Buying Spend Analysis Systems: Taking a Test Drive

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

During the course of my work, I am always surprised at the large number of procurement organizations who still perform their analyses by dumping AP data into Excel or Access and developing their own reports. An analyst spends days or weeks each month maintaining this information. Even more troubling are those who have purchased an analysis tool, but still dump the transaction data into spreadsheets and spend hours or days creating their reports. The expensive analytics system they purchased is just serving as a repository for data. I suspect they didn’t take their analytic system for a serious test drive before buying. A test drive is a simple way to know exactly how the system is going to do what you need it to do.

To be useful to a procurement organization, a spend analysis system must be able to:

  1. Load the data.
  2. Transform the data. Make changes to hierarchies and create / modify rules to map the data.
  3. Index in other information to further enhance the data; for example, identifying preferred vendors, vendors with contracts.
  4. Create useful output — not just dump data – such as full reports, ready to send to users.
  5. Update the data with the next month / quarter / year of information.

And, it must be able to do all these things without requiring significant support, either from the vendor or from IT, after the initial training. Most Procurement organizations want to be as self supporting as possible.

To get the most out of your test drive, have the vendor show you, step by step, how their tools work with your data. Before the meeting, create a text file with a reasonable sized segment of data, perhaps a year, in a single table with:

  • Vendor name
  • Cost Center
  • GL Code
  • Date
  • Amount
  • Description
  • Other fields that are interesting to you, such as commodity or preferred vendor.

Select a reasonable size block of data so you understand the performance of the system under the load you expect to have. The goal is to have an interesting segment of data to work with. You want to understand how each step of the process works and delivers, not to build the full system.

After you are convinced that the vendor is capable of performing the essential tasks, you can focus on how the process will work on all your data and fully fleshing out your reports. Arrange a meeting with your vendor (in person or remotely) to have them show you how they do each step of their process with your data.

  1. Load the data into their tool. Is it easy to load new data into the system? World class procurement functions build dozens of different cubes on different segments of their spend data, so this needs to be easy.
  2. Look at the raw data. Can you see your top vendors, cost centers, GL codes?
  3. Have them group some vendors and then look at your data. Can you group vendors as you want them?
  4. Have them create a few nodes in a commodity structure and map some spending. Create some vendor rules, some GL rules and then some more complex rules. Modify a rule and see the results
  5. Have them create a report. Print it out. They modify the report and see it again. Start with a simple report and then do something more complicated (for example, with pivot tables).
  6. Perform a refresh. Add some more transactions to the data. See how all the existing vendor grouping and mapping are applied.

You should be able to do all these steps on your sample data in 2 to 4 hours. Once you’ve done this, you will understand how the system will work for you. If it takes hours to make simple changes in the demo, it will take hours in the final system. If six different people are involved in the demo, you’ll likely need this size team in production. If you can’t see your team doing the work shown in the demo, you’re going to need to rely on the vendor or some third party in the future. In the longer term, you may decide you want to leverage external labor to do the work, but to be able to be independent; you need to understand and be able to perform each part of the work yourself. If you can’t be independent, do you want to be dependent on this third party (vendor or IT group) for every single change you to make?

Spending a day or two test driving different spend analysis options is the easiest way to really know if the system the vendor is proposing will work for you.

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