A recent article in CPO Agenda on a meeting of the minds that discussed the need for Procurement and Finance to establish a common framework put forward five suggestions on what an organization can do to make it happen. Four of the suggestions were really great, but the last one, which said that Procurement and Finance should “establish common organization and spend classification hierarchies in spend analytic and value-tracking pipeline tools” has me scratching my head.
If the article had suggested that Procurement and Finance should establish a common reference classification hierarchy that Procurement could map too, that would be different, but instead the article says that “the spend analytics programme and value-tracking pipeline should share a common organization and spend classification framework“. There are two problems with this logic.
First, there is the built-in fallacy that one spend cube is enough. It’s not. You need a spend cube for AP data, a spend cube for Invoice data, a spend cube for utilization data, etc. You need a spend cube, and an appropriate hierarchy, for everything you can think of analyzing. The real savings in spend analysis doesn’t come from analyzing canned reports — it comes from having a hunch, analyzing the data, and walking away with either a savings opportunity or a better informed hunch as to where the savings opportunity truly lies. A true spend analysis system lets the user build new cubes and hierarchies at will, because, otherwise, data analysis is avoided and savings go unrealized.
Secondly, the hierarchy most appropriate to Finance and the financial and tax reporting they need to do is often the least appropriate hierarchy for Procurement and the spend analysis it needs to do. As a result, a compromise isn’t going to help either party. It’s just going to create a common language that Finance can use to explain why it now takes them 50% longer to do reporting and that Procurement can use to explain why they can’t find any savings opportunities.
The answer is to define a common reference classification that each side can map too after they performed their analysis and created their reports. After all, ETL Tools are a dime a dozen these days, and most good spend analysis or BI tools come with one or more built in. As a result, such mappings can be easily automated to occur automatically on a fixed interval or after analysis is completed and each department can then view the hierarchy in a manner that makes sense to them. No need for unproductive compromises.
However, as mentioned at the start of the post, the other four suggestions are good. To develop a common language:
- Establish a savings framework (and definitions),
- define and implement a disciplined engagement model,
- produce timely, consistent, and accurate reporting, and
- capture opportunities created for profit improvement.
Check out a meeting of the minds for more details.