
- CEO - Compliance with goals – Real Time and Ad-Hoc view
- CPO - Strategic Alignment, Visibility and Innovation
- Controllers - Opportunity Analysis, Compliance and Benchmarking
- Auditors - Compliance and Exceptions Analytics
- Business Unit Leaders - Best Performance for Budget, Planning
- Cost Center Holders - Real Time View to Spend
- Category Managers - Vendor Benchmarking, Value Based Purchasing
- Procurement Professionals - Value Based Purchasing, Visibility and Innovation
- And other key users
In addition to different people having lots of different (daily) needs, Spend Analytics should be part of a bigger picture and you should be able to drill down into the details with all process related information at your fingertips! This has led me to believe, that the best method is to:
- Take a bold approach to make Spend Analysis available on every desktop
- Fix the key (invoice and purchasing) processes, and design them for continuous change
- Make processes business rules driven instead of trusting fixed processes or traditional workflow
- Make sure that the process tools are supporting the SOA integration model
- Make sure that the required data validation, cleansing and enrichment is a built-in part of the process solution (not a separate “project” but part of the process tool)
- Establish Process Master Data Management (P-MDM)
- Select Spend Analysis tools that serve different needs in different roles
- Roll-out on every desktop
Personally I believe that instead of a highly consultative or dedicated application project approach, next generation of Spend Analytics must take a strong embedded approach, where a business rules-based process engine and P-MDM will simplify the Spend Analytics so much that it can truly be brought to every desktop. In my opinion, Spend Analytics is only a small, but important, part of overall holistic process approach and it should be embedded in the “standard way of working” with role-based tools.
There is also couple of additional positive side effects in this approach:
- Reduces the need for complex data cleansing, validation and enrichment tools
- Integration project gets highly simplified and less fragile
- P-MDM acts as a source for rapid ERP Master Data Management (MDM) implementations
I believe IT and CIOs will understand the value of these technical advantages…
Spend Management for Everybody – It’s Reality!